Company Quick10K Filing
Eaton
Price82.49 EPS4
Shares422 P/E20
MCap34,852 P/FCF11
Net Debt7,464 EBIT2,242
TEV42,316 TEV/EBIT19
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-11-03
10-Q 2020-06-30 Filed 2020-07-29
10-Q 2020-03-31 Filed 2020-04-30
10-K 2019-12-31 Filed 2020-02-26
10-Q 2019-09-30 Filed 2019-10-29
10-Q 2019-06-30 Filed 2019-07-30
10-Q 2019-03-31 Filed 2019-04-30
10-K 2018-12-31 Filed 2019-02-27
10-Q 2018-09-30 Filed 2018-10-30
10-Q 2018-06-30 Filed 2018-07-31
10-Q 2018-03-31 Filed 2018-05-01
10-K 2017-12-31 Filed 2018-02-28
10-Q 2017-09-30 Filed 2017-10-31
10-Q 2017-06-30 Filed 2017-08-01
10-Q 2017-03-31 Filed 2017-05-02
10-K 2016-12-31 Filed 2017-02-22
10-Q 2016-09-30 Filed 2016-11-01
10-Q 2016-06-30 Filed 2016-08-02
10-Q 2016-03-31 Filed 2016-04-29
10-K 2015-12-31 Filed 2016-02-24
10-Q 2015-09-30 Filed 2015-10-30
10-Q 2015-06-30 Filed 2015-07-29
10-Q 2015-03-31 Filed 2015-04-29
10-K 2014-12-31 Filed 2015-02-26
10-Q 2014-09-30 Filed 2014-10-31
10-Q 2014-06-30 Filed 2014-07-31
10-Q 2014-03-31 Filed 2014-05-05
10-K 2013-12-31 Filed 2014-02-26
10-Q 2013-09-30 Filed 2013-11-07
10-Q 2013-06-30 Filed 2013-08-02
10-Q 2013-03-31 Filed 2013-05-03
10-K 2012-12-31 Filed 2013-02-28
10-Q 2012-09-30 Filed 2012-11-14
8-K 2020-11-03
8-K 2020-07-29
8-K 2020-07-21
8-K 2020-04-30
8-K 2020-04-21
8-K 2020-02-20
8-K 2020-02-04
8-K 2020-01-21
8-K 2019-12-31
8-K 2019-10-29
8-K 2019-10-15
8-K 2019-07-30
8-K 2019-07-23
8-K 2019-04-30
8-K 2019-04-24
8-K 2019-02-26
8-K 2019-02-08
8-K 2019-01-31
8-K 2018-10-30
8-K 2018-08-23
8-K 2018-07-31
8-K 2018-05-01
8-K 2018-04-25
8-K 2018-02-27
8-K 2018-02-01

ETN 10Q Quarterly Report

Part I - Financial Information
Item 1.Financial Statements.
Note 1.Basis of Presentation
Note 2.Acquisitions and Divestitures of Businesses
Note 3. Revenue Recognition
Note 4. Credit Losses for Receivables
Note 5. Inventory
Note 6. Goodwill
Note 7. Retirement Benefits Plans
Note 8. Legal Contingencies
Note 9. Income Taxes
Note 10. Equity
Note 11. Fair Value Measurements
Note 12. Derivative Financial Instruments and Hedging Activities
Note 13. Restructuring Charges
Note 14. Business Segment Information
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3.Quantitative and Qualitative Disclosures About Market Risk.
Item 4.Controls and Procedures.
Part II - Other Information
Item 1.Legal Proceedings.
Item 1A.Risk Factors.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
Item 6.Exhibits.
EX-31.1 etn09302020ex311.htm
EX-31.2 etn09302020ex312.htm
EX-32.1 etn09302020ex321.htm
EX-32.2 etn09302020ex322.htm

Eaton Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
957657381902012201420172020
Assets, Equity
10.08.06.04.02.00.02012201420172020
Rev, G Profit, Net Income
1.91.20.6-0.1-0.7-1.42012201420172020
Ops, Inv, Fin

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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2020
Commission file number 000-54863
EATON CORPORATION plc
(Exact name of registrant as specified in its charter)
Ireland98-1059235
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification Number)
Eaton House, 30 Pembroke Road,Dublin 4,IrelandD04 Y0C2
(Address of principal executive offices)(Zip Code)
+3531637 2900
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Ordinary shares ($0.01 par value)ETNNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer," “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer Accelerated filer Non-accelerated filer
Smaller reporting company
 Emerging growth company
 (Do not check if a smaller reporting company)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange
Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
There were 398.6 million Ordinary Shares outstanding as of September 30, 2020.


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TABLE OF CONTENTS



Table of Contents
PART I — FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS.

EATON CORPORATION plc
CONSOLIDATED STATEMENTS OF INCOME
Three months ended
September 30
Nine months ended
September 30
(In millions except for per share data)2020201920202019
Net sales$4,526 $5,314 $13,171 $16,152 
Cost of products sold3,051 3,512 9,230 10,782 
Selling and administrative expense754 885 2,310 2,709 
Research and development expense132 147 411 454 
Interest expense - net41 47 113 157 
Gain on sale of business  221  
Other expense (income) - net23 5 135 (9)
Income before income taxes525 718 1,193 2,059 
Income tax expense78 116 254 299 
Net income447 602 939 1,760 
Less net income for noncontrolling interests(1)(1)(4)(1)
Net income attributable to Eaton ordinary shareholders$446 $601 $935 $1,759 
Net income per share attributable to Eaton ordinary shareholders  
Diluted$1.11 $1.44 $2.31 $4.16 
Basic1.11 1.44 2.32 4.18 
Weighted-average number of ordinary shares outstanding  
Diluted402.3 418.4 404.9 422.5 
Basic400.4 416.6 403.3 420.7 
Cash dividends declared per ordinary share$0.73 $0.71 $2.19 $2.13 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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EATON CORPORATION plc
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three months ended
September 30
Nine months ended
September 30
(In millions)2020201920202019
Net income$447 $602 $939 $1,760 
Less net income for noncontrolling interests(1)(1)(4)(1)
Net income attributable to Eaton ordinary shareholders446 601 935 1,759 
Other comprehensive income (loss), net of tax
Currency translation and related hedging instruments217 (252)(276)(235)
Pensions and other postretirement benefits16 35 128 88 
Cash flow hedges43 (42)(95)(75)
Other comprehensive income (loss) attributable to Eaton
ordinary shareholders
276 (259)(243)(222)
Total comprehensive income attributable to Eaton
ordinary shareholders
$722 $342 $692 $1,537 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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EATON CORPORATION plc
CONSOLIDATED BALANCE SHEETS
(In millions)September 30,
2020
December 31,
2019
Assets  
Current assets  
Cash$429 $370 
Short-term investments334 221 
Accounts receivable - net2,876 3,437 
Inventory2,096 2,805 
Assets held for sale2,398 1,377 
Prepaid expenses and other current assets538 518 
Total current assets8,671 8,728 
Property, plant and equipment
Land and buildings2,154 2,440 
Machinery and equipment5,262 6,266 
Gross property, plant and equipment7,416 8,706 
Accumulated depreciation(4,500)(5,210)
Net property, plant and equipment2,916 3,496 
Other noncurrent assets
Goodwill12,677 13,456 
Other intangible assets4,179 4,638 
Operating lease assets421 436 
Deferred income taxes376 372 
Other assets1,745 1,679 
Total assets$30,985 $32,805 
Liabilities and shareholders’ equity  
Current liabilities  
Short-term debt$2 $255 
Current portion of long-term debt1,251 248 
Accounts payable1,788 2,114 
Accrued compensation336 449 
Liabilities held for sale424 325 
Other current liabilities2,004 1,741 
Total current liabilities5,805 5,132 
Noncurrent liabilities  
Long-term debt6,948 7,819 
Pension liabilities1,343 1,462 
Other postretirement benefits liabilities319 328 
Operating lease liabilities323 331 
Deferred income taxes306 396 
Other noncurrent liabilities1,423 1,204 
Total noncurrent liabilities10,662 11,540 
Shareholders’ equity  
Ordinary shares (398.6 million outstanding in 2020 and 413.3 million in 2019)
4 4 
Capital in excess of par value12,266 12,200 
Retained earnings6,741 8,170 
Accumulated other comprehensive loss(4,533)(4,290)
Shares held in trust(2)(2)
Total Eaton shareholders’ equity14,476 16,082 
Noncontrolling interests42 51 
Total equity14,518 16,133 
Total liabilities and equity$30,985 $32,805 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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EATON CORPORATION plc
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended
September 30
(In millions)20202019
Operating activities  
Net income$939 $1,760 
Adjustments to reconcile to net cash provided by operating activities  
Depreciation and amortization603 668 
Deferred income taxes(7)(71)
Pension and other postretirement benefits expense159 115 
Contributions to pension plans(92)(89)
Contributions to other postretirement benefits plans(16)(11)
Gain on sale of business(91) 
Changes in working capital357 76 
Other - net149 66 
Net cash provided by operating activities2,001 2,514 
Investing activities  
Capital expenditures for property, plant and equipment(291)(441)
Proceeds from sale of business1,408  
Cash paid for acquisitions of businesses, net of cash acquired(200)(277)
Purchases of short-term investments - net(121)(132)
Proceeds (payments) for settlement of currency exchange contracts not designated as hedges - net(28)26 
Other - net(59)(8)
Net cash provided by (used in) investing activities709 (832)
Financing activities  
Proceeds from borrowings2 1,232 
Payments on borrowings(262)(757)
Cash dividends paid(884)(907)
Exercise of employee stock options31 40 
Repurchase of shares(1,464)(978)
Employee taxes paid from shares withheld (36)(45)
Other - net(6)(8)
Net cash used in financing activities(2,619)(1,423)
Effect of currency on cash(30)7 
Less: Increase in cash classified as held for sale(2) 
Increase in cash59 266 
Cash at the beginning of the period370 283 
Cash at the end of the period$429 $549 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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EATON CORPORATION plc
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Amounts are in millions unless indicated otherwise (per share data assume dilution).
Note 1.BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Eaton Corporation plc (Eaton or the Company) have been prepared in accordance with generally accepted accounting principles for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles (US GAAP) for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) have been made that are necessary for a fair presentation of the condensed consolidated financial statements for the interim periods.
This Form 10-Q should be read in conjunction with the consolidated financial statements and related notes included in Eaton’s 2019 Form 10-K. The interim period results are not necessarily indicative of the results to be expected for the full year. Management has evaluated subsequent events through the date this Form 10-Q was filed with the Securities and Exchange Commission.
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. See Note 14 for additional information related to the segments.
The Company recorded $7 and $26 of net gains for the three and nine months ended September 30, 2019, respectively, related primarily to the remeasurement of intercompany loans denominated in a foreign currency and the currency exchange derivative contracts used to hedge these exposures. In the first quarter of 2020, Eaton changed the presentation of these gains from Other expense (income) - net to Interest expense - net, and reclassified all prior periods.
In the first quarter of 2020, the Company also changed the presentation of the following items within the operating activities section of the Condensed Consolidated Statements of Cash Flows:
The non-cash gains and losses associated with currency exchange derivative contracts have been moved from Changes in working capital to Other - net. This puts the non-cash impact of these derivatives on the same line as the non-cash impact from the balance sheet currency exposures they are used to hedge.
The changes in uncertain tax positions have been moved from Other - net to Changes in working capital. This places the cash flow impact from all taxes on the same line.
These cash flow reclassifications of $70 for the nine months ended September 30, 2019, have been made to prior period amounts with no change to total operating cash flow. 
Adoption of New Accounting Standard
Eaton adopted Accounting Standard 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 to the condensed consolidated financial statements.

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Note 2.ACQUISITIONS AND DIVESTITURES OF BUSINESSES
Acquisition of controlling interest of Ulusoy Elektrik Imalat Taahhut ve Ticaret A.S.
On April 15, 2019, Eaton completed the acquisition of an 82.275% controlling interest in Ulusoy Elektrik Imalat Taahhut ve Ticaret A.S. (Ulusoy Elektrik), a leading manufacturer of electrical switchgear based in Ankara, Turkey, with a primary focus on medium-voltage solutions for industrial and utility customers. Its sales for the 12 months ended September 30, 2018 were $126. The purchase price for the shares was $214 on a cash and debt free basis. As required by the Turkish capital markets legislation, Eaton filed an application to execute a mandatory tender offer for the remaining shares shortly after the transaction closed. During the tender offer, Eaton purchased additional shares for $33 to increase its ownership interest to 93.7%. Ulusoy Elektrik is reported within the Electrical Global business segment.
Acquisition of Innovative Switchgear Solutions, Inc.
On July 19, 2019, Eaton acquired Innovative Switchgear Solutions, Inc. (ISG), a specialty manufacturer of medium-voltage electrical equipment serving the North American utility, commercial and industrial markets. Its 2018 sales were approximately $18. ISG is reported within the Electrical Americas business segment.
Acquisition of Souriau-Sunbank Connection Technologies
On December 20, 2019, Eaton acquired the Souriau-Sunbank Connection Technologies (Souriau-Sunbank) business of TransDigm Group Inc. for a cash purchase price of $907, net of cash received. Headquartered in Versailles, France, Souriau-Sunbank is a global leader in highly engineered electrical interconnect solutions for harsh environments in the aerospace, defense, industrial, energy, and transport markets. Its sales for the 12 months ended June 30, 2019 were $363. Souriau-Sunbank is reported within the Aerospace business segment.
The acquisition of Souriau-Sunbank has been accounted for using the acquisition method of accounting, which requires the assets acquired and liabilities assumed be recognized at their respective fair values on the acquisition date. There has not been a material change from the initial estimated fair values of the assets acquired and liabilities assumed on the acquisition date. These preliminary estimates will continue to be revised during the measurement period as third-party valuations are finalized, and these differences are not expected to have a material impact on Eaton's preliminary purchase price allocation.
Eaton’s 2020 condensed consolidated financial statements include Souriau-Sunbank’s results of operations. Souriau-Sunbank’s sales for the first nine months of 2020 were $215.
Sale of Automotive Fluid Conveyance business
On December 31, 2019, Eaton sold its Automotive Fluid Conveyance Business. The transaction resulted in a pre-tax loss of $66 which was recorded in Other expense (income) - net. This business was reported within the Vehicle business segment.
Acquisition of Power Distribution, Inc.
On February 25, 2020, Eaton acquired Power Distribution, Inc. a leading supplier of mission critical power distribution, static switching, and power monitoring equipment and services for data centers and industrial and commercial customers. The company is headquartered in Richmond, Virginia, and had 2019 sales of $125. Power Distribution, Inc. is reported within the Electrical Americas business segment.
Sale of Lighting business
On March 2, 2020, Eaton sold its Lighting business to Signify N.V. for a cash purchase price of $1.4 billion. 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.
Pending sale of Hydraulics business
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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Assets and liabilities held for sale
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 September 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.
The Company used the relative fair value method to allocate goodwill to both the Lighting and Hydraulics businesses. The fair values of the Lighting business and Hydraulics business were estimated based on a combination of the prices paid to Eaton by Signify N.V. and Danfoss A/S, respectively, and a discounted cash flow model. The model includes estimates of future cash flows, future growth rates, terminal value amounts, and the applicable weighted-average cost of capital used to discount those estimated cash flows. The weighted-average cost of capital is an estimate of the overall after-tax rate of return required by equity and debt market holders of a business enterprise. These analyses require the exercise of judgments, including judgments about appropriate discount rates, perpetual growth rates, revenue growth, and margin assumptions.
The assets and liabilities classified as held for sale for the Lighting business on the December 31, 2019 Consolidated Balance Sheet and the Hydraulics business on the September 30, 2020 Consolidated Balance Sheet are as follows:
September 30, 2020December 31, 2019
(Hydraulics business)(Lighting business)
Cash$2 $ 
Accounts receivable - net333 220 
Inventory358 161 
Prepaid expenses and other current assets10 10 
Net property, plant and equipment473 155 
Goodwill907 470 
Other intangible assets247 330 
Operating lease assets48 25 
Deferred income taxes5 — 
Other noncurrent assets15 6 
Assets held for sale - current$2,398 $1,377 
Accounts payable$198 $184 
Accrued compensation23 7 
Other current liabilities106 102 
Pension liabilities70 3 
Operating lease liabilities25 17 
Deferred income taxes2 (1)
Other noncurrent liabilities 13 
Liabilities held for sale - current$424 $325 
The Lighting business and Hydraulics business did not meet the criteria to be classified as discontinued operations as neither of these sales represent a strategic shift that will have a major effect on the Company's operations.
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Note 3.    REVENUE RECOGNITION
Sales are recognized when obligations under the terms of the contract are satisfied and control of promised goods or services have transferred to our customers. Sales are measured at the amount of consideration the Company expects to be paid in exchange for these products or services.
In the Electrical Americas segment, sales contracts are primarily for electrical components, industrial components, power distribution and assemblies, residential products, single and three phase power quality, wiring devices, circuit protection, utility power distribution, power reliability equipment, and services that are primarily produced and sold in North and South America. The majority of the sales in this segment contain performance obligations satisfied at a point in time either when we ship the product from our facility, or when it arrives at the customer’s facility. However, certain power distribution and power quality services are recognized over time.
In the Electrical Global segment, sales contracts are primarily for electrical components, industrial components, power distribution and assemblies, single phase and three phase power quality, and services that are primarily produced and sold outside of North and South America, as well as hazardous duty electrical equipment, emergency lighting, fire detection, intrinsically safe explosion-proof instrumentation, and structural support systems that are produced and sold globally. The majority of the sales contracts in this segment contain performance obligations satisfied at a point in time either when we ship the product from our facility, or when it arrives at the customer’s facility. However, certain power distribution and power quality services are recognized over time.
Many of the products and services in power distribution and power quality services meet the definition of continuous transfer of control to customers and are recognized over time. These products are engineered to a customer’s design specifications, have no alternative use to Eaton, and are controlled by the customer as evidenced by the customer’s contractual ownership of the work in process or our right to payment for work performed to date plus a reasonable margin. As control is transferring over time, sales are recognized based on the extent of progress towards completion of the obligation. Eaton generally uses an input method to determine the progress completed and sales are recorded proportionally as costs are incurred. Incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer.
In the Hydraulics segment, sales contracts are primarily for hydraulic components and systems for industrial and mobile equipment. These sales contracts are primarily based on a customer’s purchase order. In this segment, performance obligations are generally satisfied at a point in time when we ship the product from our facility.
In the Aerospace segment, sales contracts are primarily for aerospace fuel, hydraulics, and pneumatic systems for commercial and military use, as well as filtration systems for industrial applications. These sales contracts are primarily based on a customer’s purchase order, and frequently covered by terms and conditions included in a long-term agreement. In this segment, performance obligations are generally satisfied at a point in time either when we ship the product from our facility, or when it arrives at the customer’s facility. Our military contracts are primarily fixed-price contracts that are not subject to performance-based payments or progress payments from the customer.
In the Vehicle segment, sales contracts are primarily for drivetrains, powertrain systems and critical components that reduce emissions and improve fuel economy, stability, performance, and safety of cars, light trucks and commercial vehicles. These sales contracts are primarily based on a customer’s purchase order or a blanket purchase order subject to firm releases, frequently covered by terms and conditions included in a master supply agreement. In this segment, performance obligations are generally satisfied at a point in time either when we ship the product from our facility, or when it arrives at the customer’s facility.
In the eMobility segment, sales contracts are primarily for electronic and mechanical components and systems that improves the power management and performance of both on-road and off-road vehicles. These sales contracts are primarily based on a customer’s purchase order. In this segment, performance obligations are generally satisfied at a point in time either when we ship the product from our facility, or when it arrives at the customer’s facility.
In limited circumstances, primarily in the Electrical and Vehicle segments, Eaton sells separately-priced warranties that extend the warranty coverage beyond the standard coverage offered on specific products. Sales for these separately-priced warranties are recorded based on their stand-alone selling price and are recognized as revenue over the length of the warranty period.



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The Company’s six operating segments and the following tables disaggregate sales by lines of businesses, geographic destination, market channel or end market.
Three months ended September 30, 2020
Net salesProductsSystemsTotal
Electrical Americas$562 $1,137 $1,699 
Electrical Global671 525 1,196 
United StatesRest of World
Hydraulics$191 $248 439 
Original Equipment ManufacturersAftermarketIndustrial and Other
Aerospace$230 $158 $152 540 
Commercial Passenger and Light Duty
Vehicle$284 $289 573 
eMobility79 
Total$4,526 
Three months ended September 30, 2019
Net salesProductsSystemsTotal
Electrical Americas$921 $1,119 $2,040 
Electrical Global691 604 1,295 
United StatesRest of World
Hydraulics$244 $275 519 
Original Equipment ManufacturersAftermarketIndustrial and Other
Aerospace$301 $210 $109 620 
Commercial Passenger and Light Duty
Vehicle$371 $390 761 
eMobility79 
Total$5,314 
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Nine months ended September 30, 2020
Net salesProductsSystemsTotal
Electrical Americas$1,725 $3,252 $4,977 
Electrical Global1,926 1,525 3,451 
United StatesRest of World
Hydraulics$601 $756 1,357 
Original Equipment ManufacturersAftermarketIndustrial and Other
Aerospace$754 $527 $400 1,681 
Commercial Passenger and Light Duty
Vehicle$742 $756 1,498 
eMobility207 
Total$13,171 
Nine months ended September 30, 2019
Net salesProductsSystemsTotal
Electrical Americas$2,775 $3,311 $6,086 
Electrical Global2,102 1,759 3,861 
United StatesRest of World
Hydraulics$783 $944 1,727 
Original Equipment ManufacturersAftermarketIndustrial and Other
Aerospace$893 $635 $330 1,858 
Commercial Passenger and Light Duty
Vehicle$1,227 $1,147 2,374 
eMobility246 
Total$16,152 



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The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (revenue recognized exceeds amount billed to the customer), and deferred revenue (advance payments and billings in excess of revenue recognized). Accounts receivables from customers were $2,565 and $3,090 at September 30, 2020 and December 31, 2019, respectively. Amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. These assets and liabilities are reported on the Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. Unbilled receivables were $108 and $101 at September 30, 2020 and December 31, 2019, respectively, and are recorded in Prepaid expenses and other current assets. The increase in unbilled receivables was primarily due to revenue recognized and not yet billed, partially offset by billings to customers during the quarter.
Changes in the deferred revenue liabilities are as follows:
Deferred Revenue
Balance at January 1, 2020$234 
Customer deposits and billings753 
Revenue recognized in the period(728)
Translation1 
Deferred revenue reclassified to held for sale(11)
Balance at September 30, 2020$249 
Deferred Revenue
Balance at January 1, 2019$248 
Customer deposits and billings680 
Revenue recognized in the period(683)
Translation1 
Balance at September 30, 2019$246 
A significant portion of open orders placed with Eaton are by original equipment manufacturers or distributors. These open orders are not considered firm as they have been historically subject to releases by customers. In measuring backlog of unsatisfied or partially satisfied obligations, only the amount of orders to which customers are firmly committed are included. Using this criterion, total backlog at September 30, 2020 was approximately $5.4 billion. At September 30, 2020, Eaton expects to recognize approximately 87% of this backlog in the next twelve months and the rest thereafter.

Note 4. CREDIT LOSSES FOR RECEIVABLES
Receivables are exposed to credit risk based on the customers’ ability to pay which is influenced by, among other factors, their financial liquidity position. Eaton’s receivables are generally short-term in nature with a majority outstanding less than 90 days.
Eaton performs ongoing credit evaluation of its customers and maintains sufficient allowances for potential credit losses. The Company evaluates the collectability of its receivables based on the length of time the receivable is past due, and any anticipated future write-offs based on historic experience adjusted for market conditions. The Company’s segments, supported by our global credit department, perform the credit evaluation and monitoring process to estimate and manage credit risk. The process includes an evaluation of credit losses for both the overall segment receivable and specific customer balances. The process also includes review of customer financial information and credit ratings, approval and monitoring of customer credit limits, and an assessment of market conditions. The Company may also require prepayment from customers to mitigate credit risk. Receivable balances are written off against an allowance for credit losses after a final determination of collectability has been made.
Accounts receivable are net of an allowance for credit losses of $48 and $49 at September 30, 2020 and December 31, 2019. The change in the allowance for credit losses includes expense and net write-offs, none of which are significant.

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Note 5.    INVENTORY
Inventory is carried at lower of cost or net realizable value. The components of inventory follow:
September 30,
2020
December 31,
2019
Raw materials$780 $986 
Work-in-process508 640 
Finished goods808 1,179 
Total inventory$2,096 $2,805 

Note 6.    GOODWILL
Change in the carrying amount of goodwill by segment follows:
January 1,
2020
AdditionsGoodwill reclassified to held for saleTranslationSeptember 30,
2020
Electrical Americas$6,352 $121 $ $(17)$6,456 
Electrical Global4,106 7  (5)4,108 
Hydraulics921  (907)(14) 
Aerospace1,706 3  32 1,741 
Vehicle291    291 
eMobility80   1 81 
Total$13,456 $131 $(907)$(3)$12,677 

During the first quarter of 2020, Eaton re-segmented certain reportable operating segments due to a reorganization of the Company's businesses. The Company used the relative fair value method to reallocate goodwill to the associated reporting units impacted by the reorganization. The Company’s reporting units are equivalent to the reportable operating segments, except for the Aerospace segment which has two reporting units.
The fair values of the Electrical Americas and Electrical Global reportable segments were estimated based on a discounted cash flow model. The model includes estimates of future cash flows, future growth rates, terminal value amounts, and the applicable weighted-average cost of capital used to discount those estimated cash flows. The weighted-average cost of capital is an estimate of the overall after-tax rate of return required by equity and debt market holders of a business enterprise. These analyses require the exercise of judgments, including judgments about appropriate discount rates, perpetual growth rates, revenue growth, and margin assumptions.
The fair value of the Hydraulics reportable segment was estimated based on a combination of the price to be paid to Eaton by Danfoss A/S and a discounted cash flow model. See Note 2 for additional information about the allocation of goodwill to the Hydraulics reportable segment.
The Filtration and Golf Grip businesses previously included in the Hydraulics reportable segment, and the electrical aerospace connectors business previously included in the Electrical Products segment, have been added to the Aerospace segment as part of the reorganization.
During the first quarter of 2020, goodwill impairment testing was performed using quantitative analyses as a result of the Hydraulics business being classified as held for sale as discussed in Note 2, and the re-segmentation of the Electrical Americas, Electrical Global and Aerospace segments. Based on these analyses performed, the fair value of Eaton's impacted reporting units continues to substantially exceed their respective carrying amounts and thus, no impairment exists.
The 2020 additions to goodwil