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DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Tables)

12 Months Ended

Dec. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Derivative Financial Instruments Recognized in Consolidated Balance Sheet

The fair value of derivative financial instruments recognized in the Consolidated Balance Sheets is as follows:


(In millions)	Notional amount		Other current assets		Other noncurrent assets		Other current liabilities		Other noncurrent liabilities		Type of hedge	Term
December 31, 2022
Derivatives designated as hedges


Currency exchange contracts	$	1,240	$	35	$	2	$	17	$	9	Cash flow	1 to 36 months
Commodity contracts	64		4		—		2		—		Cash flow	1 to 12 months
Total			$	39	$	2	$	19	$	9

Derivatives not designated as hedges
Currency exchange contracts	$	4,683	$	30			$	14				1 to 12 months















December 31, 2021
Derivatives designated as hedges
Fixed-to-floating interest rate swaps	$	1,800	$	22	$	29	$	—	$	—	Fair value	8 months to 13 years
Forward starting floating-to-fixed interest rate swaps	1,350		—		38		—		79		Cash flow	11 to 31 years
Currency exchange contracts	1,212		17		2		11		3		Cash flow	1 to 36 months
Commodity contracts	50		2		—		1		—		Cash flow	1 to 12 months
Total			$	41	$	69	$	12	$	82

Derivatives not designated as hedges
Currency exchange contracts	$	5,285	$	34			$	9				1 to 12 months
Commodity contracts	62		1				1					1 month
Total			$	35			$	10

The following amounts were recorded on the Consolidated Balance Sheets related to fixed-to-floating interest rate swaps:


(In millions)	Carrying amount of the hedged assets (liabilities)				Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged asset (liabilities) (a)
Location on Consolidated Balance Sheets	December 31, 2022		December 31, 2021			December 31, 2022		December 31, 2021
Long-term debt	$	(713)	$	(2,413)		$	(48)	$	(84)

(a) At December 31, 2022 and 2021, these amounts include the cumulative liability amount of fair value hedging adjustments remaining for which the hedge accounting has been discontinued of $48 million and $33 million, respectively.

Schedule of Notional Amounts of Outstanding Derivative Positions and Commodity Contracts

As of December 31, 2022, the volume of outstanding commodity contracts that were entered into to hedge forecasted transactions:

Commodity

December 31, 2022

Term

Aluminum

Millions of pounds

1 to 12 months

Copper

Millions of pounds

1 to 12 months

Gold

1,604

Troy ounces

1 to 12 months

Silver

699,932

Troy ounces

1 to 12 months

Schedule of Impact of Hedging Activities to Consolidated Statement of Income

The impact of hedging activities to the Consolidated Statements of Income is as follows:


	2022
(In millions)	Net sales		Cost of products sold		Interest expense - net
Amounts from Consolidated Statements of Income	$	20,752	$	13,865	$	144

Gain (loss) on derivatives designated as cash flow hedges
Forward starting floating-to-fixed interest rate swaps
Hedged item	$	—	$	—	$	(4)
Derivative designated as hedging instrument	—		—		4


Currency exchange contracts
Hedged item	$	17	$	(26)	$	—
Derivative designated as hedging instrument	(17)		26		—


Commodity contracts

Hedged item	$	—	$	4	$	—
Derivative designated as hedging instrument	—		(4)		—

Gain (loss) on derivatives designated as fair value hedges
Fixed-to-floating interest rate swaps
Hedged item	$	—	$	—	$	8
Derivative designated as hedging instrument	—		—		(8)


	2021
(In millions)	Net sales		Cost of products sold		Interest expense - net
Amounts from Consolidated Statements of Income	$	19,628	$	13,293	$	144

Gain (loss) on derivatives designated as cash flow hedges
Currency exchange contracts
Hedged item	$	6	$	—	$	—
Derivative designated as hedging instrument	(6)		—		—


Commodity contracts
Hedged item	$	—	$	(9)	$	—
Derivative designated as hedging instrument	—		9		—


Gain (loss) on derivatives designated as fair value hedges
Fixed-to-floating interest rate swaps
Hedged item	$	—	$	—	$	51
Derivative designated as hedging instrument	—		—		(51)


	2020
(In millions)	Net sales		Cost of products sold		Interest expense - net
Amounts from Consolidated Statements of Income	$	17,858	$	12,408	$	149

Gain (loss) on derivatives designated as cash flow hedges
Currency exchange contracts
Hedged item	$	13	$	5	$	—
Derivative designated as hedging instrument	(13)		(5)		—


Commodity contracts
Hedged item	$	—	$	(1)	$	—
Derivative designated as hedging instrument	—		1		—


Gain (loss) on derivatives designated as fair value hedges
Fixed-to-floating interest rate swaps
Hedged item	$	—	$	—	$	(45)
Derivative designated as hedging instrument	—		—		45

Schedule of Amounts Recognized in Net Income

The impact of derivatives not designated as hedges to the Consolidated Statements of Income is as follows:


	Gain (loss) recognized in Consolidated Statements of Income						Consolidated Statements of Income classification
(In millions)	2022		2021		2020
Gain (loss) on derivatives not designated as hedges
Currency exchange contracts	$	(56)	$	—	$	72	Interest expense - net
Commodity contracts	(15)		11		4		Other expense (income) - net and Cost of products sold (a)
Total	$	(71)	$	11	$	76

(a) In 2022, Eaton changed the presentation of gains and losses associated with derivative contracts for commodities that are not designated as hedges from Cost of product sold to Other expense (income) - net on the Consolidated Statements of Income. Prior period amounts have not been reclassified as they are not material.

Schedule of Amounts Recognized in Accumulated Other Comprehensive Income (Loss)

The impact of derivative and non-derivative instruments designated as hedges to the Consolidated Statements of Income and Comprehensive Income is as follows:


	Gain (loss) recognized in other comprehensive (loss) income
(In millions)	2022		2021		2020
Derivatives designated as cash flow hedges
Forward starting floating-to-fixed interest rate swaps	$	202	$	50	$	(52)

Currency exchange contracts	13		(6)		(13)
Commodity contracts	(5)		6		5
Non-derivative designated as net investment hedges
Foreign currency denominated debt	171		240		(173)
Total	$	381	$	290	$	(233)


	Location of gain (loss) reclassified from Accumulated other comprehensive loss	Gain (loss) reclassified from Accumulated other comprehensive loss
(In millions)		2022		2021		2020
Derivatives designated as cash flow hedges
Forward starting floating-to-fixed interest rate swaps	Interest expense - net	$	4	$	—	$	—

Currency exchange contracts	Net sales and Cost of products sold	9		(6)		(18)
Commodity contracts	Cost of products sold	(4)		9		1
Non-derivative designated as net investment hedges
Foreign currency denominated debt	Interest expense - net	—		—		—
Total		$	9	$	3	$	(17)

- Definition

Tabular disclosure of pertinent information about a derivative or group of derivatives on a disaggregated basis, such as for individual instruments, or small groups of similar instruments. May include a combination of the type of instrument, risks being hedged, notional amount, hedge designation, related hedged item, inception date, maturity date, or other relevant item.

+ References

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