Goodwill, expected to be deductible for tax purposes

[Table of Contents](#ifce71646d6a145519f2ac4db7d9b12ca_7) Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the anticipated synergies of acquiring Tripp Lite. Goodwill recognized as a result of the acquisition is not deductible for tax purposes. The estimated fair values of the customer relationships, trademarks and technology intangible assets of $539 million, $33 million, and $32 million, respectively, were determined using either the relief-from-royalty model or the multi-period excess earnings model, which are discounted cash flow models that rely on the Company's estimates. These estimates require judgment of future revenue growth rates, future margins, 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. The estimated useful lives for customer relationships, trademarks and technology intangible assets were 20 years, 15 years, and 5 years, respectively. See Note 6 for additional information about goodwill.Eaton's 2021 Condensed Consolidated Financial Statements include Tripp Lite’s results of operations, including segment operating profit of $96 million on sales of $283 million, from the date of acquisition through September 30, 2021.Acquisition of Mission SystemsOn June 1, 2021, Eaton acquired Mission Systems for $2.80 billion, net of cash received. Mission Systems is a leading manufacturer of air-to-air refueling systems, environmental systems, and actuation primarily for defense markets. Mission Systems is reported within the Aerospace business segment.The acquisition of Mission Systems 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. During the measurement period which ended in June 2022, opening balance sheet adjustments were made to finalize Eaton's fair value estimates based on the final valuations received, which are summarized in the table below. The measurement period adjustments did not have a material impact to the Consolidated Statements of Income.

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| (In millions) |  |  |  | Preliminary Allocation |  | Measurement Period Adjustments |  | FinalAllocation |
|  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |
| Accounts receivable  |  |  |  | $ | 84  |  |  | $ | —  |  |  | $ | 84  |  |
| Inventory |  |  |  | 179  |  |  | (1) |  |  | 178  |  |
| Prepaid expenses and other current assets |  |  |  | 45  |  |  | 5  |  |  | 50  |  |
| Property, plant and equipment |  |  |  | 86  |  |  | 11  |  |  | 97  |  |
| Other intangible assets |  |  |  | 1,575  |  |  | (113) |  |  | 1,462  |  |
| Other assets |  |  |  | 19  |  |  | (4) |  |  | 15  |  |
| Accounts payable |  |  |  | (40) |  |  | —  |  |  | (40) |  |
| Other current liabilities |  |  |  | (159) |  |  | (43) |  |  | (202) |  |
| Other noncurrent liabilities |  |  |  | (77) |  |  | (31) |  |  | (108) |  |
| Total identifiable net assets |  |  |  | 1,712  |  |  | (176) |  |  | 1,536  |  |
| Goodwill |  |  |  | 1,088  |  |  | 176  |  |  | 1,264  |  |
| Total consideration, net of cash received |  |  |  | $ | 2,800  |  |  | $ | —  |  |  | $ | 2,800  |  |

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the anticipated synergies of acquiring Mission Systems. As a result of the acquisition, goodwill of $572 million recognized in the United States is expected to be deductible for tax purposes. The estimated fair values of the customer relationships, technology, and backlog intangible assets of $764 million, $612 million, and $86 million, respectively, were determined using either the relief-from-royalty model or the multi-period excess earnings model, which are discounted cash flow models that rely on the Company's estimates. These estimates require judgment of future revenue growth rates, future margins, and the applicable weighted-average cost of capital used to discount those estimated cash flows. The estimated fair value of technology intangibles is also based on the selection of royalty rates used in the valuation model. 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. The estimated useful lives for customer relationships, technology, and backlog intangible assets were 22 years, 21 years, and 2 years, respectively. See Note 6 for additional information about goodwill.Eaton's 2021 Condensed Consolidated Financial Statements include Mission Systems’ results of operations, including segment operating profit of $65 million on sales of $252 million, from the date of acquisition through September 30, 2021.7
