Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Amounts are in millions of dollars or shares unless indicated otherwise (per share data assume dilution). Columns and rows may not add and the sum of components may not equal total amounts reported due to rounding.

COMPANY OVERVIEW

Eaton Corporation plc (Eaton or the Company) is an intelligent power management company dedicated to improving the quality of life and protecting the environment for people everywhere. We are guided by our commitment to do business right, to operate sustainably and to help our customers manage power – today and well into the future. By capitalizing on the global growth trends of electrification and digitalization, we're accelerating the planet's transition to renewable energy, helping to solve the world's most urgent power management challenges, and doing what's best for our stakeholders and all of society.

Eaton’s businesses are well-positioned to take advantage of secular growth trends related to the energy transition from fossil fuels to renewables. We are responding to these trends by innovating solutions that transform the electrical power value chain, investing in electrical vehicle markets, increasing our focus on electrification, and employing digital technologies for power management. The Company’s innovations are expected to enable the integration of renewables and sustainability solutions, with new types of equipment, services, and software. These strategic focus areas are an important part of our response to climate change.

Founded in 1911, Eaton has been listed on the New York Stock Exchange for nearly a century. We reported revenues of $19.6 billion in 2021 and serve customers in more than 170 countries.

Portfolio Changes

The Company continues to actively manage its portfolio of businesses to deliver on its strategic objectives. The Company is focused on deploying its capital toward businesses that provide opportunities for above-market growth, strong returns, and align with secular trends and its power management strategies. During 2021 and 2022, Eaton has completed a number of transactions to strengthen its portfolio.

Acquisitions of businesses and investments in associate companies						Date of acquisition						Business segment
Tripp Lite						March 17, 2021						Electrical Americas
A leading supplier of power quality products and connectivity solutions including single-phase uninterruptible power supply systems, rack power distribution units, surge protectors, and enclosures for data centers, industrial, medical, and communications markets in the Americas.
Green Motion SA						March 22, 2021						Electrical Global
A leading designer and manufacturer of electric vehicle charging hardware and related software.
HuanYu High Tech						March 29, 2021						Electrical Global
A 50 percent stake in HuanYu High Tech, a subsidiary of HuanYu Group that manufactures and markets low-voltage circuit breakers and contactors in China, and throughout the Asia-Pacific region.
Mission Systems						June 1, 2021						Aerospace
A leading manufacturer of air-to-air refueling systems, environmental systems, and actuation primarily for defense markets.
Jiangsu YiNeng Electric's busway business						June 25, 2021						Electrical Global
A 50 percent stake in Jiangsu YiNeng Electric's busway business which manufactures and markets busway products in China.
Royal Power Solutions						January 5, 2022						eMobility
A manufacturer of high-precision electrical connectivity components used in electric vehicle, energy management, industrial and mobility markets.
Jiangsu Huineng Electric Co., Ltd’s circuit breaker business						July 1, 2022						Electrical Global
A 50 percent stake in Jiangsu Huineng Electric Co., Ltd's circuit breaker business which manufactures and markets low-voltage circuit breakers in China.

Divestiture of business						Date of divestiture						Business segment
Hydraulics business						August 2, 2021						Hydraulics

Additional information related to acquisitions and divestiture of businesses is presented in Note 2.

Restructuring

In the second quarter of 2020, Eaton decided to undertake a multi-year restructuring program to reduce its cost structure and gain efficiencies in its business segments and at corporate in order to respond to declining market conditions brought on by the COVID-19 pandemic. Since the inception of the program, the Company has incurred charges of $341 million. These restructuring activities are expected to incur additional expenses of approximately $9 million in 2022 primarily comprised of plant closing and other costs, resulting in total estimated charges of $350 million for the entire program. The projected mature year savings from these restructuring actions are expected to be $250 million when fully implemented in 2023. Additional information related to this restructuring is presented in Note 14.

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 is as follows:

			Three months ended September 30												Nine months ended September 30
(In millions except for per share data)			2022						2021						2022						2021
Net sales			$	5,313					$	4,923					$	15,368					$	14,830
Net income attributable to Eaton ordinary shareholders			607						629						1,741						1,593
Net income per share attributable to Eaton ordinary shareholders - diluted			$	1.52					$	1.57					$	4.34					$	3.97

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 Consolidated Financial Results table below. Management believes that these financial measures are useful to investors because they provide additional meaningful financial information that should be considered when assessing our business performance and trends, and they allow 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 and Income

Eaton incurs integration charges and transaction costs to acquire and integrate businesses, and transaction, separation and other costs to divest and exit businesses. Eaton also recognizes gains and losses on the sale of businesses. A summary of these Corporate items is as follows:

			Three months ended September 30												Nine months ended September 30
(In millions except for per share data)			2022						2021						2022						2021
Acquisition integration, divestiture charges and transaction costs			$	103					$	179					$	182					$	312
Gain on the sale of the Hydraulics business			—						(617)						(24)						(617)
Total charges (income) before income taxes			103						(438)						158						(305)
Income tax expense (benefit)			(17)						386						(25)						362
Total charges (income) after income taxes			$	86					$	(52)					$	133					$	57
Charges (income) per ordinary share - diluted			$	0.21					$	(0.13)					$	0.33					$	0.14

Acquisition integration, divestiture charges and transaction costs in 2022 are primarily related to the acquisitions of Royal Power Solutions, Souriau-Sunbank Connection Technologies, Green Motion, Tripp Lite, and Mission Systems, and other charges to acquire and exit businesses including certain indemnity claims associated with the sale of 50% interest in the commercial vehicle automated transmission business in 2017. These costs also included charges of $29 million presented in Other expense (income) - net on the Consolidated Statements of Income related to the decision in the second quarter to exit the Company's business operations in Russia. These charges consisted primarily of write-downs of accounts receivable, inventory and other assets, and accruals for severance. Charges in 2021 are primarily related to the divestiture of the Hydraulics business, the acquisitions of Tripp Lite, Mission Systems, Souriau-Sunbank Connection Technologies, and Ulusoy Elektrik Imalat Taahhut ve Ticaret A.S., and other charges to acquire and exit businesses including certain indemnity claims associated with the sale of 50% interest in the commercial vehicle automated transmission business in 2017. These charges were included in Cost of products sold, Selling and administrative expense, Research and development expense, or Other expense (income) - net. In Business Segment Information in Note 15, the charges were included in Other income (expense) - net.

Intangible Asset Amortization Expense

Intangible asset amortization expense is as follows:

			Three months ended September 30												Nine months ended September 30
(In millions except for per share data)			2022						2021						2022						2021
Intangible asset amortization expense			$	124					$	126					$	375					$	326
Income tax benefit			27						27						80						56
Total after income taxes			$	97					$	99					$	295					$	270
Per ordinary share - diluted			$	0.25					$	0.25					$	0.74					$	0.68

Consolidated Financial Results

			Three months ended September 30												Increase (decrease)						Nine months ended September 30												Increase (decrease)
(In millions except for per share data)			2022						2021									2022						2021
Net sales			$	5,313					$	4,923					8		%				$	15,368					$	14,830					4		%
Gross profit			1,768						1,585						12		%				5,049						4,763						6		%
Percent of net sales			33.3		%				32.2		%										32.9		%				32.1		%
Income before income taxes			720						1,113						(35)		%				2,060						2,271						(9)		%
Net income			608						630						(3)		%				1,743						1,595						9		%
Less net income for noncontrolling interests			(1)						(1)												(2)						(2)
Net income attributable to Eaton ordinary shareholders			607						629						(3)		%				1,741						1,593						9		%
Excluding acquisition and divestiture charges (income), after-tax			86						(52)												133						57
Excluding restructuring program charges, after-tax			18						25												39						48
Excluding intangible asset amortization expense, after-tax			97						99												295						270
Adjusted earnings			$	807					$	701					15		%				$	2,207					$	1,968					12		%
Net income per share attributable to Eaton ordinary shareholders - diluted			$	1.52					$	1.57					(3)		%				$	4.34					$	3.97					9		%
Excluding per share impact of acquisition and divestiture charges (income), after-tax			0.21						(0.13)												0.33						0.14
Excluding per share impact of restructuring program charges, after-tax			0.04						0.06												0.10						0.12
Excluding per share impact of intangible asset amortization expense, after-tax			0.25						0.25												0.74						0.68
Adjusted earnings per ordinary share			$	2.02					$	1.75					15		%				$	5.51					$	4.91					12		%

Net Sales

Changes in Net sales are summarized as follows:			Three months ended September 30						Nine months ended September 30
			2022						2022
Organic growth			15		%				12		%
Acquisitions of businesses			1		%				3		%
Divestiture of business			(4)		%				(9)		%
Foreign currency			(4)		%				(2)		%
Total increase (decrease) in Net sales			8		%				4		%

Organic sales increased 15% in the third quarter and 12% in the first nine months of 2022 due to broad-based strength in end-markets of the Electrical Americas and Electrical Global business segments, strength in sales to commercial OEM and aftermarket in the Aerospace business segment, and higher sales volumes including inflationary recovery in the Vehicle business segment. Despite strong growth, many of our businesses continue to be impacted by operating inefficiencies due to supply chain constraints or shortages, inflation, and selective labor shortages.

The acquisition of Royal Power Solutions increased sales in the third quarter of 2022 and the acquisitions of Tripp Lite, Mission Systems, and Royal Power Solutions increased sales in the first nine months of 2022. The divestiture of the Hydraulics business reduced sales in the third quarter and first nine months of 2022.

Gross Profit

Gross profit margin increased from 32.2% in the third quarter of 2021 to 33.3% in the third quarter of 2022 and from 32.1% in the first nine months of 2021 to 32.9% in the first nine months of 2022 primarily due to higher organic sales, including favorable pricing recovery. Gross profit also improved due to the net impact of the acquisition of Royal Power Solutions and the divestiture of the Hydraulics business. Conversely, commodity and logistics inflation and operating inefficiencies due to supply chain constraints had an unfavorable impact on gross margin during the third quarter and first nine months of 2022, despite offsetting pricing actions.

Income Taxes

The effective income tax rate for the third quarter of 2022 was expense of 15.5% compared to expense of 43.4% for the third quarter of 2021. The effective income tax rate for the first nine months of 2022 was expense of 15.4% compared to expense of 29.8% for the first nine months of 2021. The decrease in the effective tax rate in the third quarter and first nine months of 2022 was primarily due to the one-time tax impact on the gain from the sale of the Hydraulics business in the third quarter of 2021 discussed in Note 2.

Net Income

Net income attributable to Eaton ordinary shareholders of $607 million in the third quarter of 2022 decreased 3% compared to Net income attributable to Eaton ordinary shareholders of $629 million in the third quarter of 2021. Net income attributable to Eaton ordinary shareholders of $1,741 million in the first nine months of 2022 increased 9% compared to Net income attributable to Eaton ordinary shareholders of $1,593 million in the first nine months of 2021. Net income in the third quarter and first nine months of 2021 included an after-tax gain of $197 million on the sale of the Hydraulics business. Excluding this gain, the increase in the third quarter and first nine months of 2022 was primarily due to higher gross profit, lower acquisition and divestiture charges, and a net improvement in other income which included gains from the sale of certain office and distribution facilities, partially offset by higher income tax expense.

Net income per ordinary share decreased to $1.52 in the third quarter of 2022 compared to $1.57 in the third quarter of 2021. Net income per ordinary share increased to $4.34 in the first nine months of 2022 compared to $3.97 in the first nine months of 2022. Net income per ordinary share in the third quarter and first nine months of 2021 included $0.49 from the sale of the Hydraulics business. Excluding this gain, the increase in Net income per ordinary share in the third quarter and first nine months of 2022 was due to higher Net income attributable to Eaton ordinary shareholders and the impact of the Company's share repurchases over the past year.

Adjusted Earnings

Adjusted earnings of $807 million in the third quarter of 2022 increased 15% compared to Adjusted earnings of $701 million in the third quarter of 2021. Adjusted earnings of $2,207 million in the first nine months of 2022 increased 12% compared to Adjusted earnings of $1,968 million in the first nine months of 2021. The increase in Adjusted earnings in the third quarter and first nine months of 2022 was primarily due to higher Net income attributable to Eaton ordinary shareholders, adjusted for acquisition and divestiture charges, restructuring program charges, and intangible asset amortization expense.

Adjusted earnings per ordinary share increased to $2.02 in the third quarter of 2022 compared to $1.75 in the third quarter of 2021. Adjusted earnings per ordinary share increased to $5.51 in the first nine months of 2022 compared to $4.91 in the first nine months of 2022. The increase in Adjusted earnings per ordinary share in the third quarter and first nine months of 2022 was due to higher Adjusted earnings and the impact of the Company's share repurchases over the past year.

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 September 30												Increase (decrease)						Nine months ended September 30												Increase (decrease)
(In millions)			2022						2021									2022						2021
Net sales			$	2,179					$	1,854					18		%				$	6,201					$	5,325					16		%
Operating profit			$	511					$	402					27		%				$	1,368					$	1,127					21		%
Operating margin			23.5		%				21.7		%										22.1		%				21.2		%
Changes in Net sales are summarized as follows:															Three months ended September 30																		Nine months ended September 30
															2022																		2022
Organic growth															18		%																15		%
Acquisition of Tripp Lite															—		%																2		%
Foreign currency															—		%																(1)		%
Total increase (decrease) in Net sales															18		%																16		%

The increase in organic sales reflects broad-based strength in end-markets, with particular strength in commercial, residential, industrial, and utility end-markets in the third quarter of 2022, and commercial, residential, and industrial end-markets in the first nine months of 2022.

The operating margin increased from 21.7% in the third quarter of 2021 to 23.5% in the third quarter of 2022 and from 21.2% in the first nine months of 2021 to 22.1% in the first nine months of 2022 primarily due to higher sales volumes including favorable pricing recovery, while headwinds from commodity and logistics inflation and operating inefficiencies due to supply chain constraints were offset by gains from the sale of certain office and distribution facilities.

Electrical Global

			Three months ended September 30												Increase (decrease)						Nine months ended September 30												Increase (decrease)
(In millions)			2022						2021									2022						2021
Net sales			$	1,486					$	1,421					5		%				$	4,418					$	4,092					8		%
Operating profit			$	305					$	285					7		%				$	866					$	757					14		%
Operating margin			20.6		%				20.1		%										19.6		%				18.5		%
Changes in Net sales are summarized as follows:															Three months ended September 30																		Nine months ended September 30
															2022																		2022
Organic growth															13		%																14		%
Foreign currency															(8)		%																(6)		%
Total increase (decrease) in Net sales															5		%																8		%

The increase in organic sales in the third quarter and first nine months of 2022 was primarily due to broad-based strength in end-markets, with particular strength in data center, commercial and industrial end-markets.

The operating margin increased from 20.1% in the third quarter of 2021 to 20.6% in the third quarter of 2022 and from 18.5% in the first nine months of 2021 to 19.6% in the first nine months of 2022 primarily due to higher sales volumes including favorable pricing recovery, partially offset by commodity and logistics inflation and operating inefficiencies due to supply chain constraints.

Hydraulics

On August 2, 2021, Eaton completed the sale of the Hydraulics business segment. For the third quarter and first nine months ended September 30, 2021, the Hydraulics segment generated net sales of $179 million and $1,300 million, respectively, and operating profit of $20 million and $177 million, respectively.

Aerospace

			Three months ended September 30												Increase (decrease)						Nine months ended September 30												Increase (decrease)
(In millions)			2022						2021									2022						2021
Net sales			$	768					$	745					3		%				$	2,227					$	1,889					18		%
Operating profit			$	185					$	164					13		%				$	506					$	391					29		%
Operating margin			24.0		%				22.0		%										22.7		%				20.7		%
Changes in Net sales are summarized as follows:															Three months ended September 30																		Nine months ended September 30
															2022																		2022
Organic growth															8		%																11		%
Acquisition of Mission Systems															—		%																11		%
Foreign currency															(5)		%																(4)		%
Total increase (decrease) in Net sales															3		%																18		%

The increase in organic sales in the third quarter and first nine months of 2022 was primarily due to strength in sales to commercial OEM and aftermarket.

The operating margin increased from 22.0% in the third quarter of 2021 to 24.0% in the third quarter of 2022 and from 20.7% in the first nine months of 2021 to 22.7% in the first nine months of 2022 primarily due to higher organic sales volumes.

Vehicle

			Three months ended September 30												Increase (decrease)						Nine months ended September 30												Increase (decrease)
(In millions)			2022						2021									2022						2021
Net sales			$	744					$	640					16		%				$	2,123					$	1,969					8		%
Operating profit			$	125					$	115					9		%				$	346					$	349					(1)		%
Operating margin			16.8		%				18.0		%										16.3		%				17.7		%
Changes in Net sales are summarized as follows:															Three months ended September 30																		Nine months ended September 30
															2022																		2022
Organic growth															19		%																10		%
Foreign currency															(3)		%																(2)		%
Total increase (decrease) in Net sales															16		%																8		%

The increase in organic sales in the third quarter and first nine months of 2022 was primarily due to strength in the North American truck and light vehicle markets, and South American truck, bus and agriculture markets.

The operating margin decreased from 18.0% in the third quarter of 2021 to 16.8% in the third quarter of 2022 and from 17.7% in the first nine months of 2021 to 16.3% in the first nine months of 2022 primarily due to commodity and logistics inflation and operating inefficiencies due to supply chain constraints, partially offset by higher sales volumes including inflationary recovery.

eMobility

			Three months ended September 30												Increase (decrease)						Nine months ended September 30												Increase (decrease)
(In millions)			2022						2021									2022						2021
Net sales			$	137					$	84					63		%				$	399					$	255					56		%
Operating profit (loss)			$	(2)					$	(8)					75		%				$	(7)					$	(21)					67		%
Operating margin			(1.5)		%				(9.5)		%										(1.7)		%				(8.2)		%
Changes in Net sales are summarized as follows:															Three months ended September 30																		Nine months ended September 30
															2022																		2022
Organic growth															17		%																11		%
Acquisition of Royal Power Solutions															49		%																47		%
Foreign currency															(3)		%																(2)		%
Total increase (decrease) in Net sales															63		%																56		%

The increase in organic sales in the third quarter and first nine months of 2022 was due to strength in all regions.

The operating margin increased from negative 9.5% in the third quarter of 2021 to negative 1.5% in the third quarter of 2022 and from negative 8.2% in the first nine months of 2021 to negative 1.7% in the first nine months of 2022 primarily due to higher organic sales volumes and the acquisition of Royal Power Solutions.

Corporate Expense (Income)

			Three months ended September 30												Increase (decrease)						Nine months ended September 30												Increase (decrease)
(In millions)			2022						2021									2022						2021
Intangible asset amortization expense			$	124					$	126					(2)		%				$	375					$	326					15		%
Interest expense - net			37						37						—		%				100						112						(11)		%
Pension and other postretirement benefits income			(7)						(14)						(50)		%				(35)						(44)						(20)		%
Restructuring program charges			22						34						(35)		%				49						63						(22)		%
Other (income) expense - net			227						(318)						(171)		%				529						52						917		%
Total corporate (income) expense			$	403					$	(135)					(399)		%				$	1,018					$	509					100		%

Total corporate expense was $403 million in the third quarter of 2022 compared to Total corporate income of $135 million in the third quarter of 2021. The changes in Total corporate (income) expense for the third quarter of 2022 were primarily due to the change in Other (income) expense - net, driven by the 2021 gain on sale of the Hydraulics business discussed in Note 2, partially offset by lower acquisition and divestiture charges.

Total corporate expense was $1,018 million in the first nine months of 2022 compared to $509 million in the first nine months of 2021. The increase in Total corporate expense for the first nine months of 2022 was primarily due to higher Other expense - net and Intangible asset amortization expense. The increase in Other expense - net is primarily due to the 2021 gain on sale of the Hydraulics business discussed in Note 2, partially offset by lower acquisition and divestiture charges.

LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION

Liquidity and Financial Condition

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.

On August 23, 2022, a subsidiary of Eaton issued sustainability-linked senior notes (2022 Sustainability-Linked Notes) and senior notes (2022 Senior Notes, and collectively referred to as the Notes). The 2022 Sustainability-Linked Notes have a face amount of $1.3 billion, mature in 2033, and pay interest semi-annually at an initial interest rate of 4.15% per annum. Beginning in September 2028, the interest rate payable on the 2022 Sustainability-Linked Notes will be increased by an additional 25 basis points per annum if the Scope 1 and Scope 2 greenhouse gas emissions sustainability performance target is not met. The 2022 Senior Notes have a face amount of $700 million, mature in 2052, and pay interest semi-annually at 4.70% per annum. The issuer received proceeds totaling $1.98 billion from the issuance of the Notes, net of financing costs and discounts.

On October 3, 2022, the Company replaced its existing $2,000 million five-year revolving credit facility with a new $2,500 million five-year revolving credit facility that will expire on October 1, 2027. On the same date, the Company replaced its existing $500 million 364-day revolving credit facility with a new $500 million 364-day revolving credit facility that will expire on October 2, 2023. The revolving credit facilities totaling $3,000 million are used to support commercial paper borrowings and are fully and unconditionally guaranteed by Eaton and certain of its direct and indirect subsidiaries on an unsubordinated, unsecured basis. In October 2022, the Company also upsized its commercial paper program to $3,000 million. There were no borrowings outstanding under Eaton’s revolving credit facilities at September 30, 2022. The Company had access to the commercial paper markets through its $3,000 million commercial paper program, of which $878 million was outstanding on September 30, 2022.

In 2021, Eaton received proceeds of $3.1 billion from the sale of its Hydraulics business and paid $4.45 billion to acquire Tripp Lite and Mission Systems. In 2022, the Company paid $612 million to acquire Royal Power Solutions and received cash of $22 million from Danfoss A/S to fully settle all post-closing adjustments from the sale of the Hydraulics business.

Over the course of a year, cash, short-term investments, and short-term debt may fluctuate in order to manage global liquidity. As of September 30, 2022 and December 31, 2021, Eaton had cash of $231 million and $297 million, short-term investments of $287 million and $271 million, and short-term debt of $903 million and $13 million, respectively. Eaton believes it has the operating flexibility, cash flow, cash and short-term investment balances, availability under existing revolving credit facilities, and access to capital markets in excess of the liquidity necessary to meet future operating needs of the business, fund capital expenditures and acquisitions of businesses, as well as scheduled payments of long-term debt.

Eaton was in compliance with each of its debt covenants for all periods presented.

Cash Flows

A summary of cash flows is as follows:

			Nine months ended September 30
(In millions)			2022						2021						Change from 2021
Net cash provided by operating activities			$	1,347					$	1,368					$	(21)
Net cash used in investing activities			(983)						(1,688)						705
Net cash provided by (used in) financing activities			(445)						166						(611)
Effect of currency on cash			15						(13)						28
Total decrease in cash			$	(67)					$	(167)

Operating Cash Flow

Net cash provided by operating activities decreased by $21 million in the first nine months of 2022 compared to 2021. The decrease in net cash provided by operating activities in the first nine months of 2022 was primarily due to higher working capital balances to support the Company’s organic growth, partially offset by taxes paid on the sale of the Hydraulics business in 2021, cash received from the termination of interest rate swaps in 2022, and lower pension contributions in 2022 due to a $200 million contribution to Eaton's U.S. qualified pension plan in 2021.

Investing Cash Flow

Net cash used in investing activities decreased by $705 million in the first nine months of 2022 compared to 2021. The decrease in the use of cash in the first nine months of 2022 was primarily driven by the decrease in cash paid for business acquisitions to $612 million in 2022 from $4,500 million in 2021, proceeds from the sale of certain office and distribution facilities in 2022, and the decrease in cash paid for investments in associate companies to $42 million in 2022 from $124 million in 2021, partially offset by proceeds received in 2021 from the sale of the Hydraulics business of $3,110 million and net purchases of short-term investments of $45 million in 2022 compared to net sales of $264 million in 2021.

Financing Cash Flow

Net cash used in financing activities increased by $611 million in the first nine months of 2022 compared to 2021. The increase in the use of cash in the first nine months of 2022 was primarily due to higher payments on borrowings of $2,008 million in 2022 compared to $1,011 million in 2021, and higher share repurchases of $286 million in 2022 compared to $122 million in 2021, partially offset by an increase in net proceeds of short-term debt to $896 million in 2022 from $430 million in 2021 and higher proceeds from borrowings of $1,995 million in 2022 compared to $1,798 million in 2021.

Uses of Cash

Capital Expenditures

Capital expenditures were $389 million and $412 million in the first nine months of 2022 and 2021, respectively. Eaton expects approximately $650 million in capital expenditures in 2022.

Dividends

Cash dividend payments were $977 million and $916 million in the first nine months of 2022 and 2021, respectively. Payment of quarterly dividends in the future depends upon the Company’s ability to generate net income and operating cash flows, among other factors, and is subject to declaration by the Eaton Board of Directors. The Company intends to continue to pay quarterly dividends in 2022.

Share Repurchases

On February 27, 2019, the Board of Directors adopted a share repurchase program for share repurchases up to $5.0 billion of ordinary shares (2019 Program). On February 23, 2022, the Board renewed the 2019 Program by providing authority for up to $5.0 billion in repurchases to be made during the three-year period commencing on that date (2022 Program). Under the 2022 Program, the ordinary shares are expected to be repurchased over time, depending on market conditions, the market price of ordinary shares, capital levels, and other considerations. In the first nine months of 2022, 2.0 million ordinary shares were repurchased under the 2022 program in the open market at a total cost of $286 million. In the first nine months of 2021, 0.9 million ordinary shares were repurchased under the 2019 Program in the open market at a total cost of $122 million. At September 30, 2022, there is $4,714 million still available for share repurchases under the 2022 Program. The Company will continue to pursue share repurchases in 2022 depending on market conditions and capital levels.

Acquisition of Businesses

The Company paid cash of $612 million and $4,500 million to acquire businesses in the first nine months of 2022 and 2021, respectively. The Company will continue to focus on deploying its capital toward businesses that provide opportunities for higher growth and strong returns, and align with secular trends and its power management strategies.

Debt

The Company manages a number of short-term and long-term debt instruments, including commercial paper. At September 30, 2022, the Company had Short-term debt of $903 million, Current portion of long-term debt of $23 million, and Long-term debt of $8,082 million.

Supply Chain Finance Program

The Company negotiates payment terms directly with its suppliers for the purchase of goods and services. In addition, a third-party financial institution offers a voluntary supply chain finance (SCF) program that enables certain of the Company’s suppliers, at the supplier’s sole discretion, to sell receivables due from the Company to the financial institution on terms directly negotiated with the financial institution. If a supplier elects to participate in the SCF program, the supplier decides which invoices are sold to the financial institution and the Company has no economic interest in a supplier’s decision to sell an invoice. The SCF program does not have a significant impact on the Company’s liquidity as payments by the Company to participating suppliers are paid to the financial institution on the invoice due date, regardless of whether an individual invoice is sold by the supplier to the financial institution. The amounts due to the financial institution for suppliers that participate in the SCF program are included in Accounts payable on the Company’s Consolidated Balance Sheets, and the associated payments are included in operating activities on the Condensed Consolidated Statements of Cash Flows. At  September 30, 2022 and December 31, 2021, Accounts payable included $207 million and $151 million, respectively, payable to suppliers that have elected to participate in the SCF program.

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), September 15, 2017 (the 2017 Indenture) and August 23, 2022 (as supplemented by the First and Second Supplemental Indentures of the same date, the 2022 Indenture). The senior notes of Eaton Corporation are registered under the Securities Act of 1933, as amended (the Registered Senior Notes). Eaton Capital Unlimited Company, a subsidiary of Eaton, is the issuer of four outstanding series of debt securities sold in offshore transactions under Regulation S promulgated under the Securities Act (the Eurobonds). 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 Liquidity and Financial Condition (the Credit Facilities), are guaranteed by Eaton and 18 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 September 30, 2022, 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 this Form 10-Q 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.

Though the terms of the indentures vary slightly, generally, each guarantee of the Registered Senior Notes by a guarantor that is a subsidiary of Eaton Corporation provides that it will be automatically and unconditionally released and discharged under certain circumstances, including, but not limited to:

(a)the consummation of certain types of transactions permitted under the applicable indenture, including one that results in such guarantor ceasing to be a subsidiary; and

(b)for Registered Senior Notes issued under the 2022 Indenture, when such guarantor is a guarantor or issuer of indebtedness in an aggregate outstanding principal amount of less than 25% of our total outstanding indebtedness.

Further, each guarantee by a direct or indirect parent of Eaton Corporation (other than Eaton) provides that it will also be released if:

(c)such guarantee (so long as the guarantor is not obligated under any other U.S. debt obligations), becomes prohibited by any applicable law, rule or regulation or by any contractual obligation; or

(d)such guarantee results 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).

The guarantee of Eaton does not contain any release provisions.

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, the 2012 and 2017 Indentures provide that 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 2022 Indenture provides only that, with certain limited exceptions, any subsidiary of Eaton must become a guarantor if it becomes obligated as borrower or guarantor under indebtedness with an aggregate outstanding principal amount in excess of 25% of the Parent and its Subsidiaries' then-outstanding indebtedness.

The 1994 Indenture does not contain provisions with respect to future guarantors.

Summarized Financial Information of Guarantors and Issuers

(In millions)						September 30, 2022						December 31, 2021
Current assets						$	3,671					$	3,032
Noncurrent assets						12,984						11,553
Current liabilities						3,333						3,950
Noncurrent liabilities						9,983						8,461
Amounts due to subsidiaries that are non-issuers and non-guarantors - net						17,765						18,006
												Nine months ended September 30
(In millions)												2022
Net sales												$	8,377
Sales to subsidiaries that are non-issuers and non-guarantors												686
Cost of products sold												6,874
Expense from subsidiaries that are non-issuers and non-guarantors - net												454
Net loss												(27)

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 litigation, expected capital expenditures, future dividend payments, anticipated share repurchases, and expected restructuring charges. 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: the course of the COVID-19 pandemic, including government responses thereto and the rate of global economic recovery therefrom; unanticipated changes in the markets for the Company’s business segments; unanticipated downturns in business relationships with customers or their purchases from us; the availability of credit to customers and suppliers; supply chain disruptions, competitive pressures on sales and pricing; unanticipated changes in the cost of material, labor 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, natural disasters, civil or political unrest or terrorism; 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.