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 a global 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. We're committed to 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.

We are well positioned to capitalize on the megatrends of electrification, energy transition and digitalization. The reindustrialization of North America and Europe, emerging megaprojects, and increased global infrastructure spending focused on clean energy programs, are expanding our end markets and positioning Eaton for growth for years to come. We are strengthening our participation across the entire electrical power value chain and benefiting from momentum in the data center and utility end markets as well as a growth cycle in the commercial aerospace and defense markets.

Over the past several years, we've completed a number of transactions to add higher-growth, higher-margin businesses to our portfolio. These updates have better aligned the Company with secular growth trends and positioned the Company for future growth. This transformation of our portfolio of businesses, along with continued organic sales growth and operational performance, has led to 46% growth in our net income per share in the third quarter of 2023 compared to the third quarter of 2022.

Founded in 1911, Eaton is marking its 100th anniversary of being listed on the New York Stock Exchange. We reported revenues of $20.8 billion in 2022 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 2022 and 2023, Eaton continued to selectively add businesses to strengthen its portfolio.

Acquisitions of businesses and investments in associate companies						Date of acquisition						Business segment
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.
Jiangsu Ryan Electrical Co. Ltd.						April 23, 2023						Electrical Global
A 49 percent stake in Jiangsu Ryan Electrical Co. Ltd., a manufacturer of power distribution and sub-transmission transformers in China.

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

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

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)			2023						2022						2023						2022
Acquisition integration, divestiture charges and transaction costs			$	18					$	103					$	69					$	182
Gain on the sale of the Hydraulics business			—						—						—						(24)
Total before income taxes			18						103						69						158
Income tax benefit			4						17						14						25
Total after income taxes			$	14					$	86					$	54					$	133
Per ordinary share - diluted			$	0.03					$	0.21					$	0.14					$	0.33

Acquisition integration, divestiture charges and transaction costs in 2023 and 2022 are related to the acquisition of Royal Power Solutions and other acquisitions completed prior to 2022, including other charges and income to acquire and exit businesses. Costs in 2023 and 2022 also included certain indemnity claims associated with the sale of 50% interest in the commercial vehicle automated transmission business in 2017. Costs in 2022 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 of 2022 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. 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 16, the charges were included in Other expense - net.

Restructuring

In the second quarter of 2020, Eaton initiated a multi-year restructuring program to reduce its cost structure and gain efficiencies in its business segments and at corporate in order to initially respond to declining market conditions brought on by the COVID-19 pandemic. Since the inception of the program, the Company has incurred charges of $371 million. These restructuring activities are expected to be completed in 2023 with total estimated charges of $380 million cumulatively for the entire program and projected mature year savings of $265 million when fully implemented. The remaining charges in 2023 are expected to relate primarily to plant closing and other costs. Additional information related to this restructuring is presented in Note 15.

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)			2023						2022						2023						2022
Intangible asset amortization expense			$	107					$	124					$	344					$	375
Income tax benefit			23						27						74						80
Total after income taxes			$	84					$	97					$	269					$	295
Per ordinary share - diluted			$	0.21					$	0.25					$	0.67					$	0.74

Consolidated Financial Results

			Three months ended September 30												Increase (decrease)						Nine months ended September 30												Increase (decrease)
(In millions except for per share data)			2023						2022									2023						2022
Net sales			$	5,880					$	5,313					11		%				$	17,229					$	15,368					12		%
Gross profit			2,196						1,768						24		%				6,199						5,049						23		%
Percent of net sales			37.3		%				33.3		%										36.0		%				32.9		%
Income before income taxes			1,079						720						50		%				2,739						2,060						33		%
Net income			892						608						47		%				2,277						1,743						31		%
Less net income for noncontrolling interests			(1)						(1)												(4)						(2)
Net income attributable to Eaton ordinary shareholders			891						607						47		%				2,273						1,741						31		%
Excluding acquisition and divestiture charges, after-tax			14						86												54						133
Excluding restructuring program charges, after-tax			5						18												37						39
Excluding intangible asset amortization expense, after-tax			84						97												269						295
Adjusted earnings			$	994					$	807					23		%				$	2,633					$	2,207					19		%
Net income per share attributable to Eaton ordinary shareholders - diluted			$	2.22					$	1.52					46		%				$	5.67					$	4.34					31		%
Excluding per share impact of acquisition and divestiture charges, after-tax			0.03						0.21												0.14						0.33
Excluding per share impact of restructuring program charges, after-tax			0.01						0.04												0.09						0.10
Excluding per share impact of intangible asset amortization expense, after-tax			0.21						0.25												0.67						0.74
Adjusted earnings per ordinary share			$	2.47					$	2.02					22		%				$	6.57					$	5.51					19		%

Net Sales

Changes in Net sales are summarized as follows:			Three months ended September 30, 2023						Nine months ended September 30, 2023
Organic growth			9		%				12		%
Foreign currency			2		%				—		%
Total increase in Net sales			11		%				12		%

Organic sales increased 9% in the third quarter of 2023 primarily due to strength in industrial, utility, machine OEM, and data center end-markets of the Electrical Americas business segment, strength in sales to commercial OEM and aftermarket in the Aerospace business segment, and the ramp up of key programs in the eMobility business segment due to robust demand for electric vehicles.

Organic sales increased 12% in the first nine months of 2023 primarily due to strength in commercial & institutional, utility, industrial, and data center end-markets of the Electrical Americas and Electrical Global business segments, strength in sales to commercial OEM and aftermarket in the Aerospace business segment, strength in the North American, European, and Asia Pacific regions in the Vehicle business segment, and the ramp up of key programs in the eMobility business segment due to robust demand for electric vehicles.

Gross Profit

Gross profit margin increased from 33.3% in the third quarter of 2022 to 37.3% in the third quarter of 2023 primarily due to higher sales volumes and net price realization in the Electrical Americas and Aerospace business segments, and net sales price realization in the Electrical Global and Vehicle business segments, partially offset by lower sales volumes in the Electrical Global and Vehicle business segments, and unfavorable product mix in the Electrical Global business segment.

Gross profit margin increased from 32.9% in the first nine months of 2022 to 36.0% in the first nine months of 2023 primarily due to higher sales volumes and net price realization, partially offset by unfavorable product mix and operating inefficiencies in the Electrical Global and Vehicle business segments.

Income Taxes

The effective income tax rate for the third quarter of 2023 was expense of 17.3% compared to expense of 15.5% for the third quarter of 2022. The effective income tax rate for the first nine months of 2023 was expense of 16.9% compared to expense of 15.4% for the first nine months of 2022. The increase in the effective tax rate in the third quarter and first nine months of 2023 was primarily due to greater levels of income in higher tax jurisdictions.

The European Union (EU) member states formally adopted a directive to implement a 15% global minimum effective tax rate by country as established by the Organization for Economic Co-operation and Development (OECD). EU member states, including Ireland, are required to enact legislation to implement the global minimum tax rules by the end of 2023, with effective dates of January 1, 2024, and January 1, 2025, for different aspects of the directive. The Company will continue to monitor and evaluate the impact of global minimum tax legislation as it is enacted by Ireland and other countries in which we operate. Upon full implementation, the global minimum tax could have a material negative impact on our effective tax rate, financial condition, results of operations, and cash flows.

Net Income

Changes in Net income attributable to Eaton ordinary shareholders and Net income per share attributable to Eaton ordinary shareholders - diluted are summarized as follows:

			Three months ended												Nine months ended
(In millions except for per share data)			Dollars						Per share						Dollars						Per share
September 30, 2022			$	607					$	1.52					$	1,741					$	4.34
Business segment results of operations
Performance			213						0.52						554						1.37
Foreign currency			5						0.01						(10)						(0.02)
Corporate
Intangible asset amortization expense			13						0.04						26						0.07
Restructuring program charges			13						0.03						2						0.01
Acquisition and divestiture charges			72						0.18						79						0.19
Other corporate items			(18)						(0.04)						(82)						(0.20)
Tax rate impact			(14)						(0.04)						(37)						(0.09)
September 30, 2023			$	891					$	2.22					$	2,273					$	5.67

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)			2023						2022									2023						2022
Net sales			$	2,594					$	2,179					19		%				$	7,426					$	6,201					20		%
Operating profit			$	719					$	511					41		%				$	1,913					$	1,368					40		%
Operating margin			27.7		%				23.5		%										25.8		%				22.1		%

Net sales increased 19% in the third quarter of 2023 and 20% in the first nine months of 2023 driven entirely by organic sales growth. The increase in organic sales in the third quarter of 2023 was primarily due to strength in industrial, utility, machine OEM, and data center end-markets. The increase in organic sales in the first nine months of 2023 was primarily due to strength in commercial & institutional, utility, industrial, and data center end-markets.

The operating margin increased from 23.5% in the third quarter of 2022 to 27.7% in the third quarter of 2023 and from 22.1% in the first nine months of 2022 to 25.8% in the first nine months of 2023 primarily due to higher sales volumes and net price realization, partially offset by higher costs to support growth initiatives, and net gains from the sale of non-production facilities in 2022.

Electrical Global

			Three months ended September 30												Increase (decrease)						Nine months ended September 30												Increase (decrease)
(In millions)			2023						2022									2023						2022
Net sales			$	1,503					$	1,486					1		%				$	4,572					$	4,418					3		%
Operating profit			$	328					$	305					8		%				$	892					$	866					3		%
Operating margin			21.8		%				20.6		%										19.5		%				19.6		%

Changes in Net sales are summarized as follows:			Three months ended September 30, 2023						Nine months ended September 30, 2023
Organic growth			—		%				5		%
Divestiture			(1)		%				(1)		%
Foreign currency			2		%				(1)		%
Total increase in Net sales			1		%				3		%

Despite weakness in the European region, organic sales were flat in the third quarter of 2023 compared to the third quarter of 2022 due to strength in other global markets. The increase in organic sales in the first nine months of 2023 was primarily due to strength in commercial & institutional, industrial, utility, and data center end-markets.

The operating margin increased from 20.6% in the third quarter of 2022 to 21.8% in the third quarter of 2023 primarily due to net sales price realization and a net gain on the sale of a non-production facility, partially offset by lower sales volumes and unfavorable product mix. The operating margin decreased from 19.6% in the first nine months of 2022 to 19.5% in the first nine months of 2023 primarily due to operating inefficiencies from ongoing supply chain constraints and unfavorable product mix, partially offset by higher sales volumes and net price realization, and a net gain on the sale of a non-production facility.

Aerospace

			Three months ended September 30												Increase (decrease)						Nine months ended September 30												Increase (decrease)
(In millions)			2023						2022									2023						2022
Net sales			$	867					$	768					13		%				$	2,517					$	2,227					13		%
Operating profit			$	209					$	185					13		%				$	580					$	506					15		%
Operating margin			24.1		%				24.0		%										23.0		%				22.7		%

Changes in Net sales are summarized as follows:			Three months ended September 30, 2023						Nine months ended September 30, 2023
Organic growth			10		%				12		%
Foreign currency			3		%				1		%
Total increase in Net sales			13		%				13		%

The increase in organic sales in the third quarter and first nine months of 2023 was primarily due to broad-based strength across all markets with particular strength in commercial OEM and aftermarket.

The operating margin increased from 24.0% in the third quarter of 2022 to 24.1% in the third quarter of 2023 and from 22.7% in the first nine months of 2022 to 23.0% in the first nine months of 2023 primarily due to higher sales volumes and net price realization.

Vehicle

			Three months ended September 30												Increase (decrease)						Nine months ended September 30												Increase (decrease)
(In millions)			2023						2022									2023						2022
Net sales			$	753					$	744					1		%				$	2,242					$	2,123					6		%
Operating profit			$	131					$	125					5		%				$	353					$	346					2		%
Operating margin			17.4		%				16.8		%										15.7		%				16.3		%

Changes in Net sales are summarized as follows:			Three months ended September 30, 2023						Nine months ended September 30, 2023
Organic growth			(1)		%				5		%
Foreign currency			2		%				1		%
Total increase in Net sales			1		%				6		%

The decrease in organic sales in the third quarter of 2023 was primarily due to weakness in the South American truck, bus and agriculture market, partially offset by strength in the Asia Pacific region. The increase in organic sales in the first nine months of 2023 was primarily due to strength in the North American, European, and Asia Pacific regions.

The operating margin increased from 16.8% in the third quarter of 2022 to 17.4% in the third quarter of 2023 primarily due to net sales price realization, partially offset by lower sales volumes. The operating margin decreased from 16.3% in the first nine months of 2022 to 15.7% in the first nine months of 2023 primarily due to commodity and wage inflation, and operating inefficiencies, partially offset by higher sales volumes and net price realization.

eMobility

			Three months ended September 30												Increase (decrease)						Nine months ended September 30												Increase (decrease)
(In millions)			2023						2022									2023						2022
Net sales			$	163					$	137					19		%				$	471					$	399					18		%
Operating loss			$	—					$	(2)					100		%				$	(5)					$	(7)					29		%
Operating margin			—		%				(1.5)		%										(1.1)		%				(1.7)		%

Net sales increased 19% in the third quarter of 2023 and 18% in the first nine months of 2023 driven entirely by organic sales growth. The increase in organic sales reflects the ramp up of key programs due to robust demand for electric vehicles in the European market in the third quarter of 2023 and in the North American and European markets in the first nine months of 2023.

The operating margin increased from negative 1.5% in the third quarter of 2022 to 0.0% in the third quarter of 2023 primarily due to higher sales volumes and net price realization, and improved manufacturing productivity. The operating margin increased from negative 1.7% in the first nine months of 2022 to negative 1.1% in the first nine months of 2023 primarily due to higher sales volumes and net price realization, partially offset by manufacturing start-up costs associated with new electric vehicle programs.

Corporate Expense

			Three months ended September 30												Increase (decrease)						Nine months ended September 30												Increase (decrease)
(In millions)			2023						2022									2023						2022
Intangible asset amortization expense			$	107					$	124					(14)		%				$	344					$	375					(8)		%
Interest expense - net			33						37						(11)		%				124						100						24		%
Pension and other postretirement benefits income			(11)						(7)						57		%				(33)						(35)						(6)		%
Restructuring program charges			7						22						(68)		%				46						49						(6)		%
Other expense - net			171						227						(25)		%				512						529						(3)		%
Total corporate expense			$	307					$	403					(24)		%				$	993					$	1,018					(2)		%

Total corporate expense decreased from $403 million in the third quarter of 2022 to $307 million in the third quarter of 2023 primarily due to lower Acquisition and divestiture charges included in Other expense - net as integration activities wind down on prior acquisitions. Total corporate expenses decreased from $1,018 million in the first nine months of 2022 to $993 million in the first nine months of 2023 primarily due to lower Intangible asset amortization expense and Other expense - net, partially offset by higher Interest expense - net. The decrease in Other expense - net is primarily due to lower Acquisition and divestiture charges as integration activities wind down on prior acquisitions.

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 October 2, 2023, 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 September 30, 2024 on substantially similar terms. The Company also has a $2,500 million five-year revolving credit facility that will expire on October 1, 2027. 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. There were no borrowings outstanding under Eaton’s revolving credit facilities at September 30, 2023. The Company maintains access to the commercial paper markets through its $3,000 million commercial paper program, of which none was outstanding on September 30, 2023.

On May 18, 2023, Eaton issued senior notes (2023 Notes) with a face amount of $500 million. The 2023 Notes mature in 2028 with interest payable semi-annually at a rate of 4.35% per annum. The issuer received proceeds totaling $497 million from the issuance, net of financing costs. Proceeds from the 2023 Notes were used primarily to pay down outstanding U.S. dollar commercial paper. The 2023 Notes are fully and unconditionally guaranteed on an unsubordinated, unsecured basis by Eaton and certain of its direct and indirect subsidiaries. The 2023 Notes contain customary optional redemption and par call provisions. The 2023 Notes also contain a provision which upon a change of control requires the Company to make an offer to purchase all or any part of the 2023 Notes at a purchase price of 101% of the principal amount plus accrued and unpaid interest. The 2023 Notes are subject to customary non-financial covenants.

On March 3, 2023, a subsidiary of Eaton issued Euro denominated notes (2023 Euro Notes) in a private issuance with a face value of €300 million ($318 million). The floating rate notes are due June 3, 2024 with interest payable quarterly based on the three-month Euro Interbank Offered Rate plus 25 basis points. Proceeds from the Euro Notes were used to pay down outstanding U.S. dollar commercial paper. The 2023 Euro Notes are fully and unconditionally guaranteed on an unsubordinated, unsecured basis by Eaton. The 2023 Euro Notes contain a change of control provision which requires the Company to make an offer to purchase all or any part of the 2023 Euro Notes at a purchase price of 100.5% of the principal amount plus accrued and unpaid interest. The 2023 Euro Notes are subject to customary non-financial covenants.

In 2022, the Company paid $610 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, 2023 and December 31, 2022, Eaton had cash of $348 million and $294 million, short-term investments of $1,558 million and $261 million, and short-term debt of $24 million and $324 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)			2023						2022						Change from 2022
Net cash provided by operating activities			$	2,326					$	1,347					$	979
Net cash used in investing activities			(1,782)						(983)						(799)
Net cash used in financing activities			(507)						(445)						(62)
Effect of currency on cash			18						15						3
Total increase (decrease) in cash			$	54					$	(67)

Operating Cash Flow

Net cash provided by operating activities increased by $979 million in the first nine months of 2023 compared to 2022 primarily due to lower investment in working capital and higher net income in 2023.

Investing Cash Flow

Net cash used in investing activities increased by $799 million in the first nine months of 2023 compared to 2022 primarily driven by an increase in net purchases of short-term investments to $1,304 million in 2023 from $45 million in 2022, and an increase in capital expenditures for property, plant and equipment to $514 million in 2023 from $389 million in 2022, partially offset by no cash paid for business acquisitions in 2023 compared to cash paid of $612 million in 2022.

Financing Cash Flow

Net cash used in financing activities increased by $62 million in the first nine months of 2023 compared to 2022 primarily due to net payments of short-term debt of $295 million in 2023 compared to net proceeds of short-term debt of $896 million in 2022, lower proceeds from borrowings of $818 million in 2023 compared to $1,995 million in 2022, partially offset by lower payments on borrowings of $11 million in 2023 compared to $2,008 million in 2022 and no repurchase of shares in 2023 compared to repurchase of shares of $286 million in 2022.

Uses of Cash

Capital Expenditures

Capital expenditures were $514 million and $389 million in the first nine months of 2023 and 2022, respectively. Eaton expects approximately $700 million in capital expenditures in 2023.

Dividends

Cash dividend payments were $1,035 million and $977 million in the first nine months of 2023 and 2022, 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 2023.

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. During the three and nine months ended September 30, 2023, no ordinary shares were repurchased. During the three and nine months ended September 30, 2022, 0.7 million and 2.0 million ordinary shares, respectively, were repurchased under the 2022 Program in the open market at a total cost of $100 million and $286 million, respectively. At September 30, 2023, there is $4,714 million still available for share repurchases under the 2022 Program. The Company will continue to pursue share repurchases in 2023 depending on market conditions and capital levels.

Acquisition of Businesses

The Company paid cash of $612 million to acquire a business in the first nine months of 2022. There were no business acquisitions in the first nine months of 2023. 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, 2023, the Company had Short-term debt of $24 million, Current portion of long-term debt of $975 million, and Long-term debt of $8,150 million. The Company believes it has the operating flexibility, cash flow, and access to capital markets to meet scheduled payments of long-term debt.

Supply Chain Finance Program

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. 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. For additional information on the SCF program, see Note 7.

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 and the Third Supplemental Indenture dated May 18, 2023, 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 five 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 (with limited exceptions, for example, see Note 8 of the Financial Statements included herewith), together with the credit facilities described above under Liquidity and Financial Condition (the Credit Facilities), are guaranteed by Eaton and 17 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, 2023, 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-K filed on February 23, 2023 (10-K Exhibit 22) 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 the 10-K 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 are 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, 2023						December 31, 2022
Current assets			$	4,189					$	3,363
Noncurrent assets			12,937						12,938
Current liabilities			3,820						2,948
Noncurrent liabilities			9,763						10,047
Amounts due to subsidiaries that are non-issuers and non-guarantors - net			17,360						16,285
(In millions)									Nine months ended September 30, 2023
Net sales									$	9,926
Sales to subsidiaries that are non-issuers and non-guarantors									803
Cost of products sold									7,484
Expense from subsidiaries that are non-issuers and non-guarantors - net									787
Net income									135

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, expected restructuring program charges and benefits, and the anticipated impact of the global minimum tax regulation. 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: global pandemics such as COVID-19; 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 at Eaton or at our customers or suppliers; 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, geopolitical tensions, 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.