Eaton 10-Q 2024-06-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to ______

Commission file number 000-54863

EATON CORPORATION plc
(Exact name of registrant as specified in its charter)

Ireland															98-1059235
(State or other jurisdiction of incorporation or organization)															(IRS Employer Identification Number)
Eaton House,			30 Pembroke Road,			Dublin 4,			Ireland						D04 Y0C2
(Address of principal executive offices)															(Zip Code)

															+353						1637 2900
						(Registrant's telephone number, including area code)
						Not applicable
						(Former name, former address and former fiscal year if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class									Trading Symbol												Name of each exchange on which registered
Ordinary shares ($0.01 par value)									ETN												New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer," “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer			☑						Accelerated filer			☐						Non-accelerated filer			☐
Smaller reporting company			☐						Emerging growth company			☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange

Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

There were 398.1 million Ordinary Shares outstanding as of June 30, 2024.

TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS			2
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			36
ITEM 4. CONTROLS AND PROCEDURES			36
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS			37
ITEM 1A. RISK FACTORS			37
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			37
ITEM 6. EXHIBITS			38
SIGNATURES			40

PART I — FINANCIAL INFORMATION

EATON CORPORATION plc

CONSOLIDATED STATEMENTS OF INCOME

			Three months ended June 30												Six months ended June 30
(In millions except for per share data)			2024						2023						2024						2023
Net sales			$	6,350					$	5,866					$	12,293					$	11,349
Cost of products sold			3,940						3,747						7,665						7,346
Selling and administrative expense			1,021						986						2,046						1,890
Research and development expense			196						187						385						366
Interest expense - net			29						42						59						91
Other expense (income) - net			(32)						7						(58)						(4)
Income before income taxes			1,195						898						2,195						1,660
Income tax expense			201						153						379						276
Net income			994						745						1,816						1,384
Less net income for noncontrolling interests			(1)						(1)						(2)						(3)
Net income attributable to Eaton ordinary shareholders			$	993					$	744					$	1,814					$	1,382
Net income per share attributable to Eaton ordinary shareholders
Diluted			$	2.48					$	1.86					$	4.52					$	3.45
Basic			2.49						1.86						4.54						3.47
Weighted-average number of ordinary shares outstanding
Diluted			401.0						400.7						401.5						400.6
Basic			399.2						398.9						399.6						398.7
Cash dividends declared per ordinary share			$	0.94					$	0.86					$	1.88					$	1.72

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

EATON CORPORATION plc

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

			Three months ended June 30												Six months ended June 30
(In millions)			2024						2023						2024						2023
Net income			$	994					$	745					$	1,816					$	1,384
Less net income for noncontrolling interests			(1)						(1)						(2)						(3)
Net income attributable to Eaton ordinary shareholders			993						744						1,814						1,382
Other comprehensive income (loss), net of tax
Currency translation and related hedging instruments			(125)						57						(178)						176
Pensions and other postretirement benefits			13						(2)						30						(5)
Cash flow hedges			(10)						(1)						(14)						14
Other comprehensive income (loss) attributable to Eaton ordinary shareholders			(122)						53						(162)						185
Total comprehensive income attributable to Eaton ordinary shareholders			$	871					$	797					$	1,652					$	1,567

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

EATON CORPORATION plc

CONSOLIDATED BALANCE SHEETS

(In millions)			June 30, 2024						December 31, 2023
Assets
Current assets
Cash			$	540					$	488
Short-term investments			2,241						2,121
Accounts receivable - net			4,861						4,475
Inventory			3,963						3,739
Prepaid expenses and other current assets			1,046						851
Total current assets			12,652						11,675
Property, plant and equipment
Land and buildings			2,192						2,241
Machinery and equipment			6,660						6,497
Gross property, plant and equipment			8,852						8,738
Accumulated depreciation			(5,248)						(5,208)
Net property, plant and equipment			3,604						3,530
Other noncurrent assets
Goodwill			14,849						14,977
Other intangible assets			4,883						5,091
Operating lease assets			785						648
Deferred income taxes			499						458
Other assets			2,110						2,052
Total assets			$	39,381					$	38,432
Liabilities and shareholders’ equity

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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 protecting the environment and improving the quality of life for people everywhere. We make products for the data center, utility, industrial, commercial, machine building, residential, aerospace and mobility markets. We are well positioned to capitalize on the megatrends of electrification, energy transition and digitalization. The reindustrialization of North America and Europe, growth in North American 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. We are guided by our commitment to operate sustainably and with the highest ethical standards. Our work is accelerating the planet’s transition to renewable energy sources, helping to solve the world’s most urgent power management challenges, and building a more sustainable society for people today and for future generations.

Eaton was founded in 1911 and has been listed on the New York Stock Exchange for more than a century. We reported revenues of $23.2 billion in 2023 and serve customers in more than 160 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 2023 and 2024, Eaton continued to selectively add businesses to strengthen its portfolio.

Acquisitions of businesses and investments in associate companies						Date of acquisition						Business segment
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.
Exertherm						May 20, 2024						Electrical Americas
A U.K. based provider of thermal monitoring solutions for electrical equipment.
NordicEPOD AS						May 31, 2024						Electrical Global
A 49 percent stake in NordicEPOD AS, which designs and assembles standardized power modules for data centers in the Nordic region.

Additional information related to acquisitions 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 June 30												Six months ended June 30
(In millions except for per share data)			2024						2023						2024						2023
Acquisition integration, divestiture charges and transaction costs			$	10					$	38					$	27					$	51
Income tax benefit			3						7						7						10
Total after income taxes			$	8					$	30					$	20					$	41
Per ordinary share - diluted			$	0.02					$	0.08					$	0.05					$	0.10

Acquisition integration, divestiture charges and transaction costs in 2024 and 2023 are primarily related to acquisitions completed prior to 2023, including other charges and income to acquire and exit businesses. 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 Programs

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 incurred expenses of $199 million for workforce reductions and $184 million for plant closing and other costs, resulting in total charges of $382 million through December 31, 2023. This restructuring program was substantially complete at the end of 2023.

During the first quarter of 2024, Eaton implemented a new multi-year restructuring program to accelerate opportunities to optimize its operations and global support structure. These actions will better align the Company's functions to support anticipated growth and drive greater effectiveness throughout the Company. Restructuring charges incurred under this program were $15 million in the second quarter and $78 million in the first six months of 2024. This restructuring program is expected to be completed in 2026 and is expected to incur additional expenses related to workforce reductions of $208 million and plant closing and other costs of $89 million, resulting in total estimated charges of $375 million for the entire program. The Company expects mature year benefits of $325 million when the multi-year program is fully implemented.

Additional information related to these restructuring programs is presented in Note 15.

Intangible Asset Amortization Expense

Intangible asset amortization expense is as follows:

			Three months ended June 30												Six months ended June 30
(In millions except for per share data)			2024						2023						2024						2023
Intangible asset amortization expense			$	106					$	113					$	212					$	237
Income tax benefit			23						24						45						51
Total after income taxes			$	83					$	88					$	167					$	186
Per ordinary share - diluted			$	0.20					$	0.21					$	0.42					$	0.46

Consolidated Financial Results

			Three months ended June 30												Increase (decrease)						Six months ended June 30												Increase (decrease)
(In millions except for per share data)			2024						2023									2024						2023
Net sales			$	6,350					$	5,866					8		%				$	12,293					$	11,349					8		%
Gross profit			2,410						2,119						14		%				4,628						4,003						16		%
Percent of net sales			38.0		%				36.1		%										37.6		%				35.3		%
Income before income taxes			1,195						898						33		%				2,195						1,660						32		%
Net income			994						745						33		%				1,816						1,384						31		%
Less net income for noncontrolling interests			(1)						(1)												(2)						(3)
Net income attributable to Eaton ordinary shareholders			993						744						33		%				1,814						1,382						31		%
Excluding acquisition and divestiture charges, after-tax			8						30												20						41
Excluding restructuring program charges, after-tax			12						24												61						31
Excluding intangible asset amortization expense, after-tax			83						88												167						186
Adjusted earnings			$	1,096					$	886					24		%				$	2,062					$	1,639					26		%
Net income per share attributable to Eaton ordinary shareholders - diluted			$	2.48					$	1.86					33		%				$	4.52					$	3.45					31		%
Excluding per share impact of acquisition and divestiture charges, after-tax			0.02						0.08												0.05						0.10
Excluding per share impact of restructuring program charges, after-tax			0.03						0.06												0.15						0.08
Excluding per share impact of intangible asset amortization expense, after-tax			0.20						0.21												0.42						0.46
Adjusted earnings per ordinary share			$	2.73					$	2.21					24		%				$	5.14					$	4.09					26		%

Net Sales

Changes in Net sales are summarized as follows:			Three months ended June 30, 2024						Six months ended June 30 2024
Organic growth			9		%				9		%
Foreign currency			(1)		%				(1)		%
Total increase in Net sales			8		%				8		%

Organic sales increased 9% in the second quarter and first six months of 2024 due to strength in industrial end-markets in the Electrical Americas business segment, strength in data center end-markets in the Electrical Americas and Electrical Global business segments, strength in commercial OEM, commercial aftermarket, and military OEM in the Aerospace business segment, and strength in the European region in the eMobility business segment, partially offset by weakness in residential end-markets in the Electrical Americas and Electrical Global business segments.

Gross Profit

Gross profit margin increased from 36.1% in the second quarter of 2023 to 38.0% in the second quarter of 2024. Material factors affecting this increase were a 270 basis point increase from higher sales and a 140 basis point increase from operating efficiencies, partially offset by a 90 basis point decline from higher commodity and wage inflation and a 60 basis point decline from higher costs to support growth initiatives.

Gross profit margin increased from 35.3% in the first six months of 2023 to 37.6% in the first six months of 2024. Material factors affecting this increase were a 310 basis point increase from higher sales and a 150 basis point increase from operating efficiencies, partially offset by a 90 basis point decline from higher commodity and wage inflation and a 70 basis point decline from higher costs to support growth initiatives.

Income Taxes

The effective income tax rate for the second quarter of 2024 was expense of 16.8% compared to expense of 17.0% for the second quarter of 2023. The decrease in the effective tax rate in the second quarter of 2024 was due to the reduction of valuation allowances on foreign tax attributes, partially offset by greater levels of income in higher tax jurisdictions. The effective income tax rate for the first six months of 2024 was expense of 17.3% compared to expense of 16.6% for the first six months of 2023. The increase in the effective tax rate in the first six months of 2024 was due to greater levels of income in higher tax jurisdictions, partially offset by a larger impact from the excess tax benefits recognized for employee share-based payments and the reduction of valuation allowances on foreign tax attributes.

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												Six months ended
(In millions except for per share data)			Dollars						Per share						Dollars						Per share
June 30, 2023			$	744					$	1.86					$	1,382					$	3.45
Business segment results of operations
Operational performance			203						0.51						456						1.14
Foreign currency			(7)						(0.02)						(20)						(0.05)
Corporate
Intangible asset amortization expense			5						0.01						19						0.04
Restructuring program charges			11						0.03						(30)						(0.07)
Acquisition and divestiture charges			23						0.06						20						0.05
Other corporate items			9						0.02						(1)						—
Tax rate impact			5						0.01						(12)						(0.03)
Impact of shares			—						—						—						(0.01)
June 30, 2024			$	993					$	2.48					$	1,814					$	4.52

Business Segment Results of Operations

The following is a discussion of Net sales, operating profit (loss) and operating margin by business segment. Additionally, the Company uses the following metrics as indicators of customer demand and future revenue expectations in the Electrical Americas, Electrical Global, and Aerospace business segments. The Company believes these metrics are useful to investors for the same reasons.

• Backlog: Includes orders to which customers are firmly committed

• Organic change in backlog: Percentage change in backlog, excluding the impact of foreign currency, acquisitions and divestitures

• Organic change in customer orders: Percentage change in firm customer orders on a trailing twelve month basis, excluding the impact of foreign currency, acquisitions and divestitures

• Book-to-bill: Average of the ratio of firm customer orders to Net sales for the last four quarters

Electrical Americas

			Three months ended June 30												Increase (decrease)						Six months ended June 30												Increase (decrease)
($ in millions)			2024						2023									2024						2023
Net sales			$	2,877					$	2,538					13		%				$	5,567					$	4,832					15		%
Operating profit			$	859					$	669					28		%				$	1,644					$	1,194					38		%
Operating margin			29.9		%				26.4		%										29.5		%				24.7		%
Changes in Net sales:
Organic growth															13		%																15		%
Foreign currency															—		%																—		%
Total increase in Net sales															13		%																15		%
Performance metrics:																					June 30, 2024						June 30, 2023
Backlog																					$	9,698					$	7,555					28		%
Organic change in backlog																																	29		%
Organic change in customer orders																																	11		%
Book-to-bill																					1.2

The increase in organic sales in the second quarter and first six months of 2024 was due to strength in industrial and data center end-markets, partially offset by weakness in residential end-markets.

The operating margin increased from 26.4% in the second quarter of 2023 to 29.9% in the second quarter of 2024. Material factors affecting this increase were a 530 basis point increase from higher sales and a 190 basis point increase from operating efficiencies, partially offset by a 170 basis point decline from higher costs to support growth initiatives and a 130 basis point decline from higher commodity and wage inflation. The operating margin increased from 24.7% in the first six months of 2023 to 29.5% in the first six months of 2024. Material factors affecting this increase were a 640 basis point increase from higher sales and a 220 basis point increase from operating efficiencies, partially offset by a 190 basis point decline from higher costs to support growth initiatives and a 130 basis point decline from higher commodity and wage inflation.

Electrical Global

			Three months ended June 30												Increase (decrease)						Six months ended June 30												Increase (decrease)
($ in millions)			2024						2023									2024						2023
Net sales			$	1,606					$	1,569					2		%				$	3,105					$	3,069					1		%
Operating profit			$	305					$	290					5		%				$	578					$	564					2		%
Operating margin			19.0		%				18.5		%										18.6		%				18.4		%
Changes in Net sales:
Organic growth															3.5		%																2		%
Foreign currency															(1.5)		%																(1)		%
Total increase in Net sales															2		%																1		%
Performance metrics:																					June 30, 2024						June 30, 2023
Backlog																					$	1,751					$	1,525					15		%
Organic change in backlog																																	16		%
Organic change in customer orders																																	7		%
Book-to-bill																					1.1

The increase in organic sales in the second quarter of 2024 was due to strength in utility and data center end-markets, partially offset by weakness in residential end-markets. The increase in organic sales in the first six months of 2024 was due to strength in data center end-markets, partially offset by weakness in residential end-markets. Additionally, the increase in organic sales in the second quarter and first six months of 2024 was due to strength in the Asia Pacific region and the Global Energy Infrastructure Solutions (GEIS) business, partially offset by weakness in the European region.

The operating margin increased from 18.5% in the second quarter of 2023 to 19.0% in the second quarter of 2024. Material factors affecting this increase were a 110 basis point increase from higher sales and a 100 basis point increase from operating efficiencies, partially offset by a 140 basis point decline from higher wage inflation. The operating margin increased from 18.4% in the first six months of 2023 to 18.6% in the first six months of 2024. Material factors affecting this increase were a 110 basis point increase from operating efficiencies, partially offset by a 100 basis point decline from higher wage inflation.

Aerospace

			Three months ended June 30												Increase (decrease)						Six months ended June 30												Increase (decrease)
($ in millions)			2024						2023									2024						2023
Net sales			$	955					$	848					13		%				$	1,826					$	1,650					11		%
Operating profit			$	206					$	191					8		%				$	407					$	371					10		%
Operating margin			21.5		%				22.5		%										22.3		%				22.5		%
Changes in Net sales:
Organic growth															13		%																11		%
Foreign currency															—		%																—		%
Total increase in Net sales															13		%																11		%
Performance metrics:																					June 30, 2024						June 30, 2023
Backlog																					$	3,463					$	3,046					14		%
Organic change in backlog																																	14		%
Organic change in customer orders																																	4		%
Book-to-bill																					1.1

The increase in organic sales in the second quarter and first six months of 2024 was due to strength in commercial OEM, commercial aftermarket, and military OEM.

The operating margin decreased from 22.5% in the second quarter of 2023 to 21.5% in the second quarter of 2024. Material factors affecting this decrease were a 250 basis point decline from operating inefficiencies, a 240 basis point decline from higher commodity and wage inflation, and a 110 basis point decline from higher costs to support growth initiatives, partially offset by a 500 basis point increase from higher sales. The operating margin decreased from 22.5% in the first six months of 2023 to 22.3% in the first six months of 2024. Material factors affecting this decrease were a 260 basis point decline from higher commodity and wage inflation, a 160 basis point decline from operating inefficiencies, and a 140 basis point decline from higher costs to support growth initiatives, partially offset by a 450 basis point increase from higher sales and a 130 basis point increase from the gain on the sale of a production facility in the first quarter of 2024.

Vehicle

			Three months ended June 30												Increase (decrease)						Six months ended June 30												Increase (decrease)
(In millions)			2024						2023									2024						2023
Net sales			$	723					$	751					(4)		%				$	1,447					$	1,490					(3)		%
Operating profit			$	130					$	115					13		%				$	246					$	222					11		%
Operating margin			18.0		%				15.3		%										17.0		%				14.9		%
Changes in Net sales:
Organic growth															(3)		%																(3)		%
Foreign currency															(1)		%																—		%
Total increase in Net sales															(4)		%																(3)		%

The decrease in organic sales in the second quarter of 2024 was due to weakness in the North American light vehicle and European truck markets, partially offset by strength in the South American region. The decrease in organic sales in the first six months of 2024 was due to weakness in the North American and European regions, partially offset by strength in the South American and Asia Pacific regions.

The operating margin increased from 15.3% in the second quarter of 2023 to 18.0% in the second quarter of 2024. Material factors affecting this increase were a 320 basis point increase from operating efficiencies and a 240 basis point increase from the sale of a non-production facility in the second quarter of 2024, partially offset by a 140 basis point decrease from lower income from investments in associate companies. The operating margin increased from 14.9% in the first six months of 2023 to 17.0% in the first six months of 2024. Material factors affecting this increase were a 290 basis point increase from operating efficiencies and a 120 basis point increase from the sale of a non-production facility in the second quarter of 2024, partially offset by a 120 basis point decrease from lower income from investments in associate companies.

eMobility

			Three months ended June 30												Increase (decrease)						Six months ended June 30												Increase (decrease)
(In millions)			2024						2023									2024						2023
Net sales			$	189					$	161					18		%				$	348					$	308					13		%
Operating profit (loss)			$	2					$	(1)					300		%				$	(2)					$	(5)					60		%
Operating margin			1.3		%				(0.5)		%										(0.6)		%				(1.6)		%
Changes in Net sales:
Organic growth															18		%																13		%
Foreign currency															—		%																—		%
Total increase in Net sales															18		%																13		%

The increase in organic sales in the second quarter and first six months of 2024 was due to strength in the European region, partially offset by weakness in the North American region.

The operating margin increased from negative 0.5% in the second quarter of 2023 to positive 1.3% in the second quarter of 2024. Material factors affecting this increase were a 590 basis point increase from higher sales and a 490 basis point increase from the sale of a non-production facility in the second quarter of 2024, partially offset by a 480 basis point decline from unfavorable product mix and a 320 basis point decline from additional manufacturing costs due to increased capacity and product launches. The operating margin increased from negative 1.6% in the first six months of 2023 to negative 0.6% in the first six months of 2024. Material factors affecting this increase were a 570 basis point increase from higher sales and a 420 basis point increase from the sale of a non-production facility in the second quarter of 2024, partially offset by a 570 basis point decline from unfavorable product mix, a 160 basis point decline from higher costs to support growth initiatives, and a 150 basis point decline from higher commodity and wage inflation.

Corporate Expense

			Three months ended June 30												Increase (decrease)						Six months ended June 30												Increase (decrease)
(In millions)			2024						2023									2024						2023
Intangible asset amortization expense			$	106					$	113					(6)		%				$	212					$	237					(11)		%
Interest expense - net			29						42						(31)		%				59						91						(35)		%
Pension and other postretirement benefits income			(9)						(11)						(18)		%				(20)						(22)						(9)		%
Restructuring program charges			15						29						(48)		%				78						39						100		%
Other expense - net			166						192						(14)		%				349						340						3		%
Total corporate expense			$	307					$	366					(16)		%				$	678					$	686					(1)		%

Total corporate expense decreased from $366 million in the second quarter of 2023 to $307 million in the second quarter of 2024. Material factors affecting this decrease were lower Other expense - net, Restructuring program charges, and Interest expense - net. The decrease in Other expense - net is due to lower acquisition and divestiture costs. Total corporate expense decreased from $686 million in the first six months of 2023 to $678 million in the first six months of 2024. Material factors affecting this decrease were lower Interest expense - net and Intangible asset amortization expense, partially offset by higher Restructuring program 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 May 21, 2024, a subsidiary of Eaton issued Euro denominated notes (2024 Euro Notes) with a face value of €1,000 million ($1,084 million), in accordance with Regulation S promulgated under the Securities Act of 1933, as amended. The 2024 Euro Notes are comprised of 2 tranches of €500 million each, which mature in 2031 and 2036, with interest payable annually at a respective rate of 3.601% and 3.802%. The issuer received proceeds totaling €995 million ($1,079 million) from the issuance, net of financing costs. The 2024 Euro Notes are fully and unconditionally guaranteed on an unsubordinated, unsecured basis by Eaton and certain of its direct and indirect subsidiaries. The 2024 Euro Notes contain customary optional redemption and par call provisions. The 2024 Euro Notes also contain a change of control provision which requires the Company to make an offer to purchase all or any part of the 2024 Euro Notes at a purchase price of 101% of the principal amount plus accrued and unpaid interest. The capitalized deferred financing fees are amortized in Interest expense - net over the respective terms of the 2024 Euro Notes. The 2024 Euro Notes are subject to customary non-financial covenants.

The Company maintains revolving credit facilities consisting of a $500 million 364-day revolving credit facility that will expire on September 30, 2024 and 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 June 30, 2024. The Company maintains access to the commercial paper markets through its $3,000 million commercial paper program, of which none was outstanding on June 30, 2024.

Over the course of a year, cash, short-term investments, and short-term debt may fluctuate in order to manage global liquidity. As of June 30, 2024 and December 31, 2023, Eaton had cash of $540 million and $488 million, short-term investments of $2,241 million and $2,121 million, and short-term debt of $4 million and $8 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:

			Six months ended June 30												Change from 2023
(In millions)			2024						2023
Net cash provided by operating activities			$	1,421					$	1,185					$	236
Net cash used in investing activities			(511)						(1,030)						519
Net cash used in financing activities			(839)						(113)						(726)
Effect of currency on cash			(20)						16						(36)
Total increase in cash			$	52					$	59

Operating Cash Flow

Net cash provided by operating activities increased by $236 million in the first six months of 2024 compared to 2023. Material factors affecting this increase was higher net income of $432 million, partially offset by higher working capital balances of $162 million.

Investing Cash Flow

Net cash used in investing activities decreased by $519 million in the first six months of 2024 compared to 2023. Material factors affecting this decrease were a decrease in purchases of short-term investments to $126 million in 2024 from $719 million in 2023 and an increase in proceeds from sales of property, plant and equipment to $77 million in 2024 compared to no proceeds in 2023, partially offset by an increase in capital expenditures for property, plant and equipment to $370 million in 2024 from $286 million in 2023 and an increase in cash paid for acquisition of a business to $51 million in 2024 compared to no cash paid in 2023.

Financing Cash Flow

Net cash used in financing activities increased by $726 million in the first six months of 2024 compared to 2023. Material factors affecting this increase were an increase in repurchase of shares to $738 million in 2024 compared to no repurchase of shares in 2023, an increase in payments on borrowings to $399 million in 2024 from $5 million in 2023 and an increase in cash dividends paid to $756 million in 2024 from $692 million in 2023, partially offset by an increase in proceeds from borrowings to $1,084 million in 2024 from $818 million in 2023 and a decrease in net payments of short-term debt to $4 million in 2024 from $225 million in 2023.

Uses of Cash

Capital Expenditures

Capital expenditures were $370 million and $286 million in the first six months of 2024 and 2023, respectively. The Company plans to increase capital expenditures over the next five years to expand production capacity across various markets to support anticipated growth. As a result, Eaton expects approximately $800 million in capital expenditures in 2024.

Dividends

Cash dividend payments were $756 million and $692 million in the first six months of 2024 and 2023, 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 2024.

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 six months ended June 30, 2024, 1.9 million and 2.3 million ordinary shares, respectively, were repurchased under the 2022 program in the open market at a total cost of $600 million and $738 million, respectively. During the three and six months ended June 30, 2023, no ordinary shares were repurchased. The Company will continue to pursue share repurchases in 2024 depending on market conditions and capital levels.

Acquisition of Businesses

The Company paid cash of $51 million to acquire a business in the first six months of 2024. There were no business acquisitions in the first six months of 2023. The Company paid cash of $68 million for investments in associate companies in the first six months of 2024 and 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 June 30, 2024, the Company had Short-term debt of $4 million, Current portion of long-term debt of $1,278 million, and Long-term debt of $8,555 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 six 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), 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 June 30, 2024, 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)			June 30, 2024						December 31, 2023
Current assets			$	5,349					$	5,006
Noncurrent assets			13,062						13,004
Current liabilities			4,172						3,927
Noncurrent liabilities			10,422						10,012
Amounts due to subsidiaries that are non-issuers and non-guarantors - net			8,904						8,178
(In millions)									Six months ended June 30, 2024
Net sales									$	7,202
Sales to subsidiaries that are non-issuers and non-guarantors									572
Cost of products sold									5,294
Expense from subsidiaries that are non-issuers and non-guarantors - net									318
Net income									472

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 deployment, expected capital expenditures, future dividend payments, anticipated share repurchases, and expected restructuring program charges and benefits. 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.