Investor Presentaiton

Changes in the deferred revenue liabilities are as follows: (In millions) Balance at January 1, 2021 Customer deposits and billings Revenue recognized in the period Deferred revenue from business acquisitions Translation and other Balance at December 31, 2021 Customer deposits and billings Revenue recognized in the period Translation and other Deferred revenue 257 1,267 (1,192) 99 (9) 422 1,656 (1,541) (29) Balance at December 31, 2022 508 Deferred revenue liabilities of $489 million and $395 million as of December 31, 2022 and 2021, respectively, were included in Other current liabilities with the remaining balance presented in Other noncurrent liabilities. A significant portion of open orders placed with Eaton are by original equipment manufacturers or distributors. These open orders are not considered firm as they have been historically subject to releases by customers. In measuring backlog of unsatisfied or partially satisfied obligations, only the amount of orders to which customers are firmly committed are included. Using this criterion, total backlog at December 31, 2022 was approximately $11.4 billion. At December 31, 2022, approximately 82% of this backlog is targeted for delivery to customers in the next twelve months and the rest thereafter. Note 4. CREDIT LOSSES FOR RECEIVABLES Receivables are exposed to credit risk based on the customers' ability to pay which is influenced by, among other factors, their financial liquidity position. Eaton's receivables are generally short-term in nature with a majority outstanding less than 90 days. any Eaton performs ongoing credit evaluation of its customers and maintains sufficient allowances for potential credit losses. The Company evaluates the collectability of its receivables based on the length of time the receivable is past due, and anticipated future write-off based on historic experience adjusted for market conditions. The Company's segments, supported by our global credit department, perform the credit evaluation and monitoring process to estimate and manage credit risk. The process includes an evaluation of credit losses for both the overall segment receivable and specific customer balances. The process also includes review of customer financial information and credit ratings, approval and monitoring of customer credit limits, and an assessment of market conditions. The Company may also require prepayment from customers to mitigate credit risk. Receivable balances are written off against an allowance for credit losses after a final determination of collectability has been made. Accounts receivable are net of an allowance for credit losses of $31 million and $42 million at December 31, 2022 and 2021. The change in the allowance for credit losses includes expense and net write-offs, none of which are significant. Note 5. INVENTORY Inventory is carried at lower of cost or net realizable value using the first-in, first-out (FIFO) method. Cost components include raw materials, purchased components, direct labor, indirect labor, utilities, depreciation, inbound freight charges, purchasing and receiving costs, inspection costs, warehousing costs, and costs of the distribution network. The components of inventory are as follows: (In millions) Raw materials Work-in-process Finished goods Total inventory 39 December 31 2022 2021 $ 1,275 $ 781 1,096 620 1,375 1,253 $ 3,430 $ 2,969

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