| Missouri |  | 43-0259330 | |||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
 | |||||||||||
8000 W. Florissant Ave. | |||||||||||
| P.O. Box 4100 | |||||||||||
| St. Louis, | Missouri | 63136 | |||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
Registrant's telephone number, including area code: (314)(314) 553-2000
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Common Stock of $0.50 par value per share | EMR | New York Stock Exchange | ||||||
| NYSE Chicago | ||||||||
| 0.375% Notes due 2024 | EMR 24 | New York Stock Exchange | ||||||
| 1.250% Notes due 2025 | EMR 25A | New York Stock Exchange | ||||||
| 2.000% Notes due 2029 | EMR 29 | New York Stock Exchange | ||||||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý☒ No ¨☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨☐ No ý☒
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 ý☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ý☒ 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 ý Accelerated filer ¨ Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨ Emerging growth company ¨
| 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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issues its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨☐No ý☒
Aggregate market value of the voting stock held by nonaffiliates of the registrant as of close of business on
March 31, 2017: $38.42023: $49.6 billion.
Common stock outstanding at October 31, 2017: 641,819,8382023: 570.1 million shares.
Documents Incorporated by Reference
1. Portions of Emerson Electric Co. Notice of 2024 Annual Meeting of Shareholders and Proxy Statement incorporated by reference into Part III hereof.
PART I
ITEM 1 - BUSINESS
Emerson (“the Company”) is a global technology and software company that provides innovative solutions for customers in a wide range of end markets around the world. Through its leading automation portfolio, Emerson helps process, hybrid and discrete manufacturers optimize operations, protect personnel, reduce emissions and achieve their sustainability goals. Sales by geographic destination in 2023 were: the Americas, 51 percent; Asia, Middle East & Africa, 30 percent (China, 12 percent); and Europe, 19 percent.
Portfolio management is an integral component of Emerson's growth and value creation strategy. Over the past two years, the Company has taken significant actions to accelerate the transformation of its portfolio through the completion of strategic acquisitions and divestitures of non-core businesses. These actions were undertaken to create a higher growth and cohesive industrial technology portfolio as a global automation leader serving a diversified set of end markets. The Company’s recent portfolio actions include the following transactions:
•On October 11, 2023, the Company completed the acquisition of National Instruments Corporation ("NI") at an equity value of $8.2 billion. NI, which provides software-connected automated test and measurement systems that enable enterprises to bring products to market faster and at a lower cost, had revenues of approximately $1.7 billion and pretax earnings of approximately $170 mllion for the 12 months ended September 30, 2023.
•On May 31, 2023, the Company completed the previously announced sale of a majority stake in its Climate Technologies business (which constitutes the former Climate Technologies segment, excluding Therm-O-Disc which was divested earlier in 2022) to private equity funds managed by Blackstone in a $14.0 billion transaction. Emerson received upfront, pre-tax cash proceeds of approximately $9.7 billion and a note receivable with a face value of $2.25 billion (which will accrue 5 percent interest payable in kind by capitalizing interest), while retaining a 40 percent non-controlling common equity interest in a new standalone joint venture between Emerson and Blackstone. The Climate Technologies business, which includes the Copeland compressor business and the entire portfolio of products and services across all residential and commercial HVAC and refrigeration end-markets, had 2022 net sales of approximately $5.0 billion. The new standalone business is named Copeland.
•On October 31, 2022, the Company completed the divestiture of its InSinkErator business, which manufactures food waste disposers, to Whirlpool Corporation for $3.0 billion. This business had net sales of $630 million in 2022.
•On May 31, 2022 the Company completed the divestiture of its Therm-O-Disc sensing and protection technologies business to an affiliate of One Rock Capital Partners, LLC.
•On May 16, 2022, the Company completed the transactions contemplated by its definitive agreement with Aspen Technology, Inc. ("Heritage AspenTech") to contribute two of Emerson's stand-alone industrial software businesses, Open Systems International, Inc. and the Geological Simulation Software business (collectively, the “Emerson Industrial Software Business”), along with approximately $6.0 billion in cash to Heritage AspenTech stockholders, to create "New AspenTech", a diversified, high-performance industrial software leader with greater scale, capabilities and technologies (defined as "AspenTech" herein). Upon closing of the transaction, Emerson owned 55 percent of the outstanding shares of AspenTech common stock (on a fully diluted basis). AspenTech had 2023 net sales of $1.04 billion.
Further information regarding acquisition and divestiture activity is set forth in Notes 4 and 5.
Certain prior year amounts have been reclassified to conform to the current year presentation. This includes reporting financial results for Climate Technologies, InSinkErator and Therm-O-Disc as discontinued operations for all periods presented, and the assets and liabilities of Climate Technologies and InSinkErator (prior to completion of the divestitures) as held-for-sale (see Note 5). In addition, as a result of its portfolio transformation, the Company now reports six segments and two business groups, which are highlighted in the table below (see Note 20 for further details). Beginning in 2024, the Company will report NI (which will be renamed Test & Measurement) as a new segment in the Software and Control business group.
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| INTELLIGENT DEVICES | SOFTWARE AND CONTROL | |||||||||||||
•Final Control | •Control Systems & Software | |||||||||||||
•Measurement & Analytical | •AspenTech | |||||||||||||
•Discrete Automation | ||||||||||||||
•Safety & Productivity | ||||||||||||||
The Company sells products and solutions that support customers in a variety of end markets, including process industries (such as chemical, power & renewables and energy), hybrid industries (life sciences, metals & mining, food & beverage, pulp & paper, and others), discrete industries (including automotive, medical, packaging and semiconductor) and more.
Emerson was incorporated in Missouri in 1890 and has evolved through internal growth and strategic acquisitionsacquisitions. Management has a well-established set of operating mechanisms to manage its business performance and divestituresset strategy. The Company also has processes undertaken by management with oversight from a regional manufacturerthe Board of electric motorsDirectors to specifically focus on risks in areas such as cybersecurity, compliance, legal, sustainability, financial and fans into a diversified global leader that brings technologyreputational, among others. The Company periodically updates, assesses, and engineering togethermonitors its risk exposures, provides timely updates to provide innovative solutions for customers in a wide range of industrial, commercialthe Board, and consumer markets around the world. takes actions to mitigate these risks.
Final Control
The Automation SolutionsFinal Control segment offers customers products, softwareis a leading global provider of control valves, isolation valves, shutoff valves, pressure relief valves, pressure safety valves, actuators, and technology,regulators for process and engineering, project management, consulting services and integrated manufacturinghybrid industries. These solutions for precision measurement, control, monitoring, asset optimization, and safety and reliability of oil and gas reservoirs, manufacturing operations and plants that process or treat various items. The Company’s array of products and services enables customersrespond to optimize their plant capabilities in the areas of plant safety and reliability, product quality, energy and emissions, and output efficiency. Significant end markets served include oil and gas, refining, chemicals and power generation, as well as pharmaceuticals, food and beverage, automotive, pulp and paper, metals and mining, and municipal water supplies. Sales by geographic destination in 2017 for Automation Solutions were: the United States and Canada, 44 percent; Asia, 23 percent; Europe, 20 percent; Latin America, 5 percent; and Middle East/Africa, 8 percent.
Products within our Final Control isolation and pressure relief valves respond to commands from a control system to continuously and precisely modulate the flow of process fluids. Engineered on/off valvessegment are typically used to achieve tight shutoff, even in high pressure and temperature processes. The Company designs, engineers and manufactures ball, gate, globe, check, sliding stem, rotary, high performance butterfly, triple offset, and severe services valves for critical applications. The Company also designs and manufactures sophisticated smart actuation and control technologies that continuously monitor valve health and remotely control valve positions to foster proactive and predictive maintenance as well as decrease the risk of unplanned shutdowns.
Measurement & Analytical
The Measurement & Analytical segment is a leading supplier of intelligent instrumentation measuring the flowphysical properties of liquids andor gases, in manufacturing operations such as automobile assembly, food processing, textile manufacturingpressure, temperature, level, flow, acoustics, corrosion, pH, conductivity, water quality, toxic gases, and petrochemical processing,flame. The instrumentation transfers data to control systems and include products such asautomation software, allowing process and hybrid industry operators to make educated decisions regarding production, reliability and safety. Products within our Measurement & Analytical segment are marketed under a variety of brands including: Flexim, Micro Motion and Rosemount.
Discrete Automation
The Discrete Automation segment includes solenoid andvalves, pneumatic valves, valve position indicators, pneumatic cylinders and actuators, air preparation equipment, and pressure vacuum and temperature switches. Electrical distribution consists of a broad line of components for current- and noncurrent-carrying electrical distribution devices, including conduit and cable fittings, plugs and other receptacles, industrial lighting, enclosures and controls. Electrical distribution products are used in hazardous, industrial, commercial and construction environments, such as oil and gas drilling and production sites, pulp and paper mills and petrochemical plants. Plastic and metal joining technologies and equipment are supplied to a diversified manufacturing customer base, including automotive, medical devices, business and consumer electronics, and toys. The Company also provides precision cleaning and liquid processingswitches, electric linear motion solutions, to industrial and commercial manufacturers. Products include ultrasonic joining and
Safety & Productivity
The Safety & Productivity segment offers tools for professionals and homeowners that promote safety and productivity. Pipe-working tools include pipe wrenches, pipe cutters, pipe threading and roll grooving equipment,
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battery hydraulic tools for press connections, drain cleaners, tubing tools and diagnostic systems, including sewer inspection cameras and locating equipment. Electrical tools include conduit benders and cable pulling equipment, battery hydraulic tools for cutting and crimping electrical cable, and hole-making equipment. Other professional tools include water jetters, wet-dry vacuums, commercial vacuums and hand tools. Products within our Safety & Productivity segment are marketed under a variety of brands including: Greenlee, Klauke, ProTeam and RIDGID.
SOFTWARE AND CONTROL
Control Systems & Software
The Control Systems & Software segment provides control systems and software that control plant processes by collecting and analyzing information from measurement devices in the plant and then useusing that information to adjust valves, pumps, motors, drives and other control hardware for maximum product quality, and process efficiency and safety. These solutions include distributed control systems, safety instrumented systems, SCADA systems, application software, digital twins, asset performance management and cybersecurity. Control Systems & Software capabilities also include life sciencessolutions are predominantly used by process and hybrid manufacturers. Products within our Control Systems & Software segment are marketed under a variety of brands including: AMS, DeltaV and Ovation.
AspenTech
AspenTech is a global leader in asset optimization software that enables industrial manufacturers to design, operate, and maintain their operations management, upstream oil and gas reservoirfor maximum performance. AspenTech combines decades of modeling, simulation, and production optimization modeling, pipelinecapabilities with industrial operations expertise and terminal management, operations management simulation, and training systems. The Company’s process control systems can be extended wirelessly to support a mobile workforce with handheld tools/communicators, provide site-wide location tracking of people and assets, and enable video monitoring and communication with wireless field devices, thereby increasing the information available to operators.
Test & Measurement
As discussed above, Emerson completed the acquisition of NI on October 11, 2023. This business will be referred to as Test & Measurement and reported as a new segment in the Software and Control business group in 2024. Test & Measurement provides software-connected automated test and measurement systems that enable enterprises to bring products to market faster and at a lower cost. The Test & Measurement platform spans the full range of customer needs including modular instrumentation, data acquisition and control solutions, and general-purpose development software.
RESEARCH & DEVELOPMENT
Investing in innovation to accelerate organic growth is a critical component of Emerson's value creation strategy. The Company personnel who are experts in specific applications oris focused on key growth initiatives across its software, control and intelligent devices portfolio. These initiatives include disruptive measurement technologies, software-defined automation systems, self-optimizing asset classes monitorsoftware and analyze customer data that is supplied on a periodic basissustainability solutions. Total spending for R&D, engineering expense and generate reports that provide specific information on actions to take to improve plant operational performance.
The principal worldwide distribution channel for Automation Solutionsa majority of the Company's product offerings is through a direct sales force, althoughwhile a network of independent sales representatives, and to a lesser extent independent distributors purchasing products for resale, are also utilized. Approximately half of the sales in the United States are made through a direct sales force with the remainder primarily through independent sales representatives and distributors. In Europe and Asia, sales are primarily made through a direct sales force with the remainder split evenly between independent sales representatives and distributors.
RAW MATERIALS
The Company's major requirements for basic raw materials include steel, copper, cast iron, electronics, rare earth metals, aluminum and brass; and to a lesser extent, plastics and petroleum-based chemicals. The Company seeks to have many sources of supply for each of its major requirements in order to avoid significant dependence on any one or a few suppliers. However, the supply of materials or other items could be disrupted by natural disasters or other events. In 2023, freight costs and service levels returned to pre-pandemic levels, while the supply chain improved, including the availability of electronic components. Despite market price volatility for certain requirements, and materials pricing pressures at some of our businesses, the raw materials and various purchased components needed for the Company’s products have generally been available in
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sufficient quantities. See Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
PATENTS, TRADEMARKS AND LICENSES
The Company maintains an intellectual property portfolio it has developed or acquired over a number of years, including patents, trademarks and licenses. The Company also continues to develop or acquire new intellectual property on an ongoing basis.property. New patent applications are continuously filed to protect the Company’s ongoing research and development activities.activities and the Company periodically reviews the continued utility of patent assets. The Company’s trademark registrations may be renewed and their duration is dependent upon national laws and trademark use. While this proprietary intellectual property portfolio is important to the Company in the aggregate, management does not regard any of its segments as being dependent on any single patent, trademark registration or license.
BACKLOG
The Company’s estimated consolidated order backlog was $4,894 million$7.8 billion and $3,925 million$7.0 billion at September 30, 20172023 and 2016, respectively. A large majority2022, respectively, of which approximately $1.2 billion and $1.1 billion related to AspenTech. Approximately 75 percent of the Company’s consolidated backlog as of September 30, 2017 is expected to be shipped within one year.recognized as revenue over the next 12 months, with the remainder substantially over the subsequent two years thereafter. Backlog by business group at September 30, 20172023 and 20162022 follows (dollars in millions).:
| 2022 | 2023 | ||||||||||
| Intelligent Devices | $ | 3,930 | 4,471 | ||||||||
| Software and Control | 3,058 | 3,302 | |||||||||
| Total Backlog | $ | 6,988 | 7,773 | ||||||||
| 2016 | 2017 | |||||
| Automation Solutions | $ | 3,464 | 4,414 | |||
| Commercial & Residential Solutions | 461 | 480 | ||||
| Total Backlog | $ | 3,925 | 4,894 | |||
COMPETITION
The Company's businesses operate in end markets that are highly competitive.competitive markets. The Company competes based on product performance, quality, branding, service and/or price across the industries and markets served. A significant element of the Company's competitive strategy is to deliver solutions to our customers by manufacturing high-quality products at the best relevant global cost. Although no single company competes directly with Emerson in all of the Company's product lines, various companies compete in one or more product lines with the number of competitors varying by product line. Some competitors have substantially greater sales, assets and financial resources than Emerson and the Company also competes with many smaller companies. Management believes Emerson has a market leadership position in many of its product lines.
REGULATIONS
The Company's operations, products and services are subject to various government regulations, including environmental regulations. Our manufacturing locations generate waste, of which treatment, storage, transportation and disposal are subject to U.S. federal, state, foreign and/or local laws and regulations relating to protection of the environment. The Company continually works to minimize the environmental impact of its operations through safe technologies, facility design and operating procedures. Compliance with laws regulating the discharge of materials into the environment or otherwise relating to protection of the environmentgovernment regulations, including environmental regulations, has not had, and based on current information and the applicable laws and regulations currently in effect, is not expected to have a material effect on the Company's capital expenditures (including expenditures for environmental control facilities), earnings or competitive position. However, laws and regulations may be changed, accelerated or adopted that impose significant operational restrictions and compliance requirements upon the Company and which could negatively impact our operating results. See Item 1A - "Risk Factors."
HUMAN CAPITAL RESOURCES
Emerson is dedicated to modernizing our workplace culture to meet the needs and expectations of today's workers and attract talent that will help us thrive. In 2023, the Company launched its first-ever employee value proposition, Let's Go, which serves as an invitation to employees and potential employees to join the Company in our bold aspiration to create a healthier, safer, smarter and more sustainable world. We believe the Company’s success depends on our ability to attract, develop and retain key personnel. The skills, experience and industry knowledge of
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key employees significantly benefit our operations and performance. The Company's Board of Directors and management oversee various employee initiatives.
The Company does not anticipate having materialsupports and develops its employees through global training and development programs that build and strengthen employees’ leadership and professional skills. Leadership development programs include intensive learning programs for new leaders as well as more established leaders. The Company also partners with educational institutions and nonprofit organizations to help prepare current and future workers with the knowledge and skills they need to succeed. To assess and improve employee retention and engagement, the Company surveys employees with the assistance of third-party consultants, and takes actions to address areas of employee concern. In 2023, we initiated a continuous listening strategy, with more than 85 percent of employees participating in the survey and an overall engagement score of 78 percent. The categories of safety, well-being, growth and development, and access to resources and support earned the most favorable scores.
Employee health and safety in the workplace is also one of the Company’s core values. The Corporate Safety Council is led by our Chief Operating Officer and oversees our safety efforts, supported by health and safety committees and leaders that operate at the local site level. Hazards in the workplace are actively identified and management tracks incidents so remedial actions can be taken to improve workplace safety. In 2023, the Company's total recordable rate of injuries was 0.30, and its lost or restricted workday case rate was 0.22 (both measured as the number of incidents per 100 employees).
We have identified other human capital expenditurespriorities, including, among other things, providing competitive wages and benefits and promoting an inclusive work environment. The Company is committed to efforts to elevate the representation of women and U.S. minorities and foster an inclusive work environment that supports our large global workforce and helps us innovate for environmental control facilities duringour customers. Employee Resource Groups have been created to support our diverse workforce and have grown to over 13,000 members. We also have taken actions to enhance diversity, including setting diversity targets for interview slates and targeted recruiting to increase the next fiscal year.representation of women, minorities, U.S. military veterans, individuals with a disability and LGBTQ+ talent within Emerson. In 2021, the Company introduced diversity goals at the leadership level. We continue to make progress on our goals and were named a “Best Employer for Diversity” by Forbes. Overall, women represent 33 percent of our global workforce and 23 percent of leadership positions are held by women. In the U.S., minorities represent 35 percent of our workforce and 21 percent of our leadership positions.
Employee levels are managed to align with the pace of business and management believes it has sufficient human capital to operate its business successfully. The Company and its subsidiaries had an average of approximately 76,50067,000 employees during 2017.at September 30, 2023. Management believes that the Company's employee relationsrelations are favorable. Some
A small portion of the Company'sCompany’s U.S. employees are unionized, while outside the U.S., we have employees in certain countries, particularly in Europe, that are represented under collective bargaining agreements, but none of these agreements are considered significant.
ENVIRONMENTAL SUSTAINABILITY
Emerson’s global purpose is to drive innovation that makes the world healthier, safer, smarter and more sustainable. Our environmental sustainability strategy is focused on driving progress within our facilities and helping our customers achieve their ESG objectives. In 2021, we appointed Mike Train as Chief Sustainability Officer. This role, part of facilities, currency fluctuationsour Office of the Chief Executive, reflects our focus on sustainability across our company. Under his leadership, Emerson has made significant strides, and potential restrictionswe are strengthening our leadership position as our customers and suppliers work to deliver their environmental targets.
In 2022, we set an ambitious target to achieve net zero greenhouse gas (GHG) emissions across our value chain by 2045 compared to a 2021 baseline. To set us on the movementright pathway, we will target net zero operations and a 25 percent reduction of funds. See Note 18our value chain emissions by 2030, also compared to a 2021 baseline. The Company also added ESG targets, including GHG reduction targets, as a component in the determination of annual bonuses for leadership beginning in 2022. In 2023, we established a goal to achieve zero waste to landfill in our manufacturing facilities by 2032, from a 2022 fiscal year baseline, wherever this is compatible with local conditions and regulations. We also introduced a new Technology and Environmental Sustainability Board committee, which is tasked with overseeing strategy related to technology and R&D, the Company’s product cybersecurity practices and Emerson’s environmental sustainability goals and programs.
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Our environmental sustainability strategy is summarized by our “Greening Of, Greening By, Greening With” framework. Greening Of Emerson demonstrates our efforts to improve our internal environmental sustainability performance, including reducing our GHG emissions and energy and water consumption. Greening By Emerson is our approach to delivering technology, solutions and expertise (including through our software offerings) that support and enable our customers’ decarbonization and environmental sustainability efforts. Greening With Emerson reflects how we foster collaboration among stakeholders by participating in environmental sustainability industry forums, partnering to develop innovative solutions, and engaging with governments globally to support sustainability-related policies and regulations.
Emerson’s environmental sustainability initiatives and strategy are discussed further information with respect to foreign operations.in our 2022 Environmental, Social and Governance Report, which can be found on our website at www.Emerson.com; this report is not incorporated by reference and should not be considered part of this Form 10-K.
INTERNETACCESS
Emerson's reports on Forms 10-K, 10-Q, 8-K and all amendments to those reports, as well as proxy statements, are available without charge through the Company’s website on the internet as soon as reasonably practicable after they are electronically filed with, or furnished to, the U.S. Securities and Exchange Commission (SEC). They may be accessed as follows: www.Emerson.com, Investors, SEC Filings. Information on the Company’s website does not constitute part of this Form 10-K.
The information set forth under Item 1A - "Risk“Risk Factors” is hereby incorporated by reference.
ITEM 1A - RISK FACTORS
Investing in our securities involves risks. You should carefully consider, among other matters, the factors set forth below and the other information in this report. The Company’s risk factors set forth below are not the only risks facing the Company. Additional risks and uncertainties not currently known to management or that management currently deems immaterial also may materially, adversely affect the Company’s business, financial condition or operating results. We may amend or supplement the risk factors describedset forth below from time to time by other reports we file with the SEC.
We Operate in Businesses That Are Subject to Competitive Pressures That Could Affect Prices or Demand for Our Products
Our businesses operate in markets that are highly competitive and potentially volatile, and we compete on the basis of product performance, quality, service and/or price across the industries and markets served. Our businesses are largely dependent on the current and future business environment, including capital and consumer spending. A significant element of our competitive strategy is to deliver solutions to our customers by manufacturing high-quality products at the best relevant global cost. Various companies compete with us in one or more product lines and the number of competitors varies by product line. Some of our competitors have substantially greater sales, assets and financial resources than our Company and we also compete with many smaller companies. Competitive pressures could adversely affect prices or customer demand for our products, impacting our sales or profit margins, and/or resulting in a loss of market share. In addition, certain of our businesses rely, in part, on independent sales representatives and distributors. Any disruption or adverse change in our relationships with these independent sales representatives could weaken our competitive position and adversely affect our results of operations, cash flows and financial condition. A disruption or adverse change could result from the sale or financial instability of an independent sales representative or distributor, changes to our relationship including favoring competing products for any reason, or other events.
Our Operating Results Depend in Part on Continued Successful Research, Development and Marketing of New and/or Improved Products and Services, and There Can Be No Assurance That We Will Continue to Successfully Introduce New Products and Services
The success of new and improved products and services depends on their initial and continued acceptance by our customers. Our businesses are affected by varying degrees of technological change and corresponding shifts in
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customer demand, which result in unpredictable product transitions, shortened life cycles and increased importance of beingbeing first to market with new products and services. We may experience difficulties or delays in the research, development, production and/or marketing of new products and services which may negatively impact our operating results and prevent us from recouping or realizing a return on the investments required to continue to bring new products and services to market.
We must anticipate and respond to market and technological changes driven by broader trends such as decarbonization and electrification efforts in response to climate change. Market growth from the use of cleaner energy sources, as well as emissions management, energy efficiency and decarbonization efforts are likely to depend in part on technologies not yet deployed or widely adopted today. We may not adequately innovate or position our businesses for the adoption of technologies such as battery storage solutions, hydrogen use cases in industry, mobility, and power generation, enhanced electrical grid demand management, carbon capture and sequestration or advanced nuclear power.
These trends and the relative competitiveness of our product and service offerings will continue to be impacted by uncertain factors such as the pace of technological developments and related cost considerations, the levels of economic growth in different markets around the world and the adoption of climate change-related policies such as carbon taxes, greenhouse gas emission reductions, incentives or mandates for particular types of energy, or policies that impact the availability of financing for certain types of projects.
If We Are Unable to Defend or Protect Our Intellectual Property Rights, the Company's Competitive Position Could Be Adversely Affected
The Company's intellectual property rights are important to its business and include numerous patents, trademarks, copyrights, trade secrets and other confidential information. This intellectual property may be subject to challenge, infringement, invalidation or circumvention by third parties. Despite extensive security measures, our intellectual property may be subject to misappropriation through unauthorized access of our information technology systems, employee theft, or other acts of industrial espionage. Should the Company be unable to adequately defend or protect its intellectual property, it may suffer competitive harm.
We Engage in Acquisitions and Divestitures, Which Are Subject to Domestic and Foreign Regulatory Requirements, and May Encounter Difficulties in Integrating and Separating These Businesses and Therefore We May Not Realize the Anticipated Benefits
We regularly seek growth through strategic acquisitions as well as evaluate our portfolio for potential divestitures. These activities require favorable environments to execute these transactions, and we may encounter difficulties in obtaining the necessary regulatory approvals in both domestic and foreign jurisdictions. In 20172023 and in past years, we have made various acquisitions and divestitures, including our acquisition of National Instruments which closed after year-end, our divestiture of a majority stake in the valves & controlsClimate Technologies business (now renamed Copeland), and our majority stake in Aspen Technology, Inc., and entered into joint venture arrangements intended to complement or expand our business, and may continue to do so in the future. As a result of these transactions, the Company has a narrower business which is focused on higher growth markets including software, innovation and disruptive technologies, and may encounter more volatility and be more vulnerable to changing market conditions. The success of these transactions will depend on our ability to achieve higher rates of growth, integrate assets and personnel acquired in these transactions and to cooperate with our strategic partners. We may encounter difficulties in integrating acquisitions with our operations as well as separating divested businesses, and in managing strategic investments. Furthermore, we may not realize the degree, or timing, of anticipated benefits we anticipate when we first enter into a transaction.including, among others, increasing rates of profitability and growth. Any of the foregoing could adversely affect our business and results of operations.
As part of the Copeland transaction, the Company received a note receivable and retained a 40 percent non-controlling common equity interest. As the Company no longer has a controlling interest in this business, the future value or proceeds from the note receivable and common equity interest will depend on the business performance of Copeland and how the controlling owner manages the business. Therefore, the Company can make no assurance regarding the amount or timing of any future proceeds or value to be derived from the note receivable and common equity interest.
We Use a Variety of Raw Materials and Components in Our Businesses, and Significant Shortages or Price Increases Could Increase Our Operating Costs and Adversely Impact the Competitive Positions of Our ProductsProducts
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Our major requirements for raw materials include steel, copper, cast iron, electronics, rare earth metals, aluminum, brass and, to a lesser extent, plastics and petroleum-based chemicals. The Company seeks multiple sources of supply for each of its major requirements in order to avoid significant dependence on any one or a few suppliers. However, the supply of materials or other items could be disrupted by natural disasters, a health epidemic or pandemic, or other events. Significant shortages or price increases could impact the prices our affected businesses charge, their operating costs and the competitive position of their products and services, which could adversely affect our results of operations. While we
monitor market prices of the commodities we require and attempt to mitigate price exposure through hedging activities, this risk could adversely affect our operating results.
Our Operations Depend on Production Facilities Throughout the World, a Majority of Which Are Located Outside the United States and Subject to Increased Risks of Disrupted Production, Causing Delays in Shipments and Loss of Customers and Revenue
We manage businesses with manufacturing facilities worldwide, a majority of which are located outside the United States, and also source certain materials internationally.globally. Emerging market sales represent over one-third of total sales and serving a global customer base requires that we placeplace more materials sourcing and production in emerging markets to capitalize on market opportunities and maintain oura best-cost position. Our and our suppliers’ internationalnon-U.S. production facilities and operations could be disrupted by aweather and natural disaster (including the potential effects of climate change), labor strife, war (including the Russia-Ukraine and other global conflicts), political unrest, terrorist activity or public health concerns such as an epidemic or pandemic, particularly in emerging countries that are not well-equippedwell-equipped to handle such occurrences.
Our manufacturing facilities abroad are dependent on the stability of governments and business conditions and may be more susceptible to changes in laws, policies and regulationregulations in host countries, as well as economic and political upheaval, than our domestic facilities. These facilities face increased risks of nationalization as well as operational disruptions which could cause delays in shipments of products and the loss of sales and customers, and insurance proceeds may not adequately compensate us.
Access to Funding Through the Capital Markets Isis Essential to the Execution of Our Business Plan, and if We Are Unable to Maintain Such Access We Could Experience a Material Adverse Effect on Our Business and Financial Results
Our ability to invest in our businesses, make strategic acquisitions and refinance maturing debt obligations requires access to the capital markets and sufficient bank credit lines to support short-term borrowings. Volatility in the capital markets may increase costs associated with issuing commercial paper or other debt instruments, or affect the Company’s ability to access those markets. If we are unable to continue to access the capital markets, we could experience a material adverse effect on our business and financial results. Additionally, if our customers, suppliers or financial institutions are unable to access the capital markets to meet their commitments to the Company, our business could be adversely impacted.
Our Business Success Depends on the Ability to Attract, Develop and Retain Key Personnel
Our success depends in part on the efforts and abilities of our management and key employees. Their skills, experience and industry knowledge significantly benefit our operations and performance. The failure to attract, develop and retain highly qualified personnel could adversely affect our ability to succeed in our human capital goals and priorities as well as negatively impact our business and operating results.
Security and/or Data Privacy Breaches, or Disruptions of Our Information Technology Systems Could Adversely Affect Our Business
The Company utilizesrelies on information technology networks and systems, including the internet, to process, transmit and store electronic information, and to manage or support a variety of business processes and activities. These technology networks and systems may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components; power outages; telecommunications or system failures; terrorist attacks; natural disasters; employee error or malfeasance; server or cloud provider breaches; and computer viruses or cyberattacks. Cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access to information technology networks and systems to managemore sophisticated and operatetargeted measures, known as advanced persistent threats, directed at the Company, its businesses.products,
8
its customers and/or its third-party service providers. Despite the implementation of extensive securitycybersecurity measures (including access controls, data encryption, vulnerability assessments, continuous monitoring, and maintenance of backup and protective systems), the Company’s information technology systems are potentiallymay still be vulnerable to unauthorized access, computer viruses, cyberattackcybersecurity threats and other events, ranging from individual attemptselectronic security breaches. It is possible for such vulnerabilities to advanced persistent threats. Although considered unlikely,remain undetected for an extended period. In addition, it is possible a security breach could result in theft of trade secrets or other intellectual property or disclosure of confidential customer, supplier or employee information. Should the Company be unable to prevent security breaches or other damage to our information technology systems, disruptions could have an adverse effect on our operations, as well as expose the Company to litigation, liability or penalties under privacy laws, increased cybersecurity protection costs, reputational damage and product failure. In addition, we must comply with increasingly complex and rigorous regulatory standards enacted to protect business and personal data in the U.S. and elsewhere. Compliance with privacy and localization laws and regulations increases operational complexity. Failure to comply with these regulatory standards could subject us to fines and penalties, as well as legal and reputational damage.risks, including proceedings against the Company by governmental entities or others.
Our Products and Services are Highly Sophisticated and Specialized, and a Major Product Failure or Similar Event Caused by Defects, Cybersecurity Incidents or Other Failures, Could Adversely Affect Our Business, Reputation, Financial Position and Results of Operations
We produce highly sophisticated products and provide specialized services that incorporate or use complex or leading-edge technology, including both hardware and software. Many of our products and services, including measurement and analytical instrumentation, industrial valves and equipment, and process control systems, are integrated and used in complex process, hybrid and discrete manufacturing environments. As a result, the impact of a catastrophic product failure or similar event could be significant. While we have built operational processes to ensure that our product design, manufacture, performance and servicing meet rigorous quality standards, there can be no assurance that we or our customers or other third parties will not experience operational process or product failures and other problems, including through manufacturing or design defects, process or other failures of contractors or third-party suppliers, cybersecurity incidents or other intentional acts, that could result in potential product, safety, regulatory or environmental risks. Cybersecurity incidents aimed at the software embedded in our products could lead to third-party claims resulting from damages caused by our product failures, and this risk is enhanced by the increasingly connected nature of our products. The potential consequences of a material cybersecurity incident include financial loss, reputational damage, litigation with third parties, diminution in the value of our investment in research, development and engineering, and increased cybersecurity protection and remediation costs due to the increasing sophistication and proliferation of threats, which in turn could adversely affect our competitiveness and results of operations.
Industry and General Economic Risks
The Coronavirus (COVID-19) Outbreak Adversely Impacted our Business and a Resurgence or Development of New Strains or Variants of COVID-19, or Other Public Health Emergencies, Could in the Future Have a Material Adverse Impact on our Business, Results of Operation, Financial Condition and Liquidity, the Nature and Extent of Which is Highly Uncertain
The global outbreak of the coronavirus (COVID-19) significantly increased economic, demand and operational uncertainty. Our operations have generally stabilized since the peak of the COVID-19 pandemic and in May 2023, the World Health Organization declared an end to COVID-19 as a public health emergency. However, a resurgence or development of new strains of COVID-19, or other public health emergencies, could result in unpredictable responses by authorities around the world which could negatively impact our global operations, customers and suppliers. Any future pandemics or public health emergencies could result in disruptions to our manufacturing operations, including higher rates of employee absenteeism, and supply chain, which could negatively impact our ability to meet customer demand. The extent to which new strains or variants of COVID-19, or other public health emergencies, could impact our business, results of operations, financial condition or liquidity is highly uncertain and would depend on future developments, including the spread and duration of any such virus and the variants, potential actions taken by governmental authorities, and how quickly economic conditions stabilize and recover.
Our Substantial Sales Both in the U.S. and Abroad Subject Us to Economic Risk as Our Results of Operations May Be Adversely Affected by Changes in Government Regulations and Policies and Currency Fluctuations
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We sell, manufacture, engineer and purchase products globally, with significant sales in both mature and emerging markets. We expect sales in non-U.S. markets to continue to represent a significant portion of our total sales. Our U.S. and international operations subject the Company to changes in government regulations and policies in a large number of jurisdictions around the world, including those related to trade, investments, taxation, exchange controls and repatriation of earnings. Changes in laws or policies governing the terms of foreign trade, trade restrictions or barriers, tariffs or taxes, trade protection measures, and retaliatory countermeasures, including on imports from countries where we manufacture products, could adversely impact our business and financial results. In addition, changes in the relative values of currencies occur from time to time and have affected our operating results and could do so in the future. While we monitor our exchange rate exposures and attempt to mitigate this exposure through hedging activities, this risk could adversely affect our operating results.
Recessions, Adverse Market Conditions or Downturns in End Markets We Serve May Negatively Affect Our Operations
In the past, our operations have been exposed to significant volatility due to changes in general economic conditions or consumer preferences, recessions or adverse conditions in the end markets we serve. In the future, similar changes could adversely impact overall sales, operating results (including potential impairment charges for goodwill or other long-lived assets) and cash flows. Moreover, during economic downturns we may undertake more extensive restructuring actions, including workforce reductions, global facility consolidations, centralization of certain business support activities, and other cost reduction initiatives, and incur higher costs. As these plans and actions can be complex, the anticipated operational improvements, efficiencies and other benefits might be delayed or not realized.
Legal and Regulatory Risks
Changes in Tax Rates, Laws or Regulations and the Resolution of Tax Disputes Could Adversely Impact Our Financial Results
As a global company, we are subject to taxation in the U.S. and numerous non-U.S. jurisdictions. Significant judgment is required to determine our consolidated income tax provision and related liabilities. The Company’s effective tax rate, cash flows and operating results could be affected by changes in the mix of earnings in countries with different statutory tax rates, as well as by changes in the local tax laws and regulations, or the interpretations thereof. In addition, the Company’s tax returns are subject to regular review and audit by U.S. and non-U.S. tax authorities. While we believe our tax provisions are appropriate, the final outcome of tax audits or disputes could result in adjustments to the Company’s tax liabilities, which could adversely affect our financial results.
Our Reputation, Ability To Do Business and Results of Operations Could Be Impaired By Improper Conduct By Any of Our Employees, Agents or Business Partners
We are subject to regulation under a wide variety of U.S. federal and state and non-U.S. laws, regulations and policies, including laws related to anti-corruption, anti-bribery, export and import compliance, anti-trust and money laundering, due to our global operations. In particular, the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business, and we operate in many parts of the world that have experienced government corruption to some degree. We cannot provide assurance our internal controls will always protect us from the improper conduct of our employees, agents and business partners. Any such violation of law or improper actions could subject us to civil or criminal investigations in the U.S. and other jurisdictions, could lead to substantial civil or criminal, monetary and non-monetary penalties and related shareholder lawsuits, could lead to increased costs of compliance and could damage our reputation, our business and results of operations.
We Are Subject to Litigation and Environmental Regulations That Could Adversely Impact Our Operating Results
We are, and may in the future be, a party to a number of legal proceedings and claims, including those involving intellectual property, product liability (including asbestos) and environmental matters, several of which claim, or may in the future claim, significantsignificant damages. Given the inherent uncertainty of litigation, we can offer no assurance that existing litigation or a future adverse development will not have a material adverse impact. We also are subject to various laws and regulations relating to environmental protection and the discharge of materials into the environment, and we could incur substantial costs as a result of the noncompliance with or liability for cleanup or
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other costs or damages under environmental laws. In addition, increased public awareness and concern regarding global climate change may result in more international, federal, and/or state or other stakeholder requirements or expectations that could result in more restrictive or expansive standards, such as stricter limits on greenhouse gas emissions or more prescriptive reporting of environmental, social, and governance metrics. There continues to be a lack of consistent climate change legislation and standards, which creates economic and regulatory uncertainty. While the Company has adopted certain voluntary targets, environmental laws, regulations or standards may be changed, accelerated or adopted and impose significant operational restrictions and compliance requirements upon the Company, its products or customers, which could negatively impact the Company’s business, capital expenditures, results of operations, financial condition and competitive position.
Increasing Interest and Expectations with Respect to Environmental, Social, and Governance (ESG) Matters by Our Various Stakeholders Could Adversely Affect Our Business and Operating Results
In response to growing customer, investor, employee, governmental, and other stakeholder interest in our ESG practices, we have increased reporting of our ESG programs and performance and have established and announced our aspirational purpose, causes, values, and related commitments, goals or targets, including those regarding sustainability, greenhouse gas emissions, our net zero ambition, and diversity, equity and inclusion. Our ability to achieve such goals and aspirations is subject to numerous risks and uncertainties, many of which rely on the collective efforts of others or may be outside of our control. Such risks include, among others, the availability and adoption of new or additional technologies that reduce carbon or eliminate energy sources on a commercially reasonable basis, competing and evolving economic, policy and regulatory factors, the ability of suppliers and others to meet our sustainability, diversity and other goals, the availability of qualified candidates in our labor markets and our ability to recruit and retain diverse talent, and customer engagement in our goals. There may be times where actual outcomes vary from those aimed for or expected and sometimes challenges may delay or block progress. As a result, we cannot offer assurances that the results reflected or implied by any such statements will be realized or achieved. Moreover, standards and expectations for ESG matters continue to evolve and may be subject to varying interpretations, which may result in significant revisions to our goals or progress. In addition, certain of our product offerings may become less attractive as standards evolve. A failure or perceived failure to meet our aspirational purpose, causes, values, and related commitments, goals or targets within the timelines we announce, or at all, or a failure or perceived failure to meet evolving stakeholders expectations and standards, could damage our reputation, adversely affect employee retention or engagement or support from our various stakeholders and could subject us to government enforcement actions or penalties and private litigation. Such outcomes could negatively impact the Company’s business, capital expenditures, results of operations, financial condition and competitive position.
ITEM 1B - UNRESOLVED STAFF COMMENTS
None.
ITEM 2 - PROPERTIES
At September 30, 2017,2023, the Company had approximately 200 130manufacturing locations worldwide, of which approximately 13040 were located in the United States and 90 were located outside the United States, primarily in Europe and Asia, and to a lesser extent in Canada and Latin America. Manufacturing locations by business are: Automation Solutions, 150, and CommercialIntelligent Devices, 115, including 35 in the Final Control segment, 30 in the Measurement & Residential Solutions, 50, includingAnalytical segment, 40 in the Climate TechnologiesDiscrete Automation segment, and 10 in the ToolsSafety & Home ProductsProductivity segment; and Software and Control, 10, all in the Control Systems & Software segment. Additionally, there are 5 locations that support multiple segments. The majority of the locations are owned, with the remainder occupied under lease. The Company considers its facilities suitable and adequate for the purposes for which they are used. The Company also maintains a smaller number of administrative, sales, research and development, and distribution facilities.
ITEM 3 - LEGAL PROCEEDINGS
The Company and its subsidiaries are party to various legal proceedings, some of which claim substantial amounts of damages. It is not possible to predict the outcome of these matters, but historically the Company has been largely successful in both prosecuting and defending claims and lawsuits.
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Information regarding legal proceedings is set forth in Note 13.15.
ITEM 4 - MINE SAFETY DISCLOSURES
Not applicable.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information as of November 20, 201713, 2023, with respect to the Company's executive officers. The Fiscal Year column indicates the first year the executive served as an officer of the Company. TheseThese officers have been elected or appointed to terms which expire February 6, 2018:
| Name | Position | Age | Fiscal Year |
| D. N. Farr | Chairman of the Board and Chief Executive Officer* | 62 | 1985 |
| F. J. Dellaquila | Senior Executive Vice President and Chief Financial Officer | 60 | 1991 |
| E. L. Monser | President | 67 | 2002 |
| E. M. Purvis | Executive Vice President and Chief Operating Officer | 60 | 2003 |
| S. J. Pelch | Executive Vice President - Organization Planning and Development | 53 | 2005 |
| R. T. Sharp | Executive President - Commercial & Residential Solutions | 50 | 2012 |
| M. H. Train | Executive President - Automation Solutions | 55 | 1994 |
| S. Y. Bosco | Senior Vice President, Secretary and General Counsel | 59 | 2005 |
| M. J. Bulanda | Senior Vice President - Acquisition Planning and Development | 51 | 2002 |
| K. Button Bell | Senior Vice President and Chief Marketing Officer | 59 | 1999 |
| R. J. Schlueter | Vice President, Controller and Chief Accounting Officer | 63 | 1992 |
| Name | Position | Age | Year First Appointed an Executive Officer | ||||||||
| S. L. Karsanbhai | President and Chief Executive Officer | 54 | 2018 | ||||||||
| R. R. Krishnan | Executive Vice President and Chief Operating Officer | 52 | 2021 | ||||||||
| M. J. Baughman | Executive Vice President, Chief Financial Officer and Chief Accounting Officer | 58 | 2018 | ||||||||
| S. Y. Bosco | Senior Vice President, Chief Legal Officer | 65 | 2016 | ||||||||
| M. H. Train | Senior Vice President and Chief Sustainability Officer | 61 | 2016 | ||||||||
| L. A. Flavin | Senior Vice President, Chief Transformation and Chief Compliance Officer | 58 | 2021 | ||||||||
| P. Zornio | Senior Vice President and Chief Technology Officer | 60 | 2022 | ||||||||
| V. Ramnath | Senior Vice President and Chief Marketing Officer | 56 | 2023 | ||||||||
| N. Piazza | Senior Vice President and Chief People Officer | 45 | 2023 | ||||||||
There are no family relationships among any of the executive officers and directors.
Michael J. Baughman was appointed Executive Vice President - Commercial & Residential Solutionsand Chief Financial Officer in May 2023, and Chief Accounting Officer in February 2018. Prior to his current position, Mr. Baughman was named Vice President and Controller in October 2017. Prior to that Mr. Baughman was Vice President, Finance, Global Operations, Quality, and Research and Development of Baxter International Inc., a global healthcare products company, from 2015 through September 2017, and Vice President, Finance, Medical Products of Baxter from 2013 to 2015.
Sara Y. Bosco was appointed to Senior Vice President, Secretary and Chief Legal Officer in February 2023. Prior to her current position, Ms. Bosco was Senior Vice President, Secretary and General Counsel from May 2016 through October 2016, Executive Vice President - Climate Technologies from February 2015 through February 2016, Vice President - Profit Planning from 2013 through January 20152023, and President, - Emerson Process Management EuropeAsia-Pacific from 20092008 through 2013.May 2016.
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Michael H. Train was appointed ExecutiveSenior Vice President - Automation Solutionsand Chief Sustainability Officer in October 2016.March 2021. Prior to his current position, Mr. Train was President from October 2018 to March 2021 and Executive President - Automation Solutions from October 2016 through October 2018, Executive Vice President - Automation Solutions from May 2016 through October 2016 and President of Global Sales for Emerson Process Management from 2010 through May 2016.
Vidya Ramnath was appointed to Senior Vice President - Emerson Industrial Automation from 2012 through May 2016 and Chief Marketing Officer in June 2023. Prior to her current position, Ms. Ramnath was President of Control TechniquesMiddle East & Africa from 20102019 through 2012.June 2023 and Vice President of Asia Pacific for Measurement & Analytical from 2017 through 2019.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Information regarding the market for the Company's common stock quarterly market price ranges and dividend payments is set forth in Note 20.22 and is hereby incorporated by reference. There were approximately 19,06615,200 stockholders of record at September 30, 2017.2023.
Neither the Company nor any "affiliated purchaser" repurchased any shares of Company common stock during the three-month period ended September 30, 2023. In November 2015,March 2020, the Board of Directors authorized the purchase of up to 7060 million shares and 56.9a total of approximately 33.3 million shares remain available. No shares were purchased inavailable under the fourth quarter of 2017.authorization.
ITEM 6 - SELECTED FINANCIAL DATA[RESERVED]
| 2013 (a) | 2014 | 2015 (b) | 2016 | 2017 | |||||||||||
| Net sales | $ | 17,935 | 17,733 | 16,249 | 14,522 | 15,264 | |||||||||
Earnings from continuing operations – common stockholders | $ | 1,506 | 2,201 | 2,517 | 1,590 | 1,643 | |||||||||
Basic earnings per common share from continuing operations | $ | 2.09 | 3.13 | 3.72 | 2.46 | 2.54 | |||||||||
Diluted earnings per common share from continuing operations | $ | 2.08 | 3.11 | 3.71 | 2.45 | 2.54 | |||||||||
| Cash dividends per common share | $ | 1.64 | 1.72 | 1.88 | 1.90 | 1.92 | |||||||||
| Long-term debt | $ | 4,055 | 3,559 | 4,289 | 4,051 | 3,794 | |||||||||
| Total assets | $ | 24,711 | 24,177 | 22,088 | 21,732 | 19,589 | |||||||||
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Safe Harbor Statement
This Annual Report on Form 10-K contains various forward-looking statements and includes assumptions concerning Emerson's operations, future results and prospects. These forward-looking statements are based on current expectations and are subject to risks and uncertainties. Emerson undertakes no obligation to update any such statements to reflect later developments. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, Emerson provides the cautionary statements set forth under Item 1A - “Risk Factors,” which are hereby incorporated by reference and identify important economic, political and technological factors, among others, changes in which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions.
Non-GAAP Financial Measures
To supplement the Company’s financial information presented in accordance with U.S. generally accepted accounting principles (U.S. GAAP), management periodically uses certain “non-GAAP financial measures,” as such term is defined in Regulation G under SEC rules, to clarify and enhance understanding of past performance and prospects for the future. Generally, a non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position or cash flows that excludes or includes amounts that are included in or excluded from the most directly comparable measure calculated and presented in accordance with U.S. GAAP. For example,example, non-GAAP measures may exclude the impact of certain items such as our strategic repositioning actions, other acquisitions or divestitures, changesamortization of intangibles, restructuring costs, discrete taxes, changes in reporting segments, gains, losses and impairments, or items outside of management’s control, such as foreign currency exchange rate fluctuations. Management believes that the following non-GAAP financial measures provide investors and analysts useful insight into the Company’s financial position and operating performance. Any non-GAAP measure provided should be viewed in addition to, and not as an alternative to, the most directly comparable measure determined in accordance with U.S. GAAP, as identified in italics below. Further, the calculation of these non-GAAP financial measures may differ from the calculation of similarly titled financial measures presented by other companies and therefore may not be comparable among companies.
Underlying sales, which exclude the impact of significant acquisitions, divestitures and fluctuations in foreign currency exchange rates during the periods presented, are provided to facilitate relevant period-to-period comparisons of sales growth by excluding those items that impact overall comparability (U.S. GAAP measure: net sales).
Operating profit (defined as net sales less cost of sales and selling, general and administrative expenses) and operating profit margin (defined as operating profit divided by net sales) are indicative of short-term operational performance and ongoing profitability. Management closely monitors operating profit and operating profit margin of each business to evaluate past performance and actions required to improve profitability. EBIT (defined as earnings before deductions for interest expense, net, related party interest income, and income taxes) and total segment EBIT, and EBIT margin (defined as EBIT divided by net sales) and total segment EBIT margin, are commonly used financial measures that exclude the impact of financing on the capital structure and income taxes.taxes. Adjusted EBITA and adjusted segment EBITA (defined as earnings excluding interest expense, net, related party interest income, income taxes, intangibles amortization expense, restructuring expense, first year purchase accounting related items and transaction fees, and certain gains, losses or impairments) and adjusted EBITA margin and adjusted segment EBITA margin (defined as adjusted EBITA divided by net sales) are measures used by management to evaluate the Company's operational performance, as they exclude the impact of acquisition-related investments and non-operational items. EBITDA (defined as EBIT excluding depreciation and amortization) and EBITDA margin (defined as EBITDA divided by net sales) are also used as measures of the Company's current operating performance, as they exclude the impact of capital and acquisition-related investments. Adjusted EBITDA (defined as EBITDA excluding restructuring expense, first year purchase accounting related items and transaction fees, and certain gains, losses or impairments) and adjusted EBITDA margin (defined as Adjusted EBITDA divided by net sales) are also used to exclude the impact of non-operational items. All of these are commonly used financial measures are utilized by management to evaluate performance (U.S. GAAP measures: pretax earnings or pretax profit margin, segment earnings or segment margin).
Earnings, earnings per share, return on common stockholders’ equity and return on total capital excluding certain gains and losses, impairments, restructuring costs, impacts of the strategic portfolio repositioning actions,acquisitions or divestitures, amortization of intangibles, discrete taxes, or other items provide additional insight into the underlying, ongoing operating performance of the Company and facilitate period-to-period comparisons by excluding the earnings impact of these items. Management believes that presenting earnings, earnings per share, return on common stockholders' equity and return on total capital excluding these items is more representative of the Company’s operational performance and may be more useful for investors (U.S. GAAP measures: earnings, earnings per share, return on common stockholders’ equity, return on total capital).
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Free cash flow (operating cash flow less capital expenditures) and free cash flow as a percent of net sales are indicators of the Company’s cash generating capabilities, and dividends as a percent of free cash flow is an indicator of the Company's ability to support its dividend,dividend, and free cash flow conversion of adjusted net earnings (free cash flow divided by net earnings adjusted for intangibles amortization expense, restructuring expense, first year purchase accounting related items and transaction fees, and certain gains, losses or impairments) is an indicator of the quality of the Company's earnings, after considering investments in capital assets which are necessary to maintain and enhance existing operations. The determination of operating cash flow adds back noncash depreciation expense to earnings and thereby does not reflect a charge for necessary capital expenditures. ManagementManagement believes that free cash flow, free cash flow as a percent of net sales and dividends as a percent of free cash flow are useful to both management and investors as measures of the Company’s ability to generate cash and support its dividend (U.S. GAAP measure: measures: operating cash flow, operating cash flow as a percent of net sales, dividends as a percent of operating cash flow).
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FINANCIAL REVIEW
Report of Management
The Company's management is responsible for the integrity and accuracy of the financial statements. Management believes that the financial statements for each of the three years in the three-year period ended September 30, 20172023 have been prepared in conformity with U.S. generally accepted accounting principles appropriate in the circumstances. In preparing the financial statements, management makes informed judgments and estimates where necessary to reflect the expected effects of events and transactions that have not been completed. The Company's disclosure controls and procedures ensure that material information required to be disclosed is recorded, processed, summarized and communicated to management and reported within the required time periods.
In meeting its responsibility for the reliability of the financial statements, management relies on a system of internal accounting control.controls. This system is designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with U.S. generally accepted accounting principles. TheAlthough the design of this system recognizes that errors or irregularities may occur, and that estimates and judgments are required to assess the relative cost and expected benefits of the controls. Managementmanagement believes that the Company's internal accounting controls provide reasonable assurance that errors or irregularities that could be material to the financial statements are prevented or would be detected within a timely period.
The Audit Committee of the Board of Directors, which is composed solely of independent directors, is responsible for overseeing the Company's financial reporting process. The Audit Committee meets with management and the Company's internal auditors periodically to review the work of each and to monitor the discharge by each of its responsibilities. The Audit Committee also meets periodically with the independent auditors, who have free access to the Audit Committee and the Board of Directors, to discuss the quality and acceptability of the Company's financial reporting and internal controls, as well as nonaudit-related services.
The independent auditors are engaged to express an opinion on the Company's consolidated financial statements and on the Company's internal control over financial reporting. Their opinions are based on procedures that they believe to be sufficient to provide reasonable assurance that the financial statements contain no material errors and that the Company's internal controls are effective.
Management's Report on Internal Control Over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. With the participation of the Chief Executive Officer and the Chief Financial Officer, management conducted an evaluation of the effectiveness of internal control over financial reporting based on the frameworkframework and the criteria established in Internal Control - Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has concluded that internal control over financial reporting was effective as of September 30, 2017.2023.
The Company's auditor, KPMG LLP, an independent registered public accounting firm, has issued an audit report on the effectiveness of the Company's internal control over financial reporting.
| /s/ S. L. Karsanbhai | /s/ Michael J. Baughman | ||||||||||
| S. L. Karsanbhai | Michael J. Baughman | ||||||||||
| President | Executive Vice President | ||||||||||
| and Chief Executive Officer | and Chief Financial Officer | ||||||||||
16
Results of Operations
Years ended September 30
(Dollars in Item 7 are in millions, except per share amounts)amounts or where noted)
| 2021 | 2022 | 2023 | 22 vs. 21 | 23 vs. 22 | |||||||||||||||||||||||||
| Net sales | $ | 12,932 | 13,804 | 15,165 | 7 | % | 10 | % | |||||||||||||||||||||
| Gross profit | $ | 5,730 | 6,306 | 7,427 | 10 | % | 18 | % | |||||||||||||||||||||
| Percent of sales | 44.3 | % | 45.7 | % | 49.0 | % | 1.4 pts | 3.3 pts | |||||||||||||||||||||
| SG&A | $ | 3,494 | 3,614 | 4,186 | |||||||||||||||||||||||||
| Percent of sales | 27.0 | % | 26.2 | % | 27.6 | % | (0.8) pts | 1.4 pts | |||||||||||||||||||||
| Gain on subordinated interest | $ | — | (453) | (161) | |||||||||||||||||||||||||
| Other deductions, net | $ | 319 | 519 | 683 | |||||||||||||||||||||||||
| Amortization of intangibles | $ | 277 | 336 | 482 | |||||||||||||||||||||||||
| Restructuring costs | $ | 132 | 75 | 72 | |||||||||||||||||||||||||
| Interest expense, net | $ | 155 | 194 | 34 | |||||||||||||||||||||||||
| Interest income from related party | $ | — | — | (41) | |||||||||||||||||||||||||
| Earnings from continuing operations before income taxes | $ | 1,762 | 2,432 | 2,726 | 38 | % | 12 | % | |||||||||||||||||||||
| Percent of sales | 13.6 | % | 17.6 | % | 18.0 | % | 4.0 pts | 0.4 pts | |||||||||||||||||||||
| Earnings from continuing operations common stockholders | $ | 1,414 | 1,886 | 2,152 | 33 | % | 14 | % | |||||||||||||||||||||
| Percent of sales | 10.9 | % | 13.7 | % | 14.2 | % | 2.8 pts | 0.5 pts | |||||||||||||||||||||
| Net earnings common stockholders | $ | 2,303 | 3,231 | 13,219 | 40 | % | 309 | % | |||||||||||||||||||||
| Percent of sales | 17.8 | % | 23.4 | % | 87.2 | % | 5.6 pts | 63.8 pts | |||||||||||||||||||||
| Diluted EPS – Earnings from continuing operations | $ | 2.35 | 3.16 | 3.72 | 34 | % | 18 | % | |||||||||||||||||||||
| Diluted EPS – Net earnings | $ | 3.82 | 5.41 | 22.88 | 42 | % | 323 | % | |||||||||||||||||||||
| Adjusted Diluted EPS – Earnings from continuing operations | $ | 3.01 | 3.64 | 4.44 | 21 | % | 22 | % | |||||||||||||||||||||
| Return on common stockholders' equity | 25.2 | % | 31.9 | % | 85.1 | % | 6.7 pts | 53.2 pts | |||||||||||||||||||||
| Return on total capital | 18.1 | % | 20.4 | % | 66.5 | % | 2.3 pts | 46.1 pts | |||||||||||||||||||||
| 2015 | 2016 | 2017 | 16 vs. 15 | 17 vs. 16 | |||||||||||
| Net sales | $ | 16,249 | 14,522 | 15,264 | (11 | )% | 5 | % | |||||||
| Gross profit | $ | 7,008 | 6,262 | 6,404 | (11 | )% | 2 | % | |||||||
| Percent of sales | 43.1 | % | 43.1 | % | 42.0 | % | |||||||||
| SG&A | $ | 3,735 | 3,464 | 3,618 | |||||||||||
| Percent of sales | 23.0 | % | 23.8 | % | 23.7 | % | |||||||||
| Gains on divestitures of businesses | $ | 1,039 | — | — | |||||||||||
| Other deductions, net | $ | 330 | 294 | 286 | |||||||||||
| Interest expense, net | $ | 175 | 188 | 165 | |||||||||||
| Earnings from continuing operations | |||||||||||||||
| before income taxes | $ | 3,807 | 2,316 | 2,335 | (39 | )% | 1 | % | |||||||
| Percent of sales | 23.4 | % | 16.0 | % | 15.3 | % | |||||||||
| Earnings from continuing operations | |||||||||||||||
| common stockholders | $ | 2,517 | 1,590 | 1,643 | (37 | )% | 3 | % | |||||||
| Net earnings common stockholders | $ | 2,710 | 1,635 | 1,518 | (40 | )% | (7 | )% | |||||||
| Percent of sales | 16.7 | % | 11.3 | % | 9.9 | % | |||||||||
| Diluted EPS – Earnings from continuing operations | $ | 3.71 | 2.45 | 2.54 | (34 | )% | 4 | % | |||||||
| Diluted EPS – Net earnings | $ | 3.99 | 2.52 | 2.35 | (37 | )% | (7 | )% | |||||||
| Return on common stockholders' equity | 29.8 | % | 20.9 | % | 18.6 | % | |||||||||
| Return on total capital | 22.8 | % | 15.5 | % | 15.3 | % | |||||||||
OVERVIEW
Overall, sales for all years presented. Additionally, on April 28, 2017, the Company completed the acquisition of Pentair's valves & controls business.
The Company generated operating cash flow from continuing operations of $2.7 billion in 2017,2023, an increase of $191 million,$678, or 8 percent. Total33 percent, reflecting higher earnings (excluding the impacts in both years from the Vertiv subordinated interest gains and higher Heritage AspenTech intangibles amortization in the current year).
The table below presents the Company's diluted earnings per share from continuing operations on an adjusted basis to facilitate period-to-period comparisons and provide additional insight into the underlying, ongoing operating cash flow of $1.9 billion was reduced by cash used for discontinued operations of $778 million to execute the repositioning, primarily for income taxes on completionperformance of the divestituresCompany. Adjusted diluted earnings per share from continuing operations excludes intangibles
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amortization expense, restructuring expense, first year purchase accounting related items and repatriation of cash.transaction-related costs, interest income on undeployed proceeds related to the Copeland transaction, gains or losses on the Copeland equity method investment, and certain gains, losses or impairments.
| 2021 | 2022 | 2023 | ||||||||||||||||||
| Diluted earnings from continuing operations per share | $ | 2.35 | 3.16 | 3.72 | ||||||||||||||||
| Amortization of intangibles | 0.38 | 0.45 | 0.62 | |||||||||||||||||
| Restructuring and related costs | 0.21 | 0.14 | 0.14 | |||||||||||||||||
| Acquisition/divestiture costs and pre-acquisition interest on AspenTech debt | — | 0.15 | 0.13 | |||||||||||||||||
| Gain on subordinated interest | — | (0.60) | (0.21) | |||||||||||||||||
| National Instruments investment gain | — | — | (0.07) | |||||||||||||||||
| Other investment-related gains | — | (0.02) | — | |||||||||||||||||
| AspenTech Micromine purchase price hedge | — | 0.04 | (0.02) | |||||||||||||||||
| Interest income on undeployed proceeds from Copeland transaction | — | — | (0.19) | |||||||||||||||||
| Loss on Copeland equity method investment | — | — | 0.24 | |||||||||||||||||
| Russia business exit charge | — | 0.32 | 0.08 | |||||||||||||||||
| OSI first year acquisition accounting charges and fees | 0.07 | — | — | |||||||||||||||||
| Adjusted diluted earnings from continuing operations per share | $ | 3.01 | 3.64 | 4.44 | ||||||||||||||||
The table below summarizes the changes in adjusted diluted earnings per share from continuing operations. The items identified below are discussed throughout MD&A, see further discussion above and in the Business Segments and Financial Position sections below.
| 2022 | 2023 | |||||||||||||
| Adjusted diluted earnings from continuing operations per share - prior year | $ | 3.01 | 3.64 | |||||||||||
| Operations, including impact of AspenTech acquisition | 0.58 | 0.77 | ||||||||||||
| Corporate and other | — | 0.07 | ||||||||||||
| Stock compensation | 0.12 | (0.16) | ||||||||||||
| Foreign currency | (0.02) | (0.12) | ||||||||||||
| Pensions | 0.03 | 0.07 | ||||||||||||
| Gains on sales of capital assets in 2022 | 0.02 | (0.02) | ||||||||||||
| Gains on sales of investments in 2021 | (0.03) | — | ||||||||||||
| Effective tax rate | (0.09) | 0.01 | ||||||||||||
| Interest income on Copeland note receivable | — | 0.05 | ||||||||||||
| Other | (0.01) | (0.01) | ||||||||||||
| Share repurchases | 0.03 | 0.14 | ||||||||||||
| Adjusted diluted earnings from continuing operations per share - current year | $ | 3.64 | 4.44 | |||||||||||
NET SALES
Net sales for 20172023 were $15.3$15.2 billion, an increase of $742 million,$1.4 billion, or 510 percent compared with 2016.2022. Intelligent Devices sales increased 7 percent, while Software and Control sales increased 20 percent, which included the impact of the Heritage AspenTech acquisition. Underlying sales which exclude foreign currency translation, acquisitions and divestitures, increased 1were up 10 percent ($168 million) on 6 percent higher volume and slightly lower price. Acquisitions added 4 percent ($628 million) while foreign currency translation subtracted $54 million. Underlying sales increased 2 percent in the U.S. and were flat internationally. Sales increased $441 million in Automation Solutions and $302 million in Commercial & Residential Solutions.
Net sales for 2022 were $13.8 billion, an increase of $0.9 billion, or 7 percent compared with 2021. Intelligent Devices sales increased 5 percent, while Software and Control sales increased 16 percent. Underlying sales increased 7 percent on 4 percent higher volume and 3 percent higher price. The Heritage AspenTech acquisition
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added 3 percent and foreign currency translation deducted 3 percent. Underlying sales were up 12 percent in Automation Solutions decreased $1,176 millionthe U.S. and Commercial & Residential solutions decreased $76 million.up 5 percent internationally.
INTERNATIONAL SALES
Emerson is a global business with international sales representing 5258 percent of total sales in 2023, including U.S. exports. Although economic conditions are currently soft worldwide, theexports. The Company generally expects faster economic growth in emerging markets in Asia, Latin America, Eastern Europe and Middle East/Africa in the future.Africa.
International destination sales, including U.S. exports, increased 59 percent, to $8.0$8.9 billion in 2017, 2023, reflecting increasesthe Company's overall increase in bothsales and the Automation Solutions and Commercial & Residential Solutions businesses.impact of the Heritage AspenTech acquisition. U.S. exportsexports of $927 million$1.0 billion were up 46 percent compared with 2016, reflecting increases in both Automation Solutions, which benefited from the valves & controls acquisition, and Commercial & Residential Solutions.2022. Underlying international destination sales were flat,up 9 percent, as foreign currency translation had a 13 percent unfavorable impact, while acquisitions had a 6 percent favorable impactimpact on the comparison.comparison, the Heritage AspenTech acquisition added 3 percent and the divestiture of Metran, Emerson's Russia-based manufacturing subsidiary, deducted 1 percent. Underlying sales were down 1increased 10 percent in Europe, and up 69 percent in Asia, Middle East & Africa (China up 154 percent). Underlying sales decreased 12, 14 percent in Latin America 3and 1 percent in Canada and 6 percent in Middle East/Africa.Canada. Origin sales by international subsidiaries, including shipments to the U.S., totaled $7.2$7.7 billion in 2017,2023, up 65 percent compared with 2016, primarily reflecting the valves & controls acquisition.2022.
International destination sales, including U.S. exports, decreased 12increased 2 percent, to $7.6$8.2 billion in 2016,2022, reflecting decreases in all segments, partially due to divestitures. U.S.the impact of the Heritage AspenTech acquisition. U.S. exports of $888 million$1.0 billion were down 25up 51 percent compared with 2015, reflecting reduced spending by global oil and gas customers, weakness in industrial spending and2021, including an increase of approximately $200 due to the stronger U.S. dollar.Heritage AspenTech acquisition. Underlying international destination sales declined 8were up 5 percent, as foreign currency translation and divestitures had a 3 percent and a 15 percent unfavorable impact respectively, on the comparison.comparison and the Heritage AspenTech acquisition added 2 percent. Underlying sales were up 2increased 5 percent in Europe and decreased 10Asia, Middle East & Africa (China up 11 percent), 18 percent in both AsiaLatin America and Latin America. Sales decreased 2114 percent in Canada, and 15 percent in Middle East/Africa. Weakness in energy-related and industrial end markets and global economic uncertainty challenged growth in these areas. while Europe was down slightly. Origin sales by international subsidiaries, including shipments to the U.S., totaled $6.8$7.4 billion in 2016,2022, down 102 percent compared with 2015, reflecting the weakness in industrial capital spending, unfavorable foreign currency translation and divestitures.2021.
ACQUISITIONS AND DIVESTITURES
Portfolio management is an integral component of Emerson's growth and value creation strategy. Over the past two years, the Company has taken significant actions to accelerate the transformation of its portfolio through the completion of strategic acquisitions and divestitures of non-core businesses. These actions were undertaken to create a higher growth and cohesive industrial technology portfolio as a global automation leader serving a diversified set of end markets. The Company’s recent portfolio actions include the following transactions:
On October 11, 2023, subsequent to Emerson's fiscal year-end, the Company completed the acquisition of National Instruments Corporation ("NI") at an equity value of $8.2 billion. NI, which provides software-connected automated test and measurement systems that enable enterprises to bring products to market faster and at a lower cost, had revenues of approximately $1.7 billion and pretax earnings of approximately $170 for the 12 months ended September 30, 2023.
In 2023, the Company acquired two businesses, Flexim, which will be reported in the Measurement & Analytical segment, and Afag, which will be reported in the Discrete Automation segment, for $705, net of cash acquired.
On March 31, 2023, Emerson completed the divestiture of Metran, its Russia-based manufacturing subsidiary. In 2023, the Company recognized a pretax loss of $47 in Other deductions ($47 after-tax, in total $0.08 per share) related to its exit of business operations in Russia. The Company had previously announced its intention to exit business operations in 2022 and recognized a pretax loss of $181 ($190 after-tax, in total $0.32 per share). This charge included a loss of $36 in operations and $145 reported in Other deductions ($10 of which is currently pursuing a potential acquisitionreported in restructuring costs) and was primarily non-cash. Emerson's historical net sales in Russia represented approximately 2.0 percent of Rockwell Automation, Inc. consolidated annual sales.
On November 16, 2017,May 31, 2023, the Company completed the previously announced that it proposedsale of a majority stake in its Climate Technologies business (which constitutes the former Climate Technologies segment, excluding Therm-O-Disc which was divested earlier in 2022) to acquire Rockwellprivate equity funds managed by Blackstone in a $14.0 billion transaction. The Company recognized a pretax gain of approximately $10.6 billion (approximately $8.4 billion after-tax including tax expense recognized in prior quarters related to subsidiary restructurings). The new standalone business is named Copeland.
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On October 31, 2022, the Company completed the divestiture of its InSinkErator business, which manufactures food waste disposers, to Whirlpool Corporation for $29$3.0 billion, or $225 per share, consistingand the Company recognized a pretax gain of $135 per shareapproximately $2.8 billion (approximately $2.1 billion after-tax) in 2023.
On May 31, 2022 the Company completed the divestiture of its Therm-O-Disc sensing and protection technologies business to an affiliate of One Rock Capital Partners, LLC. The Company recognized a pretax gain of $486 ($429 after-tax) in 2022.
Climate Technologies, Therm-O-Disc and InSinkErator are reported within discontinued operations for all periods presented.
On May 16, 2022, the Company completed the transactions contemplated by its definitive agreement with Aspen Technology, Inc. ("Heritage AspenTech") to contribute two of Emerson's stand-alone industrial software businesses, Open Systems International, Inc. and the Geological Simulation Software business (collectively, the “Emerson Industrial Software Business”), along with approximately $6.0 billion in cash financed primarily with newly issued debt, and $90 per share into Heritage AspenTech stockholders, to create "New AspenTech" (defined as "AspenTech" herein). Upon closing of the transaction, Emerson stock, which would result in Rockwell shareholders owning approximately 22owned 55 percent of the combined company. Rockwell hasoutstanding shares of AspenTech common stock (on a fully diluted basis). AspenTech and its subsidiaries now operate under Heritage AspenTech’s previous name “Aspen Technology, Inc.” and AspenTech common stock is traded on NASDAQ under AspenTech’s previous stock ticker symbol “AZPN.” Due to the timing of the acquisition, the results for the first half of fiscal 2022 do not engaged withinclude the results of Heritage AspenTech.
On October 1, 2020, the Company on this or previous proposals. Rockwellcompleted the acquisition of Open Systems International, Inc. (OSI), a leading operations technology software provider in the global power industry, for approximately $1.6 billion, net of cash acquired. This business had fiscal 2017net sales of approximately $6.3 billion. $191 in 2021 and is now reported in the AspenTech segment.
See Notes 4, 5, 8 and 23 and Item 1A - "Risk Factors" for additional information.further information on acquisitions and divestitures.
COST OF SALES
Cost of sales for 20172023 were $8.9 billion,$7,738, an increase of $600 million$240 compared with $8.3 billion$7,498 in 2016. The increase reflects the acquisition of the valves & controls business and higher volume, partially offset by cost reduction actions and2022. Gross profit was $7,427 in 2023 compared to $6,306 in 2022, while gross margin increased 3.3 percentage points to 49.0 percent due to favorable price less net material inflation, the impact of foreign currency translation. Grossthe Heritage AspenTech acquisition which benefited margins by 0.6 percentage points, and favorable mix.
Cost of sales for 2022 were $7,498, an increase of $296 compared with $7,202 in 2021, primarily due to higher sales volume and higher materials costs. Gross profit was $6.4 billion$6,306 in 20172022 compared to $6.3 billion$5,730 in 2016. Gross2021, while gross margin of 42.0 percent reflected dilution of 1.2increased 1.4 percentage points due to the valves & controls operations45.7 percent. The Heritage AspenTech acquisition benefited gross margin 0.9 percentage points and first year acquisition accounting charges of $74 million related to inventory. Slightly lower pricefavorable mix also contributed to the decline,increase. Price less net material inflation was favorable but had a slightly dilutive impact on margins, while savings from cost reduction actions partially offset these decreases. Gross profit margin was 43.1 percent in 2016.higher freight and other inflation also negatively impacted margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses of $3.5 billion$3,614 in 2016 decreased $271 million2022 increased $120 compared with 2015. The decrease reflects savings from cost reduction actions, reduced costs from lower2021, reflecting the impact of higher sales volume, and prior year divestitures ($137 million), partially offset by higher incentive stock compensation of $121 million.wage and other inflation. SG&A as a percent of sales of 23.8decreased 0.8 percentage points to 26.2 percent, increased 0.8 percent in 2016, reflecting deleverage on lower sales volume and higher incentive stock compensation primarilyexpense of $72 due to changesa lower share price in 2022 (0.6 percentage points) and leverage on higher sales.
GAIN ON SUBORDINATED INTEREST
In the first quarter of 2022, the Company received a distribution of $438 related to its subordinated interest in Vertiv (in total, a pretax gain of $453 was recognized in the stock price and overlapfirst quarter of awards, partially offset by savings from restructuring actions.
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OTHER DEDUCTIONS, NET
Other deductions, net were $286 million$683 in 2017, a decrease2023, an increase of $8 million$164 compared with 2016. The decrease2022, reflecting a loss of $177 on the Company's equity method investment in Copeland, higher intangibles amortization of $146 primarily reflects favorablerelated to the Heritage AspenTech acquisition, and an unfavorable impact from foreign currency transactions comparisons of $78 million (unfavorable$112 reflecting losses in the current year compared to gains in the prior year) and lower restructuring expenseyear. The prior year included a charge of $18 million. These decreases were substantially offset by intangibles and backlog amortization$145 related to the valves & controls acquisitionCompany exiting its business in Russia compared to a charge of $29 million$47 in the current year. The current year also included a mark-to-market gain of $56 on the Company's equity investment in NI, and $19 million, respectively, and higher acquisition/divestiture costsa mark-to-market gain of $24 million. Additionally, 2016 results included a $21 million gain from payments received related to dumping duties. See Note 5.foreign currency forward contracts entered into by AspenTech to mitigate the impact of foreign currency exchange associated with the Micromine purchase price compared to a loss of $50 in the prior year. On June 21, 2023, AspenTech terminated all outstanding foreign currency forward contracts.
Other deductions, net were $294 million$519 in 2016,2022, an increase of $200 compared with 2021, reflecting a $36 million decrease from 2015charge of $145 related to the Company exiting its business in Russia ($10 of which is reported in restructuring costs), acquisition/divestiture costs of $91, higher intangibles amortization of $59, primarily duerelated to the Heritage AspenTech acquisition, and a mark-to-market loss of $50 related to foreign currency forward contracts entered into by AspenTech to mitigate the impact of foreign currency exchange associated with the Micromine purchase price.These items were partially offset by lower restructuring costs of $42 million, decreased litigation costs of $30 million$57. See Notes 6 and a $21 million gain on payments received related to dumping duties. The decrease in other deductions was partially offset by unfavorable foreign currency transactions of $67 million.7.
INTEREST EXPENSE, NET
Interest expense, net was $165 million, $188 million$34, $194 and $175 million$155 in 2017, 20162023, 2022 and 2015,2021, respectively. The decrease in 2023 reflects interest income on undeployed proceeds from the Copeland transaction of $23 million$141 ($108 after-tax, $0.19 per share). The increase in 20172022 compared to 2021 reflects the maturityissuance of $3 billion of long-term debt in December 2021 to support the AspenTech transaction, partially offset by $500 of notes that matured in the first quarter of 2022.
Interest income from related party was $41 in 2023 and reflects non-cash interest income on the Copeland note receivable, which is capitalized to the carrying value of the note.
EARNINGS BEFORE INCOME TAXES
Pretax earnings from continuing operations of $2,726 increased $294 in 2023, up 12 percent compared with relatively2022, reflecting strong operating results in the current year. Earnings increased $447 in Intelligent Devices and decreased $27 in Software and Control (reflecting the impact of higher interest ratesintangibles amortization due to the Heritage AspenTech acquisition).
Pretax earnings from continuing operations of $2,432 increased $670 in 2022, up 38 percent compared with 2021, reflecting the impact of the Vertiv gain discussed above and higher interest income.strong earnings, which increased $340 in Intelligent Devices and increased $74 in Software and Control. See the Business Segments discussion that follows and Note 20.
INCOME TAXES
NETEARNINGS FROM CONTINUING OPERATIONSAND EARNINGS PER SHARE
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operations were $3.64 compared with $3.01 in the prior year negatively impacted earnings from continuing operations andyear. See the analysis of adjusted earnings per share comparisons by 20 and 21 percentage points, respectively. In 2016, earnings decreased $390 million in the Automation Solutions segment and increased $87 millionOverview section for further details. Earnings from discontinued operations attributable to common stockholders in Commercial & Residential Solutions.2022 were $1,345 ($2.25 per share) compared to $889 ($1.47 per share) in 2021, reflecting an after-tax gain of $429 ($0.72 per share) related to the Therm-O-Disc divestiture in 2022. See Note 5. Net earnings common stockholders were $3,231 ($5.41 per share) in 2022 compared with $2,303 ($3.82 per share) in 2021.
| Twelve Months Ended September 30 | 2021 | 2022 | 2023 | 22 vs. 21 | 23 vs. 22 | ||||||||||||||||||||||||
| Earnings from continuing operations before income taxes | $ | 1,762 | 2,432 | 2,726 | 38 | % | 12 | % | |||||||||||||||||||||
| Percent of sales | 13.6 | % | 17.6 | % | 18.0 | % | 4.0 pts | 0.4 pts | |||||||||||||||||||||
| Interest expense, net | 155 | 194 | 34 | ||||||||||||||||||||||||||
| Interest income from related party | — | — | (41) | ||||||||||||||||||||||||||
| Amortization of intangibles | 304 | 430 | 678 | ||||||||||||||||||||||||||
| Restructuring and related costs | 166 | 105 | 92 | ||||||||||||||||||||||||||
| Acquisition/divestiture and related costs | — | 91 | 84 | ||||||||||||||||||||||||||
| Gain on subordinated interest | — | (453) | (161) | ||||||||||||||||||||||||||
| National Instruments investment gain | — | — | (56) | ||||||||||||||||||||||||||
| Other investment-related gains | (14) | — | |||||||||||||||||||||||||||
| AspenTech Micromine purchase price hedge | — | 50 | (24) | ||||||||||||||||||||||||||
| Loss on Copeland equity method investment | — | — | 177 | ||||||||||||||||||||||||||
| Russia business exit charge | — | 181 | 47 | ||||||||||||||||||||||||||
| OSI first year acquisition accounting charges | 50 | — | — | ||||||||||||||||||||||||||
| Adjusted EBITA from continuing operations | $ | 2,437 | 3,016 | 3,556 | 24 | % | 18 | % | |||||||||||||||||||||
| Percent of sales | 18.8 | % | 21.8 | % | 23.4 | % | 3.0 pts | 1.6 pts | |||||||||||||||||||||
Return on common stockholders' equity (net earnings attributable to common stockholders divided by average common stockholders' equity) was 18.685.1 percent in 20172023 compared with 20.931.9 percent in 20162022 and 29.825.2 percent in 2015.2021. Return on total capital was 15.3 percent in 2017 compared with 15.5 percent in 2016 and 22.8 percent in 2015 (computed as net earnings attributable to common stockholders excluding after-tax net interest expense, divided by average common stockholders' equity plus short- and long-term debt less cash and short-term investments). Discontinued operations was 66.5 percent in 2023 compared with 20.4 percent in 2022 and 18.1 percent in 2021. The higher returns in 2023 included the impact of the after-tax gain from the Copeland transaction (approximately $8.4 billion), the after-tax gain on the InSinkErator divestiture (approximately $2.1 billion), the Vertiv subordinated interest after-tax gain of $122, the National Instruments investment after-tax gain of $43, the after-tax loss on the Copeland equity method investment of $134, after-tax acquisition/divestiture costs of $78, and the acquisitionRussia business exit after-tax loss of $47. The higher returns in 2022 included the impact of the valves & controlsVertiv subordinated interest after-tax gain of $358, the after-tax gain on the Therm-O-Disc divestiture of $429, after-tax acquisition/divestiture costs of $93 (including amounts reported in discontinued operations), and the Russia business reduced the 2017exit after-tax loss of $190. Excluding these items in both years, return on common stockholders' equity approximately 19 percentage pointswas 17.9 percent and 26.9 percent in 2023 and 2022, respectively, and return on total capital 11 percentage points. Discontinued operations reducedwas 14.0 percent and 17.4 percent, respectively. The decrease in 2023 reflects the 2016 returnincrease to equity from the after-tax gains on common stockholders' equity approximately 23 percentage pointsthe Copeland transaction and return on total capital 9 percentage points. For 2015, the combined impact of the divestiture gains and discontinued operations reduced the return on common stockholders' equity approximately 12 percentage points and return on total capital 3 percentage points.InSinkErator divestiture.
Business Segments
Following is an analysis of segment results for 20172023 compared with 2016,2022, and 20162022 compared with 2015. 2021. The Company defines segment earnings as earnings before interest and income taxes. In connection with the strategic portfolio repositioning actions completed in fiscal 2017, the Company began reporting three segments: Automation Solutions, and Climate Technologies and Tools & Home Products which together comprise the Commercial & Residential Solutions business. See Note 18.
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| INTELLIGENT DEVICES | |||||||||||||||||||||||||||||||||||
| 2022 | 2023 | Change | FX | Acq/Div | U/L | ||||||||||||||||||||||||||||||
| Sales: | |||||||||||||||||||||||||||||||||||
| Final Control | $ | 3,607 | 3,970 | 10 | % | 2 | % | 1 | % | 13 | % | ||||||||||||||||||||||||
| Measurement & Analytical | 3,215 | 3,595 | 12 | % | 2 | % | 2 | % | 16 | % | |||||||||||||||||||||||||
| Discrete Automation | 2,612 | 2,635 | 1 | % | 2 | % | — | % | 3 | % | |||||||||||||||||||||||||
| Safety & Productivity | 1,402 | 1,388 | (1) | % | — | % | — | % | (1) | % | |||||||||||||||||||||||||
| Total | $ | 10,836 | 11,588 | 7 | % | 2 | % | 1 | % | 10 | % | ||||||||||||||||||||||||
| Earnings: | |||||||||||||||||||||||||||||||||||
| Final Control | $ | 592 | 865 | 46 | % | ||||||||||||||||||||||||||||||
| Measurement & Analytical | 785 | 936 | 19 | % | |||||||||||||||||||||||||||||||
| Discrete Automation | 542 | 509 | (6) | % | |||||||||||||||||||||||||||||||
| Safety & Productivity | 250 | 306 | 22 | % | |||||||||||||||||||||||||||||||
| Total | $ | 2,169 | 2,616 | 21 | % | ||||||||||||||||||||||||||||||
| Margin | 20.0 | % | 22.6 | % | 2.6 pts | ||||||||||||||||||||||||||||||
| Amortization of intangibles: | |||||||||||||||||||||||||||||||||||
| Final Control | $ | 94 | 88 | ||||||||||||||||||||||||||||||||
| Measurement & Analytical | 21 | 27 | |||||||||||||||||||||||||||||||||
| Discrete Automation | 30 | 29 | |||||||||||||||||||||||||||||||||
| Safety & Productivity | 26 | 26 | |||||||||||||||||||||||||||||||||
| Total | $ | 171 | 170 | ||||||||||||||||||||||||||||||||
| Restructuring and related costs: | |||||||||||||||||||||||||||||||||||
| Final Control | $ | 75 | 28 | ||||||||||||||||||||||||||||||||
| Measurement & Analytical | 3 | 13 | |||||||||||||||||||||||||||||||||
| Discrete Automation | — | 27 | |||||||||||||||||||||||||||||||||
| Safety & Productivity | 10 | — | |||||||||||||||||||||||||||||||||
| Total | $ | 88 | 68 | ||||||||||||||||||||||||||||||||
| Adjusted EBITA | $ | 2,428 | 2,854 | 18 | % | ||||||||||||||||||||||||||||||
| Adjusted EBITA Margin | 22.4 | % | 24.6 | % | 2.2 pts | ||||||||||||||||||||||||||||||
| AUTOMATION SOLUTIONS | |||||||||||||||
| (dollars in millions) | 2015 | 2016 | 2017 | 16 vs. 15 | 17 vs. 16 | ||||||||||
| Sales | $ | 10,153 | 8,977 | 9,418 | (12 | )% | 5 | % | |||||||
| Earnings | $ | 1,846 | 1,456 | 1,522 | (21 | )% | 5 | % | |||||||
| Margin | 18.2 | % | 16.2 | % | 16.2 | % | |||||||||
| Sales by Major Product Offering | |||||||||||||||
| Measurement & Analytical Instrumentation | $ | 3,619 | 3,137 | 3,070 | (13 | )% | (2 | )% | |||||||
| Valves, Actuators & Regulators | 2,559 | 2,137 | 2,668 | (16 | )% | 25 | % | ||||||||
| Industrial Solutions | 1,779 | 1,621 | 1,680 | (9 | )% | 4 | % | ||||||||
| Process Control Systems & Solutions | 2,196 | 2,082 | 2,000 | (5 | )% | (4 | )% | ||||||||
| Total | $ | 10,153 | 8,977 | 9,418 | (12 | )% | 5 | % | |||||||
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| INTELLIGENT DEVICES | |||||||||||||||||||||||||||||||||||
| 2021 | 2022 | Change | FX | Acq/Div | U/L | ||||||||||||||||||||||||||||||
| Sales: | |||||||||||||||||||||||||||||||||||
| Final Control | $ | 3,488 | 3,607 | 4 | % | 3 | % | — | % | 7 | % | ||||||||||||||||||||||||
| Measurement & Analytical | 3,078 | 3,215 | 4 | % | 3 | % | — | % | 7 | % | |||||||||||||||||||||||||
| Discrete Automation | 2,474 | 2,612 | 6 | % | 4 | % | — | % | 10 | % | |||||||||||||||||||||||||
| Safety & Productivity | 1,340 | 1,402 | 5 | % | 2 | % | — | % | 7 | % | |||||||||||||||||||||||||
| Total | $ | 10,380 | 10,836 | 5 | % | 3 | % | — | % | 8 | % | ||||||||||||||||||||||||
| Earnings: | |||||||||||||||||||||||||||||||||||
| Final Control | $ | 432 | 592 | 37 | % | ||||||||||||||||||||||||||||||
| Measurement & Analytical | 684 | 785 | 15 | % | |||||||||||||||||||||||||||||||
| Discrete Automation | 457 | 542 | 18 | % | |||||||||||||||||||||||||||||||
| Safety & Productivity | 256 | 250 | (2) | % | |||||||||||||||||||||||||||||||
| Total | $ | 1,829 | 2,169 | 19 | % | ||||||||||||||||||||||||||||||
| Margin | 17.6 | % | 20.0 | % | 2.4 pts | ||||||||||||||||||||||||||||||
| Amortization of intangibles: | |||||||||||||||||||||||||||||||||||
| Final Control | $ | 107 | 94 | ||||||||||||||||||||||||||||||||
| Measurement & Analytical | 25 | 21 | |||||||||||||||||||||||||||||||||
| Discrete Automation | 34 | 30 | |||||||||||||||||||||||||||||||||
| Safety & Productivity | 28 | 26 | |||||||||||||||||||||||||||||||||
| Total | $ | 194 | 171 | ||||||||||||||||||||||||||||||||
| Restructuring and related costs: | |||||||||||||||||||||||||||||||||||
| Final Control | $ | 66 | 75 | ||||||||||||||||||||||||||||||||
| Measurement & Analytical | 58 | 3 | |||||||||||||||||||||||||||||||||
| Discrete Automation | 11 | — | |||||||||||||||||||||||||||||||||
| Safety & Productivity | 4 | 10 | |||||||||||||||||||||||||||||||||
| Total | $ | 139 | 88 | ||||||||||||||||||||||||||||||||
| Adjusted EBITA | $ | 2,162 | 2,428 | 12 | % | ||||||||||||||||||||||||||||||
| Adjusted EBITA Margin | 20.8 | % | 22.4 | % | 1.6 pts | ||||||||||||||||||||||||||||||
2022 vs. 2021 - Intelligent Devices sales were $10.8 billion in 2022, an increase of $456, or 25 percent, due to the valves & controls acquisition. Industrial Solutions sales increased $59 million, or 4 percent, on improving economic conditions and industrial end markets, especially automotive. Chemical, power and life sciences were favorable.5 percent. Underlying sales increased 18 percent on 5 percent higher volume and 3 percent higher price. Foreign currency translation had a 3 percent unfavorable impact. Underlying sales increased 12 percent in the U.S.Americas (U.S. up 12 percent), were down 2increased 1 percent in Europe and increased 15 percent in Asia, Middle East & Africa (China up 911 percent). LatinSales for Final Control increased $119, or 4 percent, and underlying sales increased 7 percent, reflecting strong demand in the Americas and China, partially offset by softness in the rest of Asia, Middle East & Africa. Sales for Measurement & Analytical increased $137, or 4 percent, and underlying sales increased 7 percent. Sales were strong in China and North America, decreased 20 percent, Canada decreasedwhile sales were down moderately in Europe due to supply chain constraints. Discrete Automation sales increased $138, or 6 percent, and Middle East/Africa was down 6underlying sales increased 10 percent, reflecting strong demand across all geographies. Safety & Productivity sales increased $62, or 5 percent, and underlying sales increased 7 percent. Sales of professional tools were strong, while wet/dry vacuums decreased moderately due to difficult comparisons. Earnings for Intelligent Devices were $2,169, an increase of $1.5 billion$340, or 19 percent, and margin increased $66 million from the prior year. Savings2.4 percentage points to 20.0 percent, reflecting leverage on higher volume, favorable mix, lower restructuring expenses which benefited margins 0.5 percentage points, savings from cost reduction actions and favorable foreign currency transactions comparisons of $64 million (unfavorable in the prior year) wereprice less net material inflation, partially offset by lowerhigher freight and other inflation. Adjusted EBITA margin was 22.4 percent, an increase of 1.6 percentage points.
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| SOFTWARE AND CONTROL | |||||||||||||||||||||||||||||||||||
| 2022 | 2023 | Change | FX | Acq/Div | U/L | ||||||||||||||||||||||||||||||
| Sales: | |||||||||||||||||||||||||||||||||||
| Control Systems & Software | $ | 2,398 | 2,606 | 9 | % | 1 | % | 1 | % | 11 | % | ||||||||||||||||||||||||
| AspenTech | 656 | 1,042 | 59 | % | — | % | (60) | % | (1) | % | |||||||||||||||||||||||||
| Total | $ | 3,054 | 3,648 | 20 | % | 1 | % | (11) | % | 10 | % | ||||||||||||||||||||||||
| Earnings: | |||||||||||||||||||||||||||||||||||
| Control Systems & Software | $ | 437 | 529 | 21 | % | ||||||||||||||||||||||||||||||
| AspenTech | 12 | (107) | (967) | % | |||||||||||||||||||||||||||||||
| Total | $ | 449 | 422 | (6) | % | ||||||||||||||||||||||||||||||
| Margin | 14.7 | % | 11.6 | % | (3.1) pts | ||||||||||||||||||||||||||||||
| Amortization of intangibles: | |||||||||||||||||||||||||||||||||||
| Control Systems & Software | $ | 22 | 22 | ||||||||||||||||||||||||||||||||
| AspenTech | 237 | 486 | |||||||||||||||||||||||||||||||||
| Total | $ | 259 | 508 | ||||||||||||||||||||||||||||||||
| Restructuring and related costs: | |||||||||||||||||||||||||||||||||||
| Control Systems & Software | $ | 11 | 9 | ||||||||||||||||||||||||||||||||
| AspenTech | — | 1 | |||||||||||||||||||||||||||||||||
| Total | $ | 11 | 10 | ||||||||||||||||||||||||||||||||
| Adjusted EBITA | $ | 719 | 940 | 31 | % | ||||||||||||||||||||||||||||||
| Adjusted EBITA Margin | 23.5 | % | 25.8 | % | 2.3 pts | ||||||||||||||||||||||||||||||
2023 vs. 2022 - Software and Control sales were $3.6 billion in 2023, an increase of $594, or 20 percent compared to the prior year, reflecting the impact of the Heritage AspenTech acquisition and strong growth in Control Systems & Software. Underlying sales increased 10 percent on 8 percent higher volume and $25 million2 percent higher price. Underlying sales increased 7 percent in the Americas (U.S. up 6 percent), increased 11 percent in Europe and increased 13 percent in Asia, Middle East & Africa (China up 16 percent). Sales for Control Systems & Software increased $208, or 9 percent, and underlying sales increased 11 percent, reflecting global strength in process end markets while power end markets were up modestly. Sales for AspenTech increased $386, or 59 percent, due to the acquisition of restructuring expenseHeritage AspenTech. Earnings for Software and $29 millionControl were $422, a decrease of $27, or 6 percent, and margin decreased 3.1 percentage points to 11.6 percent, reflecting the impact from $249 of incremental intangibles amortization related to the valves & controlsHeritage AspenTech acquisition. Materials cost containment offset lower price. Margin was flat, primarily reflecting the benefit from cost reduction actions offset by dilution from the valves & controls acquisition of 1.5 percentage points. Strong order rates in the second half of the year were supported by broad-based momentum across end markets and regions. Going forward, strong demand for MRO and mid-sized projects together with increasing momentum in international markets supports the outlook for solid underlying growth in fiscal 2018.
transactions.
25
| SOFTWARE AND CONTROL | |||||||||||||||||||||||||||||||||||
| 2021 | 2022 | Change | FX | Acq/Div | U/L | ||||||||||||||||||||||||||||||
| Sales: | |||||||||||||||||||||||||||||||||||
| Control Systems & Software | $ | 2,321 | 2,398 | 3 | % | 4 | % | — | % | 7 | % | ||||||||||||||||||||||||
| AspenTech | 319 | 656 | 106 | % | — | % | (106) | % | — | % | |||||||||||||||||||||||||
| Total | $ | 2,640 | 3,054 | 16 | % | 4 | % | (13) | % | 7 | % | ||||||||||||||||||||||||
| Earnings: | |||||||||||||||||||||||||||||||||||
| Control Systems & Software | $ | 382 | 437 | 14 | % | ||||||||||||||||||||||||||||||
| AspenTech | (7) | 12 | 269 | % | |||||||||||||||||||||||||||||||
| Total | $ | 375 | 449 | 20 | % | ||||||||||||||||||||||||||||||
| Margin | 14.2 | % | 14.7 | % | 0.5 pts | ||||||||||||||||||||||||||||||
| Amortization of intangibles: | |||||||||||||||||||||||||||||||||||
| Control Systems & Software | $ | 20 | 22 | ||||||||||||||||||||||||||||||||
| AspenTech | 89 | 237 | |||||||||||||||||||||||||||||||||
| Total | $ | 109 | 259 | ||||||||||||||||||||||||||||||||
| Restructuring and related costs: | |||||||||||||||||||||||||||||||||||
| Control Systems & Software | $ | 11 | 11 | ||||||||||||||||||||||||||||||||
| AspenTech | 2 | — | |||||||||||||||||||||||||||||||||
| Total | $ | 13 | 11 | ||||||||||||||||||||||||||||||||
| Adjusted EBITA | $ | 497 | 719 | 45 | % | ||||||||||||||||||||||||||||||
| Adjusted EBITA Margin | 18.8 | % | 23.5 | % | 4.7 pts | ||||||||||||||||||||||||||||||
| COMMERCIAL & RESIDENTIAL SOLUTIONS | |||||||||||||||
| (dollars in millions) | 2015 | 2016 | 2017 | 16 vs. 15 | 17 vs. 16 | ||||||||||
| Sales: | |||||||||||||||
| Climate Technologies | $ | 4,006 | 3,944 | 4,212 | (2 | )% | 7 | % | |||||||
| Tools & Home Products | 1,625 | 1,611 | 1,645 | (1 | )% | 2 | % | ||||||||
| Total | $ | 5,631 | 5,555 | 5,857 | (1 | )% | 5 | % | |||||||
| Earnings: | |||||||||||||||
| Climate Technologies | $ | 835 | 902 | 975 | 8 | % | 8 | % | |||||||
| Tools & Home Products | 364 | 384 | 383 | 5 | % | — | % | ||||||||
| Total | $ | 1,199 | 1,286 | 1,358 | 7 | % | 6 | % | |||||||
| Margin | 21.3 | % | 23.2 | % | 23.2 | % | |||||||||
Financial Position, Liquidity and Capital Resources
Emerson maintains a conservative financial structure to provide the strength and Liquidity
The Company continues to generate substantial operating cash flow, including over $2.7 billion from continuing operations in 2023. Cash flows have been and are expected to be sufficient for at least the next 12 months to meet the Company’s operating requirements, including those related to salaries and wages, working capital, capital expenditures, and other liquidity requirements associated with operations. The Company also has certain contractual obligations, primarily long-term debt and operating leases (see Notes 9, 12 and 13). The Company has been able to readily meet all its funding requirements and currently believes that sufficient funds will be available to meet its needs for the foreseeable future through operating cash flow, existing resources, short- and long-term debt capacity, or its $3.5 billion revolving backup credit facility under which it has not incurred any borrowings.
26
| CASH FLOW | CASH FLOW | |||||||||||||||||||||||||
| 2021 | 2022 | 2023 | ||||||||||||||||||||||||
| CASH FLOW FROM CONTINUING OPERATIONS | ||||||||||||||||||||||||||
| (dollars in millions) | 2015 | 2016 | 2017 | |||||||||||||||||||||||
| Operating Cash Flow | $ | 2,040 | 2,499 | 2,690 | Operating Cash Flow | $ | 2,458 | 2,048 | 2,726 | |||||||||||||||||
| Percent of sales | 12.6 | % | 17.2 | % | 17.6 | % | Percent of sales | 19.0 | % | 14.8 | % | 18.0 | % | |||||||||||||
| Capital Expenditures | $ | 588 | 447 | 476 | Capital Expenditures | $ | 404 | 299 | 363 | |||||||||||||||||
| Percent of sales | 3.6 | % | 3.1 | % | 3.1 | % | Percent of sales | 3.1 | % | 2.2 | % | 2.4 | % | |||||||||||||
Free Cash Flow (Operating Cash Flow less Capital Expenditures) | $ | 1,452 | 2,052 | 2,214 | Free Cash Flow (Operating Cash Flow less Capital Expenditures) | $ | 2,054 | 1,749 | 2,363 | |||||||||||||||||
| Percent of sales | 8.9 | % | 14.1 | % | 14.5 | % | Percent of sales | 15.9 | % | 12.7 | % | 15.6 | % | |||||||||||||
| Operating Working Capital | $ | 1,177 | 755 | 1,007 | Operating Working Capital | $ | 457 | 990 | 1,283 | |||||||||||||||||
| Percent of sales | 7.2 | % | 5.2 | % | 6.6 | % | Percent of sales | 3.5 | % | 7.2 | % | 8.5 | % | |||||||||||||
Operating cash flow from continuing operations for 20172023 was $2.7 billion, a $191 million,an increase of $678, or 833 percent increase compared with 2016,2022, reflecting higher earnings (excluding the impacts in both years from the Vertiv subordinated interest gains and favorable changeshigher Heritage AspenTech intangibles amortization in working capital.the current year). Operating cash flow included approximately $310 generated by AspenTech. Operating cash flow from continuing operations of $2.0 billion in 2022 decreased 17 percent compared to $2.5 billion in 2016 was a 23 percent increase compared2021, reflecting higher working capital due to $2.0 billion in 2015, as comparisons benefited from income taxes of $424 million paid on the gains from divestitures in 2015. increased sales and ongoing supply chain constraints.
At September 30, 2017,2023, operating working capital as a percent of sales increased to 6.6was 8.5 percent compared with 7.2 percent in 2022 and 3.5 percent in 2021. Operating working capital remained elevated in 2023 due to higher inventory levels ofto support sales growth and higher receivables. The increase for 2022 compared to 2021 was due to higher inventory levels to support sales growth and reflecting supply chain constraints. In addition, the Heritage AspenTech acquisition increased operating working capital by approximately $250 in 2022. As of September 30, 2023, Emerson's cash and equivalents totaled $8.1 billion, reflecting the acquired valves & controls business, comparedafter-tax proceeds related to the Copeland transaction, which were used along with 5.2 percent and 7.2 percent in 2016 and 2015, respectively. Operatingother available liquidity to fund the National Instruments transaction subsequent to year-end (see the Leverage/Capitalization section for further discussion of Emerson's post-close financial position). Going forward, Copeland is not expected to issue dividends to the Company but will distribute cash flow from continuing operations funded capital expendituresfor the Company to pay its share of $476 million, dividends of $1,239 million, common stock purchases of $400 million, and wasU.S. taxes. The Company's cash also usedincludes approximately $120 attributable to partially pay down debt in 2017. Proceeds of $5.1 billion from the sales of the network power systems and power generation, motors and drives businesses funded acquisitions of $2,990 million, cashAspenTech which is intended to be used for discontinued operations of $778 millionits own purposes and repayments of short-term borrowings and long-term debt of approximately $1.3 billion. Contributionsis not available to pension plans were $45 million in 2017, $66 million in 2016 and $53 million in 2015.return to Emerson shareholders.
Total cash provided by operating activities including the impact of discontinued operations were $39 millionwas $637, $2,922 and $3,575 in 20172023, 2022 and $1,812 million2021, respectively. The decrease in 2015.2023 was due to approximately $2.3 billion of income taxes paid related to the gains on the Copeland transaction and InSinkErator divestiture and subsidiary restructurings related to the Copeland transaction. Investing cash flow from discontinued operations of $12.5 billion in 2023 reflects the proceeds from the Copeland transaction and InSinkErator divestiture.
On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic, and among other things, provides tax relief to businesses. Tax provisions of the CARES Act included the deferral of certain payroll taxes, relief for retaining employees, and other provisions. The Company deferred $73 of certain payroll taxes through the end of calendar year 2020, of which approximately $37 was paid in December 2021 and the remainder paid in December 2022.
Dividends were $1,239 million$1,198 ($1.922.08 per share) in 2017,2023, compared with $1,227 million$1,223 ($1.902.06 per share) in 20162022 and $1,269 million$1,210 ($1.882.02 per share) in 2015.2021. In November 2017,2023, the Board of Directors voted to increase the quarterly cash dividend 1 percent, to an annualized rate of $1.94$2.10 per share.
Purchases of Emerson common stock totaled $400 million, $601 million$2,000, $500 and $2,487 million$500 in 2017, 20162023, 2022 and 2015,2021, respectively, at average per share prices of $60.51, $48.11$94.09, $87.64 and $57.68.$94.65. AspenTech repurchases were $214 in 2023, which increased the Company's common ownership percentage to approximately 57 percent.
27
In November 2015, the Board of Directors authorized the purchase of up to 70 million common shares, in November 2015, and 56.9during 2022, the remaining shares available under this authorization were purchased. In March 2020, the Board of Directors authorized the purchase of an additional 60 million shares and a total of approximately 33.3 million shares remain available for purchase under this authorization.available. The Company purchased 6.621.3 million shares in 20172023, 5.7 million shares in 2022 and 5.3 million shares in 2021 under the November 2015 authorization. In 2016, the Company purchased 12.5 million shares under a combination of the November 2015 authorization and the remainder of the May 2013 authorization. A total of 43.1 million shares were purchased in 2015 under the May 2013 authorization.authorizations.
| LEVERAGE/CAPITALIZATION | |||||||||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||
| Total Assets | $ | 24,715 | 35,672 | 42,746 | |||||||||||||
| Long-term Debt | $ | 5,793 | 8,259 | 7,610 | |||||||||||||
| Common Stockholders' Equity | $ | 9,883 | 10,364 | 20,689 | |||||||||||||
| Total Debt-to-Total Capital Ratio | 40.3 | % | 50.0 | % | 28.3 | % | |||||||||||
| Net Debt-to-Net Capital Ratio | 30.4 | % | 45.3 | % | 0.5 | % | |||||||||||
| Operating Cash Flow-to-Debt Ratio | 36.9 | % | 19.7 | % | 33.4 | % | |||||||||||
| Interest Coverage Ratio | 11.6X | 11.7X | 11.5X | ||||||||||||||
| LEVERAGE/CAPITALIZATION | |||||||||
| (dollars in millions) | 2015 | 2016 | 2017 | ||||||
| Total Assets | $ | 22,088 | 21,732 | 19,589 | |||||
| Long-term Debt | $ | 4,289 | 4,051 | 3,794 | |||||
| Common Stockholders' Equity | $ | 8,081 | 7,568 | 8,718 | |||||
| Total Debt-to-Total Capital Ratio | 45.8 | % | 46.7 | % | 34.8 | % | |||
| Net Debt-to-Net Capital Ratio | 31.3 | % | 31.3 | % | 15.4 | % | |||
| Operating Cash Flow-to-Debt Ratio | 29.8 | % | 37.7 | % | 57.8 | % | |||
| Interest Coverage Ratio | 20.2X | 11.8X | 12.6X | ||||||
Total debt, which includes long-term debt, current maturities of long-term debt, commercial paper and other short-term borrowings, was $4.7$8,157, $10,374 and $6,665 as of September 30, 2023, 2022 and 2021, respectively. The decrease in 2023 included a net reduction in short-term borrowings of approximately $1.6 billion, $6.6 and repayments of long-term debt of $741 (including $264 related to AspenTech's repayment of the outstanding balance on its existing term loan facility plus accrued interest). The increase in 2022 was due to the issuance of $3 billion of long-term debt and $6.8increased commercial paper borrowings of approximately $1.3 billion for 2017, 2016compared to September 30, 2021. The Company used the net proceeds from the sale of the notes and 2015, respectively. During the year,increased commercial paper borrowings to fund the majority of its contribution of approximately $6.0 billion to existing stockholders of Heritage AspenTech as part of the transaction. Long-term debt was issued in December 2021 as follows: $1 billion of 2.0% notes due December 2028, $1 billion of 2.2% notes due December 2031, and $1 billion of 2.8% notes due December 2051. Additionally, the Company repaid $250 million$500 of 5.125%2.625% notes that matured in December 2016. In 2015, the Company issued $500 million2022, and in 2021 repaid $300 of 2.625% notes due December 2021 and $500 million of 3.150% notes due June 2025, and repaid $250 million of 5.0%4.25% notes that matured in December 2014matured. See Note 4 and $250 million of 4.125% notes that matured in April 2015.Note 13.
The total debt-to-capitaldebt-to-total capital ratio and the net debt-to-net capital ratio (less cash and short-term investments) decreased in 20172023 due to lower total debt outstandingthe proceeds and higherafter-tax gains (which increased common stockholders' equity from changesstockholder's equity) on the Copeland transaction and InSinkErator divestiture. Considering the cash paid to complete the National Instruments transaction in other comprehensive income. The total debt-to-capital ratio andOctober 2023, the Company's net debt-to-net capital ratio (less cash and short-term investments)was approximately 29.0 percent, reflecting moderate levels of debt consistent with prior years. These ratios increased in 20162022 due to lower common stockholders' equity from share repurchases and changes in other comprehensive income. The operating cash flow from continuing operations-to-debt ratiothe increased in 2017 primarily dueborrowings to lower debt insupport the current year. The operating cash flow from continuing operations-to-debt ratio increased in 2016 primarily due to taxes paid in 2015 on the divestiture gains and lower debt in 2016.AspenTech transaction discussed above. The interest coverage ratio is computed as earnings from continuing operations before income taxes plus interest expense, divided by interest expense. The increaseCompany's earnings increased in interest coverage in 2017 reflects lower2023 and 2022 which offset higher interest expense in the current year. The decrease in interest coverage in 2016 reflects lower pretax earnings, largely due to the divestiture gains of $1,039 million in 2015,increased long-term debt and slightly higher interest expense.commercial paper borrowings to fund the Heritage AspenTech acquisition.
In April 2014,February 2023, the Company entered into a $3.5 billion five-year revolving backup credit facility with various banks, which replaced the December 2010 $2.75May 2018 $3.5 billion facility. The credit facility is maintained to support general corporate purposes, including commercial paper borrowing.borrowings. The Company has not incurred any borrowings under this or previous facilities. The credit facility contains no financial covenants and is not subject to termination based on a change of credit rating or material adverse changes. The facility is unsecured and may be accessed under various interest rate and currency denomination alternatives at the Company'sCompany’s option. Fees to maintain the facility are immaterial. The Company also maintains a universal shelf registration statement on file with the SEC under which it can issue debt securities, preferred stock, common stock, warrants, share purchase contracts or share purchase units without a predetermined limit. Securities can be sold in one or more separate offerings with the size, price and terms to be determined at the time of sale.
| Amounts Due By Period | |||||||||||||||
| (dollars in millions) | Total | Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | More Than 5 Years | ||||||||||
| Long-term Debt (including Interest) | $ | 5,342 | 428 | 1,434 | 966 | 2,514 | |||||||||
| Operating Leases | 536 | 171 | 206 | 80 | 79 | ||||||||||
| Purchase Obligations | 746 | 655 | 71 | 14 | 6 | ||||||||||
| Total | $ | 6,624 | 1,254 | 1,711 | 1,060 | 2,599 | |||||||||
FINANCIAL INSTRUMENTS
28
derivatives for trading or speculative purposes. The value of derivatives and other financial instruments is subject to change as a result of market movements in rates and prices. Sensitivity analysis is one technique used to forecastforecast the impact of these movements. Based on a hypothetical 10 percent increase in interest rates a 10 percent decrease in commodity prices or a 10 percent weakening in the U.S. dollar across all currencies, the potential losses in future earnings, fair value or cash flows are not material. Sensitivity analysis has limitations; for example, a weaker U.S. dollar would benefit future earnings through favorable translation of non-U.S. operating results, and lower commodity prices would benefit future earnings through lower cost of sales.results. See Notes 1, and 811 through 10.13.
Critical Accounting Policies
Preparation of the Company's financial statements requires management to make judgments, assumptions and estimates regarding uncertainties that could affect reported revenue, expenses, assets, liabilities and equity. Note 1 describes the significant accounting policies used in preparation of the consolidated financial statements. The most significant areas where management judgments and estimates impact the primary financial statements are described below. Actual results in these areas could differ materially from management's estimates under different assumptions or conditions.
REVENUE RECOGNITION
The Company evaluates its contracts with customers to identify the promised goods or services and recognizes revenue for the identified performance obligations at the amount the Company expects to be entitled to in exchange for those goods or services. A performance obligation is a large majority of its revenue throughpromise in a contract to transfer a distinct good or service to a customer. Revenue is recognized when, or as, performance obligations are satisfied and control has transferred to the sale of manufactured products and records the salecustomer, typically when products are shipped or delivered, title and risk of loss pass to the customer, and collection is reasonably assured. the Company has a present right to payment. The majority of the Company's revenues relate to a broad offering of manufactured products and software which are recognized at the point in time when control transfers, generally in accordance with shipping terms, or the first day of the contractual term for software. A portion of the Company's revenues relate to the sale of post-contract customer support, parts and labor for repairs, and engineering services.
In certainsome circumstances, contracts include multiple performance obligations, where revenue is recognized usingseparately for each good or service, as well as contracts where revenue is recognized over time as control transfers to the percentage-of-completion method, as performance occurs, or in accordance with ASC 985-605 related to software. Sales arrangements sometimes involve delivering multiple elements, which requires management judgment that affects the amount and timing of revenue recognized. In these instances, the revenue assigned to each element is based on vendor-specific objective evidence, third-party evidence orcustomer. Tangible products represent a management estimatelarge majority of the relative selling price. Revenuedelivered items in contracts with multiple performance obligations or where revenue is recognized for delivered elements if they have value to the customer on a stand-alone basis and performance related to the undelivered items is probable and substantially in the Company's control, or the undelivered elements are inconsequential or perfunctory and there are no unsatisfied contingencies related to payment. The vast majority of deliverables are tangible products, withover time, while a smaller portion is attributable to installation, service orand maintenance. Management believesIn sales arrangements that all relevant criteria and conditions are considered when recognizing revenue.
VALUATION OF ASSETS AND LIABILITIES
Assets and liabilities acquired in business combinations, including intangible assets, are accounted for using the acquisition method and recorded at their respective fair values. In 2022, the Company completed the acquisition of Aspen Technology, Inc. and engaged an independent third-party valuation specialist to assist in the determination of the fair value of intangible assets. This included the use of certain assumptions and estimates, including the projected revenue for the customer relationship and developed technology intangible asset and the obsolescence rate for the developed technology intangible asset. Although we believe the assumptions and estimates to be reasonable and appropriate, they require judgement and are based on experience and historical information obtained from Aspen Technology, Inc.
In 2023, the consideration received from the divestiture of a majority stake in Copeland included a note receivable with a face value of $2.25 billion and the Company also retained a 40 percent non-controlling common equity interest in Copeland. The note receivable and common equity interest were required to be initially valued at fair value as part of the overall consideration received for the transaction. The fair value of the common equity investment was determined using a discounted cash flow model, which approximate average costs, whileincluded estimating financial projections for Copeland and applying an appropriate discount rate, and an option pricing model based on various assumptions. Fair value for the remainder is principally valuednote receivable was determined using a market approach primarily based on a first-in, first-out basis. Cost standards are revised atinterest rates for companies with similar credit quality and the beginningexpected duration of each year. The annual effect of resetting standards plus any operatingthe note.
29
LONG-LIVED ASSETS
Long-lived assets, which include property, plant and equipment, goodwill and identifiable intangible assets, are reviewed for impairment whenever events or changes in business circumstances indicate impairment may exist. If the Company determines that the carrying value of a long-lived asset may not be recoverable, a permanent impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its estimated fair value. Reporting units are also reviewed for possible goodwill impairment at least annually, in the fourth quarter. If an initial assessment indicates it is more likely than not an impairment may exist, it is evaluated by comparing the reporting unit's estimated fair value to its carrying value. Fair value is generally estimated using an income approach that discounts estimated future cash flows using discount rates judged by management to be commensurate with the applicable risk. Estimates of future sales, operating results, cash flows and discount rates are subject to changes in the economic environment, including such factors as the general level of market interest rates, expected equity market returns and the volatility of markets served, particularly when recessionary economic circumstances continue for an extended period of time. Management believes the estimates of future cash flows and fair values are reasonable; however, changes in estimates due to variance from assumptions could materially affect the evaluations.
RETIREMENT PLANS
The Company maintains a prudent long-term investment strategy consistent with the duration of pension obligations. The determination of defined benefit plan expense and liabilities is dependent on various assumptions, including the expected annual rate of return on plan assets, the discount rate and the rate of annual compensation increases. Management believes the assumptions used are appropriate; however, actual experience may differ. In accordance with U.S. generally accepted accounting principles, actual results that differ from the Company'sCompany's assumptions are accumulated as deferred actuarial gains or losses and amortized to expense in future periods. The Company transitioned from defined benefit to defined contribution retirement plans in 2016. TheCompany's principal U.S. defined benefit plan is closed to employees hired after January 1, 2016 while shorter-tenured current employees ceased accruing benefits effective October 1, 2016. Affected employees transitioned to an enhanced defined contribution plan. See Notes 11 and 12.
CONTINGENT LIABILITIES
The Company is a party to a number of pending legal proceedings and claims, including those involving general and product liability (including asbestos) and other matters, several of which claim substantial amounts of damages. The Company accrues for such liabilities when it is probable that future costs (including legal fees and expenses) will be incurred and such costs can be reasonably estimated. Accruals are based on developments to date; management's estimates of the outcomes of these matters; and the Company's experience in contesting, litigating and settling similar matters. The Company engages an outside expert to develop an actuarial estimate of its expected costs to resolve all pending and future asbestos claims, including defense costs, as well as its related insurance receivables. The reserve for asbestos litigation, which is recorded on an undiscounted basis, is based on projected claims through 2065.
Although it is not possible to predict the ultimate outcome of these matters, the Company historically has been largely successful in defending itself against claims and suits that have been brought against it, and will continue to defend itself vigorously in all such matters. While the Company believes a material adverse impact is unlikely, given the inherent uncertainty of litigation, a remote possibility exists that a future development could have a material adverse impact on the Company. See Note 15.
INCOME TAXES
Income tax expense and tax assets and liabilities reflect management's assessment of taxes paid or expected to be paid (received) on items included in the financial statements. Deferred tax assets and liabilities arise from temporary differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and consideration of operating loss and tax credit carryforwards. Deferred income taxes are measured using enacted tax rates in effect for the year in which the temporary differences are expected to be recovered or settled. The impact on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Valuation allowances are provided to reduce deferred tax assets to the
30
amount that will more likely than not be realized. This requires management to make judgments and estimates regarding the amount and timing of the reversal of taxable temporary differences, expected future taxable income, and the impact of tax planning strategies.
Uncertainty exists regarding tax positions taken in previously filed tax returns which remain subject to examination, along with positions expected to be taken in future returns. The Company provides for unrecognized tax benefits, based on the technical merits, when it is more likely than not that an uncertain tax position will not be sustained
upon examination. Adjustments are made to the uncertain tax positions when facts and circumstances change, such as the closing of a tax audit; changes in applicable tax laws, including tax case rulings and legislative guidance; or expiration of the applicable statute of limitations.
Other Items
LEGAL MATTERS
At September 30, 2017,2023, there were no known contingent liabilities (including guarantees, pending litigation, taxes and other claims) that management believes will be material in relation to the Company's financial statements, nor were there any material commitmentscommitments outside the normal course of business.
NEW ACCOUNTING PRONOUNCEMENTS
In May 2014,2023, the FASB amended ASC 606, Revenue from Contracts with CustomersCompany adopted ASU No. 2021-10 (Topic 832), to update and consolidate revenue recognition guidance from multiple sources into a single, comprehensiveGovernment Assistance, which requires annual disclosures about certain types of government assistance received. This standard to be applied for all contracts with customers. The fundamental principle of the revised standard is to recognize revenue basedhas no impact on the transfer of goodsaccounting for government assistance and services to customers at an amount thatdid not materially impact the Company's disclosures.
In 2022, the Company expects to be entitled toadopted three accounting standard updates, and in exchange for those goods2021 adopted two accounting standard updates and services. Also required are additional disclosures regardingone new accounting standard, each of which had an immaterial or no impact on the nature, extent, timing and uncertainty of revenues and associated cash flows. The new standard is effective for the Company in the first quarter of fiscal 2019 and may be adopted on either a prospective or retrospective basis. The Company currently expects to adopt the new standard prospectively with the cumulative effect of adoption recognized in retained earnings. The Company continues to evaluate the impact of the revised standard and does not currently expect that the updates will materially impact itsCompany's financial statements. The Company is also inThese included:
•Updates to Accounting Standards Codification ("ASC") 805, Business Combinations, which clarify the process of evaluating and implementing changes to its business processes, systems, controls and accounting policies to support recognition and disclosure under the new guidance.
•Updates to the rights and obligations associated with all lease arrangements. Currently, obligations classified as operating leases are not recorded on the balance sheet but must be disclosed. The new standard is effective for the Company in the first quarter of fiscal 2020. The Company is in the process of evaluating the impact of the revised standard on its financial statements. The Company expects the revised standard to have a material impact on its balance sheet due toASC 740, Income Taxes, which require the recognition of right-of-use assetsa franchise tax that is partially based on income as an income-based tax with any incremental amount as a non-income based tax. These updates also make certain changes to intra-period tax allocation principles and lease liabilities related to operating leases. Contractual obligations related to operating leases totaled $536 million at September 30, 2017. The Company does not expect the new standard will materially impact its results of operations.interim tax calculations.
•Updates to ASC 350, Intangibles - Goodwill and Other, eliminatingwhich eliminate the requirement to measure impairment based on the implied fair value of goodwill compared to the carrying amount of a reporting unit’s goodwill. Instead, goodwill impairment will be measured as the excess of a reporting unit’s carrying amount over its estimated fair value. These updates are effective prospectively
•Updates to ASC 350, Intangibles - Goodwill and Other, which align the requirements for capitalizing implementation costs incurred in a software hosting arrangement with the requirements for costs incurred to develop or obtain internal-use software.
•Adoption of ASC 326, Financial Instruments - Credit Losses, which amends the impairment tests beginning in fiscal 2021, with early adoption permitted, and are notmodel by requiring entities to use a forward-looking approach to estimate lifetime expected to materially impact the Company’s resultscredit losses on certain types of operations.
financial instruments, including trade receivables.
31
FISCAL 20182024 OUTLOOK
| Outlook for Fiscal 2024 Earnings Per Share | 2024 | |||||||
| Diluted earnings per share | $3.82 - $4.02 | |||||||
| Amortization of intangibles | ~ 0.67 | |||||||
| Restructuring and related costs | ~ 0.22 | |||||||
| Acquisition/divestiture fees and related costs | ~ 0.22 | |||||||
| Copeland equity loss | ~ 0.22 | |||||||
| Adjusted diluted earnings per share | $5.15 - $5.35 | |||||||
Operating cash flow is expected to be $2.75$3.0 to $2.95, excluding a $0.03$3.1 billion and free cash flow, which excludes projected capital spending of approximately $0.4 billion, is expected to be $2.6 to $2.7 billion. The fiscal 2024 outlook assumes approximately $500 million returned to shareholders through share repurchases and approximately $1.2 billion of dividend payments.
GAAP earnings per share guidance for fiscal 2024 does not include the impact from valves & controls first year acquisition accounting chargesof intangibles amortization and other purchase accounting-related costs related to inventorythe NI transaction. The initial accounting for this transaction is not yet complete and backlog amortization,therefore Emerson is unable to estimate these amounts. Although these items may have a significant impact on GAAP earnings per share, they will be excluded from adjusted earnings per share and a $0.06will have no impact from a tax-related loss on the divestiture of the residential storage business.cash flows.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information from this Annual Report on Form 10-K set forth in Item 87 under "Financial Instruments" is hereby incorporated by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Company's consolidated financial statements and accompanying notes and the report thereon of KPMG LLP (PCAOB ID 185) that follow.
32
Consolidated Statements of Earnings
EMERSON ELECTRIC CO. & SUBSIDIARIES
Years ended September 30
(Dollars and shares in millions, except per share amounts)
| 2021 | 2022 | 2023 | |||||||||||||||
| Net sales | $ | 12,932 | 13,804 | 15,165 | |||||||||||||
| Cost of sales | 7,202 | 7,498 | 7,738 | ||||||||||||||
| Selling, general and administrative expenses | 3,494 | 3,614 | 4,186 | ||||||||||||||
| Gain on subordinated interest | — | (453) | (161) | ||||||||||||||
| Other deductions, net | 319 | 519 | 683 | ||||||||||||||
Interest expense, net of interest income of: 2021, $10; 2022, $34; 2023, $227 | 155 | 194 | 34 | ||||||||||||||
| Interest income from related party | — | — | (41) | ||||||||||||||
| Earnings from continuing operations before income taxes | 1,762 | 2,432 | 2,726 | ||||||||||||||
| Income taxes | 346 | 549 | 599 | ||||||||||||||
| Earnings from continuing operations | 1,416 | 1,883 | 2,127 | ||||||||||||||
| Discontinued operations, net of tax of $239, $306 and $3,012, respectively | 911 | 1,347 | 11,073 | ||||||||||||||
| Net earnings | 2,327 | 3,230 | 13,200 | ||||||||||||||
| Less: Noncontrolling interests in earnings of subsidiaries | 24 | (1) | (19) | ||||||||||||||
| Net earnings common stockholders | $ | 2,303 | 3,231 | 13,219 | |||||||||||||
| Earnings common stockholders: | |||||||||||||||||
| Earnings from continuing operations | $ | 1,414 | 1,886 | 2,152 | |||||||||||||
| Discontinued operations | 889 | 1,345 | 11,067 | ||||||||||||||
| Net earnings common stockholders | $ | 2,303 | 3,231 | 13,219 | |||||||||||||
| Basic earnings per share common stockholders: | |||||||||||||||||
| Earnings from continuing operations | $ | 2.36 | 3.17 | 3.74 | |||||||||||||
| Discontinued operations | 1.49 | 2.27 | 19.26 | ||||||||||||||
| Basic earnings per common share | $ | 3.85 | 5.44 | 23.00 | |||||||||||||
| Diluted earnings per share common stockholders: | |||||||||||||||||
| Earnings from continuing operations | $ | 2.35 | 3.16 | 3.72 | |||||||||||||
| Discontinued operations | 1.47 | 2.25 | 19.16 | ||||||||||||||
| Diluted earnings per common share | $ | 3.82 | 5.41 | 22.88 | |||||||||||||
| Weighted average outstanding shares: | |||||||||||||||||
| Basic | 598.1 | 592.9 | 574.2 | ||||||||||||||
| Diluted | 601.8 | 596.3 | 577.3 | ||||||||||||||
| 2015 | 2016 | 2017 | |||||||
| Net sales | $ | 16,249 | 14,522 | 15,264 | |||||
| Costs and expenses: | |||||||||
| Cost of sales | 9,241 | 8,260 | 8,860 | ||||||
| Selling, general and administrative expenses | 3,735 | 3,464 | 3,618 | ||||||
| Gains on divestitures of businesses | 1,039 | — | — | ||||||
| Other deductions, net | 330 | 294 | 286 | ||||||
Interest expense, net of interest income of: 2015, $23; 2016, $27; 2017, $36 | 175 | 188 | 165 | ||||||
| Earnings from continuing operations before income taxes | 3,807 | 2,316 | 2,335 | ||||||
| Income taxes | 1,267 | 697 | 660 | ||||||
| Earnings from continuing operations | 2,540 | 1,619 | 1,675 | ||||||
| Discontinued operations, net of tax: 2015, $161; 2016, $269; 2017, $671 | 193 | 45 | (125 | ) | |||||
| Net earnings | 2,733 | 1,664 | 1,550 | ||||||
| Less: Noncontrolling interests in earnings of subsidiaries | 23 | 29 | 32 | ||||||
| Net earnings common stockholders | $ | 2,710 | 1,635 | 1,518 | |||||
| Earnings common stockholders: | |||||||||
| Earnings from continuing operations | $ | 2,517 | 1,590 | 1,643 | |||||
| Discontinued operations, net of tax | 193 | 45 | (125 | ) | |||||
| Net earnings common stockholders | $ | 2,710 | 1,635 | 1,518 | |||||
| Basic earnings per share common stockholders: | |||||||||
| Earnings from continuing operations | $ | 3.72 | 2.46 | 2.54 | |||||
| Discontinued operations | 0.29 | 0.07 | (0.19 | ) | |||||
| Basic earnings per common share | $ | 4.01 | 2.53 | 2.35 | |||||
| Diluted earnings per share common stockholders: | |||||||||
| Earnings from continuing operations | $ | 3.71 | 2.45 | 2.54 | |||||
| Discontinued operations | 0.28 | 0.07 | (0.19 | ) | |||||
| Diluted earnings per common share | $ | 3.99 | 2.52 | 2.35 | |||||
See accompanying Notes to Consolidated Financial Statements.
33
Consolidated Statements of Comprehensive Income
EMERSON ELECTRIC CO. & SUBSIDIARIES
Years ended September 30
(Dollars in millions)
| 2021 | 2022 | 2023 | ||||||||||||||||||
| Net earnings | $ | 2,327 | 3,230 | 13,200 | ||||||||||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||||||
| Foreign currency translation | 81 | (644) | 254 | |||||||||||||||||
| Pension and postretirement | 605 | 37 | (25) | |||||||||||||||||
| Cash flow hedges | 18 | (14) | 4 | |||||||||||||||||
| Total other comprehensive income (loss) | 704 | (621) | 233 | |||||||||||||||||
| Comprehensive income | 3,031 | 2,609 | 13,433 | |||||||||||||||||
| Less: Noncontrolling interests in comprehensive income of subsidiaries | 23 | (9) | (18) | |||||||||||||||||
| Comprehensive income common stockholders | $ | 3,008 | 2,618 | 13,451 | ||||||||||||||||
| 2015 | 2016 | 2017 | ||||||||
| Net earnings | $ | 2,733 | 1,664 | 1,550 | ||||||
| Other comprehensive income (loss), net of tax: | ||||||||||
| Foreign currency translation | (794 | ) | (188 | ) | 441 | |||||
| Pension and postretirement | (206 | ) | (210 | ) | 500 | |||||
| Cash flow hedges | (43 | ) | 18 | 37 | ||||||
| Total other comprehensive income (loss) | (1,043 | ) | (380 | ) | 978 | |||||
| Comprehensive income | 1,690 | 1,284 | 2,528 | |||||||
| Less: Noncontrolling interests in comprehensive income of subsidiaries | 22 | 31 | 30 | |||||||
| Comprehensive income common stockholders | $ | 1,668 | 1,253 | 2,498 | ||||||
See accompanying Notes to Consolidated Financial Statements.
34
Consolidated Balance Sheets
EMERSON ELECTRIC CO. & SUBSIDIARIES
Years ended September 30 (Dollars and shares in millions, except per share amounts)
| 2022 | 2023 | ||||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash and equivalents | $ | 1,804 | 8,051 | ||||||||
| Receivables, less allowances of $100 in 2022 and $100 in 2023 | 2,261 | 2,518 | |||||||||
| Inventories | 1,742 | 2,006 | |||||||||
| Other current assets | 1,301 | 1,244 | |||||||||
| Current assets held-for-sale | 1,398 | — | |||||||||
| Total current assets | 8,506 | 13,819 | |||||||||
| Property, plant and equipment, net | 2,239 | 2,363 | |||||||||
| Other assets | |||||||||||
| Goodwill | 13,946 | 14,480 | |||||||||
| Other intangible assets | 6,572 | 6,263 | |||||||||
| Copeland note receivable and equity investment | — | 3,255 | |||||||||
| Other | 2,151 | 2,566 | |||||||||
| Noncurrent assets held-for-sale | 2,258 | — | |||||||||
| Total other assets | 24,927 | 26,564 | |||||||||
| Total assets | $ | 35,672 | 42,746 | ||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities | |||||||||||
| Short-term borrowings and current maturities of long-term debt | $ | 2,115 | 547 | ||||||||
| Accounts payable | 1,276 | 1,275 | |||||||||
| Accrued expenses | 3,038 | 3,210 | |||||||||
| Current liabilities held-for-sale | 1,348 | — | |||||||||
| Total current liabilities | 7,777 | 5,032 | |||||||||
| Long-term debt | 8,259 | 7,610 | |||||||||
| Other liabilities | 3,153 | 3,506 | |||||||||
| Noncurrent liabilities held-for-sale | 167 | — | |||||||||
| Equity | |||||||||||
| Common stock, $0.50 par value; authorized, 1,200.0 shares; issued, 953.4 shares; outstanding, 591.4 shares in 2022; 572.0 shares in 2023 | 477 | 477 | |||||||||
| Additional paid-in-capital | 57 | 62 | |||||||||
| Retained earnings | 28,053 | 40,070 | |||||||||
| Accumulated other comprehensive income (loss) | (1,485) | (1,253) | |||||||||
| Cost of common stock in treasury, 362.0 shares in 2022; 381.4 shares in 2023 | (16,738) | (18,667) | |||||||||
| Common stockholders’ equity | 10,364 | 20,689 | |||||||||
| Noncontrolling interests in subsidiaries | 5,952 | 5,909 | |||||||||
| Total equity | 16,316 | 26,598 | |||||||||
| Total liabilities and equity | $ | 35,672 | 42,746 | ||||||||
| See accompanying Notes to Consolidated Financial Statements. | |||||||||||
35
| 2016 | 2017 | |||||
| ASSETS | ||||||
| Current assets | ||||||
| Cash and equivalents | $ | 3,182 | 3,062 | |||
| Receivables, less allowances of $92 in 2016 and $91 in 2017 | 2,701 | 3,072 | ||||
| Inventories | 1,208 | 1,696 | ||||
| Other current assets | 669 | 349 | ||||
| Current assets held-for-sale | 2,200 | 73 | ||||
| Total current assets | 9,960 | 8,252 | ||||
| Property, plant and equipment, net | 2,931 | 3,321 | ||||
| Other assets | ||||||
| Goodwill | 3,909 | 5,316 | ||||
| Other intangible assets | 902 | 1,890 | ||||
| Other | 200 | 634 | ||||
| Noncurrent assets held-for-sale | 3,830 | 176 | ||||
| Total other assets | 8,841 | 8,016 | ||||
| Total assets | $ | 21,732 | 19,589 | |||
| LIABILITIES AND EQUITY | ||||||
| Current liabilities | ||||||
| Short-term borrowings and current maturities of long-term debt | $ | 2,584 | 862 | |||
| Accounts payable | 1,517 | 1,776 | ||||
| Accrued expenses | 2,126 | 2,286 | ||||
| Income taxes | 180 | 65 | ||||
| Current liabilities held-for-sale | 1,601 | 56 | ||||
| Total current liabilities | 8,008 | 5,045 | ||||
| Long-term debt | 4,051 | 3,794 | ||||
| Other liabilities | 1,729 | 1,975 | ||||
| Noncurrent liabilities held-for-sale | 326 | 5 | ||||
| Equity | ||||||
| Common stock, $0.50 par value; authorized, 1,200,000,000 shares; issued, 953,354,012 shares; outstanding, 642,796,490 shares in 2016; 641,691,971 shares in 2017 | 477 | 477 | ||||
| Additional paid-in-capital | 205 | 297 | ||||
| Retained earnings | 21,716 | 21,995 | ||||
| Accumulated other comprehensive income (loss) | (1,999 | ) | (1,019 | ) | ||
| 20,399 | 21,750 | |||||
| Less: Cost of common stock in treasury, 310,557,522 shares in 2016; 311,662,041 shares in 2017 | 12,831 | 13,032 | ||||
| Common stockholders’ equity | 7,568 | 8,718 | ||||
| Noncontrolling interests in subsidiaries | 50 | 52 | ||||
| Total equity | 7,618 | 8,770 | ||||
| Total liabilities and equity | $ | 21,732 | 19,589 | |||
| See accompanying Notes to Consolidated Financial Statements. | ||||||
Consolidated Statements of Equity
EMERSON ELECTRIC CO. & SUBSIDIARIES
Years ended September 30
(Dollars in millions, except per share amounts)
| 2021 | 2022 | 2023 | |||||||||||||||
| Common stock | $ | 477 | 477 | 477 | |||||||||||||
| Additional paid-in-capital | |||||||||||||||||
| Beginning balance | 470 | 522 | 57 | ||||||||||||||
| Stock plans | 52 | 85 | 127 | ||||||||||||||
| AspenTech purchases of common stock | — | — | (122) | ||||||||||||||
| AspenTech acquisition | — | (550) | — | ||||||||||||||
| Ending balance | 522 | 57 | 62 | ||||||||||||||
| Retained earnings | |||||||||||||||||
| Beginning balance | 24,955 | 26,047 | 28,053 | ||||||||||||||
| Net earnings common stockholders | 2,303 | 3,231 | 13,219 | ||||||||||||||
| Dividends paid (per share: 2021, $2.02; 2022, $2.06; 2023, $2.08) | (1,210) | (1,225) | (1,202) | ||||||||||||||
| Adoption of accounting standard updates | (1) | — | — | ||||||||||||||
| Ending balance | 26,047 | 28,053 | 40,070 | ||||||||||||||
| Accumulated other comprehensive income (loss) | |||||||||||||||||
| Beginning balance | (1,577) | (872) | (1,485) | ||||||||||||||
| Foreign currency translation | 82 | (636) | 253 | ||||||||||||||
| Pension and postretirement | 605 | 37 | (25) | ||||||||||||||
| Cash flow hedges | 18 | (14) | 4 | ||||||||||||||
| Ending balance | (872) | (1,485) | (1,253) | ||||||||||||||
| Treasury stock | |||||||||||||||||
| Beginning balance | (15,920) | (16,291) | (16,738) | ||||||||||||||
| Purchases | (500) | (500) | (2,000) | ||||||||||||||
| Issued under Emerson stock plans | 129 | 53 | 71 | ||||||||||||||
| Ending balance | (16,291) | (16,738) | (18,667) | ||||||||||||||
| Common stockholders' equity | 9,883 | 10,364 | 20,689 | ||||||||||||||
| Noncontrolling interests in subsidiaries | |||||||||||||||||
| Beginning balance | 42 | 40 | 5,952 | ||||||||||||||
| Net earnings | 24 | (1) | (19) | ||||||||||||||
| Stock plans | — | 35 | 94 | ||||||||||||||
| AspenTech purchases of common stock | — | — | (92) | ||||||||||||||
| Other comprehensive income | (1) | (8) | 1 | ||||||||||||||
| Dividends paid | (25) | (4) | (1) | ||||||||||||||
| AspenTech acquisition | — | 5,890 | — | ||||||||||||||
| Purchase of noncontrolling interests | — | — | 3 | ||||||||||||||
| Climate Technologies divestiture | — | — | (29) | ||||||||||||||
| Ending balance | 40 | 5,952 | 5,909 | ||||||||||||||
| Total equity | $ | 9,923 | 16,316 | 26,598 | |||||||||||||
| 2015 | 2016 | 2017 | |||||||
| Common stock | $ | 477 | 477 | 477 | |||||
| Additional paid-in-capital | |||||||||
| Beginning balance | 161 | 170 | 205 | ||||||
| Stock plans | 31 | 35 | 92 | ||||||
| Purchase of noncontrolling interests | (22 | ) | — | — | |||||
| Ending balance | 170 | 205 | 297 | ||||||
| Retained earnings | |||||||||
| Beginning balance | 19,867 | 21,308 | 21,716 | ||||||
| Net earnings common stockholders | 2,710 | 1,635 | 1,518 | ||||||
| Dividends paid (per share: 2015, $1.88; 2016, $1.90; 2017, $1.92) | (1,269 | ) | (1,227 | ) | (1,239 | ) | |||
| Ending balance | 21,308 | 21,716 | 21,995 | ||||||
| Accumulated other comprehensive income (loss) | |||||||||
| Beginning balance | (575 | ) | (1,617 | ) | (1,999 | ) | |||
| Foreign currency translation | (793 | ) | (190 | ) | 443 | ||||
| Pension and postretirement | (206 | ) | (210 | ) | 500 | ||||
| Cash flow hedges | (43 | ) | 18 | 37 | |||||
| Ending balance | (1,617 | ) | (1,999 | ) | (1,019 | ) | |||
| Treasury stock | |||||||||
| Beginning balance | (9,811 | ) | (12,257 | ) | (12,831 | ) | |||
| Purchases | (2,487 | ) | (601 | ) | (400 | ) | |||
| Issued under stock plans | 41 | 27 | 199 | ||||||
| Ending balance | (12,257 | ) | (12,831 | ) | (13,032 | ) | |||
| Common stockholders' equity | 8,081 | 7,568 | 8,718 | ||||||
| Noncontrolling interests in subsidiaries | |||||||||
| Beginning balance | 48 | 47 | 50 | ||||||
| Net earnings | 23 | 29 | 32 | ||||||
| Other comprehensive income (loss) | (1 | ) | 2 | (2 | ) | ||||
| Dividends paid | (23 | ) | (28 | ) | (28 | ) | |||
| Ending balance | 47 | 50 | 52 | ||||||
| Total equity | $ | 8,128 | 7,618 | 8,770 | |||||
See accompanying Notes to Consolidated Financial Statements.
36
Consolidated Statements of Cash Flows
EMERSON ELECTRIC CO. & SUBSIDIARIES
Years ended September 30 (Dollars in millions)
| 2015 | 2016 | 2017 | 2021 | 2022 | 2023 | |||||||||||||||||||||
| Operating activities | Operating activities | |||||||||||||||||||||||||
| Net earnings | $ | 2,733 | 1,664 | 1,550 | Net earnings | $ | 2,327 | 3,230 | 13,200 | |||||||||||||||||
| (Earnings) Loss from discontinued operations, net of tax | (193 | ) | (45 | ) | 125 | |||||||||||||||||||||
| Earnings from discontinued operations, net of tax | Earnings from discontinued operations, net of tax | (911) | (1,347) | (11,073) | ||||||||||||||||||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||||||||||||||||||
| Depreciation and amortization | 573 | 568 | 636 | Depreciation and amortization | 762 | 842 | 1,051 | |||||||||||||||||||
| Stock compensation | Stock compensation | 197 | 125 | 250 | ||||||||||||||||||||||
| Pension expense (income) | Pension expense (income) | 28 | 2 | (71) | ||||||||||||||||||||||
| Pension funding | Pension funding | (41) | (43) | (43) | ||||||||||||||||||||||
| Changes in operating working capital | (181 | ) | 93 | 160 | Changes in operating working capital | 167 | (312) | (190) | ||||||||||||||||||
| Pension funding | (53 | ) | (66 | ) | (45 | ) | ||||||||||||||||||||
| Gains on divestitures of businesses, after tax | (611 | ) | — | — | ||||||||||||||||||||||
| Income taxes paid on divestiture gains | (424 | ) | — | — | ||||||||||||||||||||||
| Gain on subordinated interest | Gain on subordinated interest | — | (453) | (161) | ||||||||||||||||||||||
| Other, net | 196 | 285 | 264 | Other, net | (71) | 4 | (237) | |||||||||||||||||||
| Cash from continuing operations | 2,040 | 2,499 | 2,690 | Cash from continuing operations | 2,458 | 2,048 | 2,726 | |||||||||||||||||||
| Cash from discontinued operations | 489 | 382 | (778 | ) | Cash from discontinued operations | 1,117 | 874 | (2,089) | ||||||||||||||||||
| Cash provided by operating activities | 2,529 | 2,881 | 1,912 | Cash provided by operating activities | 3,575 | 2,922 | 637 | |||||||||||||||||||
| Investing activities | Investing activities | |||||||||||||||||||||||||
| Capital expenditures | (588 | ) | (447 | ) | (476 | ) | Capital expenditures | (404) | (299) | (363) | ||||||||||||||||
| Purchases of businesses, net of cash and equivalents acquired | (324 | ) | (132 | ) | (2,990 | ) | Purchases of businesses, net of cash and equivalents acquired | (1,592) | (5,702) | (705) | ||||||||||||||||
| Divestitures of businesses | 1,812 | — | 39 | Divestitures of businesses | 30 | 17 | — | |||||||||||||||||||
| Proceeds from subordinated interest | Proceeds from subordinated interest | — | 438 | 176 | ||||||||||||||||||||||
| Proceeds from related party note receivable | Proceeds from related party note receivable | — | — | 918 | ||||||||||||||||||||||
| Other, net | (221 | ) | 30 | (106 | ) | Other, net | (25) | (138) | (141) | |||||||||||||||||
| Cash from continuing operations | 679 | (549 | ) | (3,533 | ) | Cash from continuing operations | (1,991) | (5,684) | (115) | |||||||||||||||||
| Cash from discontinued operations | (88 | ) | (77 | ) | 5,047 | Cash from discontinued operations | (129) | 350 | 12,530 | |||||||||||||||||
| Cash provided by (used in) investing activities | 591 | (626 | ) | 1,514 | Cash provided by (used in) investing activities | (2,120) | (5,334) | 12,415 | ||||||||||||||||||
| Financing activities | Financing activities | |||||||||||||||||||||||||
| Net increase (decrease) in short-term borrowings | 1,116 | (34 | ) | (1,635 | ) | Net increase (decrease) in short-term borrowings | (504) | 1,241 | (1,578) | |||||||||||||||||
| Proceeds from short-term borrowings greater than three months | 2,515 | 1,264 | — | Proceeds from short-term borrowings greater than three months | 71 | 1,162 | 395 | |||||||||||||||||||
| Payments of short-term borrowings greater than three months | (3,286 | ) | (1,174 | ) | (90 | ) | Payments of short-term borrowings greater than three months | (71) | (1,165) | (400) | ||||||||||||||||
| Proceeds from long-term debt | 1,000 | — | — | Proceeds from long-term debt | — | 2,975 | — | |||||||||||||||||||
| Payments of long-term debt | (504 | ) | (254 | ) | (254 | ) | Payments of long-term debt | (308) | (522) | (741) | ||||||||||||||||
| Dividends paid | (1,269 | ) | (1,227 | ) | (1,239 | ) | Dividends paid | (1,210) | (1,223) | (1,198) | ||||||||||||||||
| Purchases of common stock | (2,501 | ) | (601 | ) | (400 | ) | Purchases of common stock | (500) | (500) | (2,000) | ||||||||||||||||
| AspenTech purchases of common stock | AspenTech purchases of common stock | — | — | (214) | ||||||||||||||||||||||
| Payment of related party note payable | Payment of related party note payable | — | — | (918) | ||||||||||||||||||||||
| Other, net | (19 | ) | (19 | ) | 27 | Other, net | 100 | 80 | (169) | |||||||||||||||||
| Cash used in financing activities | (2,948 | ) | (2,045 | ) | (3,591 | ) | ||||||||||||||||||||
| Cash provided by (used in) financing activities | Cash provided by (used in) financing activities | (2,422) | 2,048 | (6,823) | ||||||||||||||||||||||
| Effect of exchange rate changes on cash and equivalents | (267 | ) | (82 | ) | 45 | Effect of exchange rate changes on cash and equivalents | 6 | (186) | 18 | |||||||||||||||||
| Increase (Decrease) in cash and equivalents | (95 | ) | 128 | (120 | ) | Increase (Decrease) in cash and equivalents | (961) | (550) | 6,247 | |||||||||||||||||
| Beginning cash and equivalents | 3,149 | 3,054 | 3,182 | Beginning cash and equivalents | 3,315 | 2,354 | 1,804 | |||||||||||||||||||
| Ending cash and equivalents | $ | 3,054 | 3,182 | 3,062 | Ending cash and equivalents | $ | 2,354 | 1,804 | 8,051 | |||||||||||||||||
| Changes in operating working capital | Changes in operating working capital | |||||||||||||||||||||||||
| Receivables | $ | 241 | 162 | (25 | ) | Receivables | $ | (18) | (143) | (191) | ||||||||||||||||
| Inventories | (11 | ) | 58 | 32 | Inventories | (11) | (334) | (160) | ||||||||||||||||||
| Other current assets | (140 | ) | (4 | ) | (12 | ) | Other current assets | (91) | (56) | (1) | ||||||||||||||||
| Accounts payable | (256 | ) | (22 | ) | 135 | Accounts payable | 107 | 147 | (17) | |||||||||||||||||
| Accrued expenses | (4 | ) | (57 | ) | 74 | Accrued expenses | 180 | 74 | 179 | |||||||||||||||||
| Income taxes | (11 | ) | (44 | ) | (44 | ) | ||||||||||||||||||||
| Total changes in operating working capital | $ | (181 | ) | 93 | 160 | Total changes in operating working capital | $ | 167 | (312) | (190) | ||||||||||||||||
See accompanying Notes to Consolidated Financial Statements.
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Notes to Consolidated Financial Statements
EMERSON ELECTRIC CO. & SUBSIDIARIES
Years ended September 30
(Dollars in millions, except per share amounts or where noted)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial Statement Presentation
The preparation of the financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from these estimates. Certain prior year amounts have been reclassified to conform withto the current year presentation.This includes reporting financial results for Climate Technologies, InSinkErator and Therm-O-Disc as discontinued operations for all periods presented, and the assets and liabilities of Climate Technologies and InSinkErator (prior to completion of the divestitures) as held-for-sale (see Note 5). In addition, as a result of its portfolio transformation, the Company now reports six segments and two business groups (see Note 20).
In the first quarter of 2017,2023, the Company adopted updates to ASC Subtopic 835-30, Interest-ImputationASU No. 2021-10 (Topic 832), Government Assistance, which requires annual disclosures about certain types of Interest, which require presentation of debt issuance costs as a deduction fromgovernment assistance received. This standard has no impact on the related debt liability rather than within other assets. These updates were adopted on a retrospective basisaccounting for government assistance and did not materially impact the Company’s financial statements.Company's disclosures.
In the fourth quarter of 2017,2022, the Company adopted three accounting standard updates, to ASC 718, Compensation - Stock Compensation,and in 2021 adopted two accounting standard updates and one new accounting standard, each of which require all excess tax benefits and deficiencies related to share-based payments to be recognized in income tax expense rather than through additional paid-in-capital, and to be presented as operating cash flows instead of financing. These updates did not materially impact the Company's financial statements.
•Updates to Accounting Standards Codification ("ASC") 805, Business Combinations, which clarify the accounting for contract assets and liabilities assumed in a business combination. In general, this will result in contract liabilities being recognized at their historical amounts under ASC 606, rather than at fair value in accordance with the first quartergeneral requirements of 2015, the Company adopted updatesASC 805.
•Updates to ASC 205, Presentation740, Income Taxes, which require the recognition of Financial Statementsa franchise tax that is partially based on income as an income-based tax with any incremental amount as a non-income based tax. These updates also make certain changes to intra-period tax allocation principles and interim tax calculations.
•Updates to ASC 321, Equity Securities, ASC 323 Investments - Equity Method and Joint Ventures, and ASC 360, Property, Plant815, Derivatives and EquipmentHedging, regardingwhich clarify how to account for the reporting of discontinued operations. These updates raised the threshold for reporting discontinued operations to a strategic business shift having a major effect on an entity's operationstransition into and financial results. The updates also added disclosures for disposals of business units qualifying for discontinued presentation, and for some dispositions that do not qualify as discontinued operations but are still considered individually significant componentsout of the entity. In 2017,equity method of accounting when evaluating observable transactions.
•Updates to ASC 350, Intangibles - Goodwill and Other, which eliminate the Company completedrequirement to measure impairment based on the divestituresimplied fair value of goodwill compared to the carrying amount of a reporting unit’s goodwill. Instead, goodwill impairment will be measured as the excess of a reporting unit’s carrying amount over its network power systems,estimated fair value.
•Updates to ASC 350, Intangibles - Goodwill and power generation, motors and drives businesses. The resultsOther, which align the requirements for capitalizing implementation costs incurred in a software hosting arrangement with the requirements for costs incurred to develop or obtain internal-use software.
•Adoption of operations for these businesses were reported within discontinued operations for all years presented, andASC 326, Financial Instruments - Credit Losses, which amends the assets and liabilities were reflected as held-for-sale. See Note 4.impairment model by requiring entities to use a forward-looking approach to estimate lifetime expected credit losses on certain types of financial instruments, including trade receivables.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its controlled affiliates. Intercompany transactions, profits and balances are eliminated in consolidation. Investments of 20 percent to 50 percent of the voting shares of other entities are accounted for by the equity method. Investments in publicly traded companies of less than 20 percent are carried at fair value, with changes in fair value reflected in accumulated other comprehensive income. earnings.
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Investments in nonpublicly traded companies of less than 20 percent are carried at cost.cost, minus impairment, and adjusted for observable price changes in orderly transactions.
Foreign Currency Translation
The functional currency for most of the Company's non-U.S. subsidiaries is the local currency. Adjustments resulting from translating local currency financial statements into U.S. dollars are reflected in accumulated other comprehensive income.
Cash Equivalents
Cash equivalents consist of highly liquid investments with original maturities of three months or less.
Inventories
Inventories are stated at the lower of cost or market.and net realizable value. The majority of inventory is valued based on standard costs, which are revised at the beginning of each year and approximate average costs, while the remainder is principally valued on a first-in, first-out basis. Cost standards are revised at the beginning of each fiscal year. The annual effect of resetting standards plus any operating variances incurred during each period are allocated to inventories and recognized in cost of sales as product is sold. Following are the components of inventory as of September 30:
| 2022 | 2023 | |||||||||||||
| Finished products | $ | 417 | 446 | |||||||||||
| Raw materials and work in process | 1,325 | 1,560 | ||||||||||||
| Total inventories | $ | 1,742 | 2,006 | |||||||||||
| 2016 | 2017 | ||||||
| Finished products | $ | 382 | 560 | ||||
| Raw materials and work in process | 826 | 1,136 | |||||
| Total inventories | $ | 1,208 | 1,696 | ||||
Fair Value Measurement
ASC 820, Fair Value Measurement, establishes a formal hierarchy and framework for measuring certain financial statement items at fair value, and requires disclosures about fair value measurements and the reliability of valuation inputs. Under ASC 820, measurement assumes the transaction to sell an asset or transfer a liability occurs in the principal or at least the most advantageous market for that asset or liability. Within the hierarchy, Level 1 instruments use observable market prices for an identical item in active markets and have the most reliable valuations. Level 2 instruments are valued through broker/dealer quotation or other approaches using market-observable inputs for similar items in active markets, including forward and spot prices, interest rates and volatilities. Level 3 instruments are valued using inputs not observable in an active market, such as company-developed future cash flow estimates, and are considered the least reliable. Valuations for all of the Company's financial instruments fall within Level 2. The fair value of the Company's long-term debt isand note receivable from Copeland are Level 2, estimated using current interest rates and pricing from financial institutions and other market sources for debt with similar maturities and characteristics.
Property, Plant Andand Equipment
The Company records investments in land, buildings, and machinery and equipment at cost. Depreciation is computed principally using the straight-line method over estimated service lives, which for principal assets are 30 to 40 years for buildings and 8 to 12 years for machinery and equipment. Long-lived tangible assets are reviewed for impairment whenever events or changes in business circumstances indicate the carrying value of the assets may not be recoverable. Impairment losses are recognized based on estimated fair values if the sum of estimated future undiscounted cash flows of the related assets is less than the carrying values.
The components of property, plant and equipment as of September 30 follow:
| 2022 | 2023 | |||||||||||||||||||
| Land | $ | 200 | 255 | |||||||||||||||||
| Buildings | 1,500 | 1,758 | ||||||||||||||||||
| Machinery and equipment | 3,300 | 3,228 | ||||||||||||||||||
| Construction in progress | 390 | 283 | ||||||||||||||||||
| Property, plant and equipment, at cost | 5,390 | 5,524 | ||||||||||||||||||
| Less: Accumulated depreciation | 3,151 | 3,161 | ||||||||||||||||||
| Property, plant and equipment, net | $ | 2,239 | 2,363 | |||||||||||||||||
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| 2016 | 2017 | ||||||
| Land | $ | 210 | 295 | ||||
| Buildings | 1,867 | 2,043 | |||||
| Machinery and equipment | 4,932 | 5,175 | |||||
| Construction in progress | 318 | 360 | |||||
| Property, plant and equipment, at cost | 7,327 | 7,873 | |||||
| Less: Accumulated depreciation | 4,396 | 4,552 | |||||
| Property, plant and equipment, net | $ | 2,931 | 3,321 | ||||
Goodwill and Other Intangible Assets
Assets and liabilities acquired in business combinations are accounted for using the acquisition method and recorded at their respective fair values. Substantially all goodwill is assigned to the reporting unit that acquires a business. A reporting unit is an operating segment as defined in ASC 280, Segment Reporting, or a business one level below an operating segment if discrete financial information for that business unit is prepared and regularly reviewed by the segment manager. The Company conducts annual impairment tests of goodwill in the fourth quarter. If an initial assessment indicates it is more likely than not goodwill might be impaired, it is evaluated by comparing the reporting unit's estimated fair value to its carrying value. An impairment charge would be recorded for the amount by which the carrying value of the reporting unit exceeds the estimated fair value. Goodwill is also tested for impairment between annual tests if events or circumstances indicate the fair value of a unit may be less than its carrying value.
Leases
The Company leases offices; manufacturing facilities and equipment; and transportation, information technology and office equipment under operating lease arrangements. Finance lease arrangements are immaterial. The Company determines whether an arrangement is, or contains, a lease at contract inception. An arrangement contains a lease if the Company has the right to direct the use of and obtain substantially all of the economic benefits of an identified asset. Right-of-use assets and lease liabilities are recognized at lease commencement based on the present value of lease payments over the lease term. Leases with an initial term of 12 months or less are not recognized on the balance sheet and are recorded as short-term lease expense. The discount rate used to calculate present value is the Company's incremental borrowing rate based on the lease term and the economic environment of the applicable country or region.
Certain leases contain renewal options or options to terminate prior to lease expiration, which are included in the measurement of right-of-use assets and lease liabilities when it is reasonably certain they will be exercised. The Company has elected to account for lease and non-lease components as a single lease component for its offices and manufacturing facilities. Some lease arrangements include payments that are adjusted periodically based on actual charges incurred for common area maintenance, utilities, taxes and insurance, or changes in an index or rate referenced in the lease. The fixed portion of these payments is included in the measurement of right-of-use assets and lease liabilities at lease commencement, while the variable portion is recorded as variable lease expense. The Company's leases typically do not contain material residual value guarantees or restrictive covenants.
Product Warranty
Warranties vary by product line and are competitive for the markets in which the Company operates. Warranties are largely offered to provide assurance that the product will function as intended and generally extend for a period of one to two years from the date of sale or installation. Provisions for warranty expense are determined primarilyestimated at the time of sale based on historical warranty cost as a percentage of sales or a fixed amount per unit sold based on failure rates,experience and adjusted quarterly for specific problemsany known issues that may arise. Product warranty expense is less than one-half of one percent of sales.
Revenue Recognition
Emerson is a global manufacturer that designs and manufactures products and delivers services that bring technology and engineering together to provide innovative solutions for its customers. The Company evaluates its contracts with customers to identify the promised goods or services and recognizes revenue for the identified performance obligations at the amount the Company expects to be entitled to in exchange for those goods or services. A performance obligation is a large majority of its revenues throughpromise in a contract to transfer a distinct good or service to a customer. Revenue is recognized when, or as, performance obligations are satisfied and control has transferred to the sale of manufactured products and records the salecustomer, typically when products are shipped or delivered, title and risk of loss pass to the customer, and collectionthe Company has a present right to payment. The majority of the Company's revenues relate to a broad offering of manufactured products and software which are recognized at the point in time when control transfers, generally in accordance with shipping terms, or the first day of the contractual term for software. A portion of the Company's
40
revenues relate to the sale of post-contract customer support, parts and labor for repairs, and engineering services. In some circumstances, contracts include multiple performance obligations, where revenue is reasonably assured. Less than tenrecognized separately for each good or service, as well as contracts where revenue is recognized over time as control transfers to the customer.
Revenue is recognized over time for approximately 10 percent of the Company's revenues. These revenues areprimarily relate to projects in the Control Systems & Software segment where revenue is recognized using the percentage-of-completion method as performance occurs,to reflect the transfer of control over time, and software maintenance contracts in the AspenTech and Control Systems & Software segments where revenue from software sales is typically recognized in accordance with ASC 985-605. Management believes that all relevant criteria and conditions are considered when recognizing revenue.
For projects where revenue is recognized over time, the Company typically uses an input method to determine progress and recognize revenue, based on costs incurred. The Company believes costs incurred closely correspond with its performance under the contract and the transfer of control to the customer. For software maintenance contracts, revenue is recognized ratably over the maintenance term.
In sales arrangements that involve multiple performance obligations, revenue is allocated based on the relative standalone selling price for each performance obligation. Observable selling prices from actual transactions are used whenever possible. In other instances, the Company determines the standalone selling price based on third-party pricing or maintenance.management's best estimate. Generally, contract duration is short term,short-term, and cancellation, termination or refund provisions apply only in the event of contract breach and have historicallyare rarely invoked.
Payment terms vary but are generally short-term in nature. The Company's long-term contracts, where revenue is generally recognized over time, are typically billed as work progresses in accordance with the contract terms and conditions, either at periodic intervals or upon achievement of certain milestones. The timing of revenue recognition and billings under these contracts results in either unbilled receivables (contract assets) when revenue recognized exceeds billings, or customer advances (contract liabilities) when billings exceed revenue recognized. Unbilled receivables are reclassified to accounts receivable when an unconditional right to consideration exists, typically when a milestone in the contract is achieved. The Company does not been invoked.evaluate whether the transaction price includes a significant financing component for contracts where the time between cash collection and performance is less than one year.
Certain arrangements with customers include variable consideration, typically in the form of rebates, cash discounts or penalties. In limited circumstances, the Company sells products with a general right of return. In most instances, returns are limited to product quality issues. The Company records a reduction to revenue at the time of sale to reflect the ultimate amount of consideration it expects to receive. The Company's estimates are updated quarterly based on historical experience, trend analysis, and expected market conditions. Variable consideration is typically not constrained at the time revenue is recognized. See Notes 2 and 20 for additional information about the Company's revenues.
Derivatives and Hedging
In the normal course of business, the Company is exposed to changes in interest rates and foreign currency exchange rates and commodity prices due to its worldwide presence and diverse business profile.profile. The Company's foreign currency exposures relate to transactions denominated in currencies that differ from the functional currencies of its business units, primarily in euros, Mexican pesos, and Singapore dollars and Indian rupees. Primary commodity exposures are price fluctuations on forecasted purchases of copper and aluminum and related products.dollars. As part of the Company's risk management strategy, derivative instruments are selectively used in an effort to minimize the impact of these exposures. Foreign exchange forwards and options are utilized to hedge foreign currency exposures impacting sales or cost of sales transactions, firm commitments and the fair value of assets and liabilities, while swap and option contracts may be usedliabilities. Non-U.S. dollar obligations are utilized to minimizereduce foreign currency risk associated with the effect of commodity price fluctuations on the cost of sales.Company's net investments in foreign operations. All derivatives are associated with specific underlying exposures and the Company does not hold derivatives for trading or speculative purposes. The duration of hedge positions is generally two years or less.less, except for the Company's net investment hedges.
All derivatives are accounted for under ASC 815, Derivatives and Hedging, and recognized at fair value. For derivatives hedging variability in future cash flows, the effective portion of any gain or loss is deferred in stockholders' equity and recognized when the underlying hedged transaction impacts earnings. The majority of the Company's derivatives
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that are designated as hedges and qualify for deferralhedge accounting are cash flow hedges. For derivatives hedging the fair value of existing assets or liabilities, both the gain or loss on the derivative and the offsetting loss or gain on the hedged item are recognized in earnings each period. Currency fluctuations on non-U.S. dollar obligations that have been designated as hedges of non-U.S. dollar net asset exposuresinvestments in foreign operations are reportedrecognized in equity.accumulated other comprehensive income (loss) and reclassified to income in the same period when a foreign operation is sold or substantially liquidated and the gain or loss related to the sale is included in income. To the extent that any hedge is not fully effective at offsetting changes in the underlying hedged item, there could be a net earnings impact.
The Company also uses derivatives to hedgehedge economic exposures that do not receive deferralhedge accounting under ASC 815. The underlying exposures for these hedges relate primarily to purchases of commodity-based components used in the Company's manufacturing processes, and the revaluation
of certain foreign-currency-denominated assets and liabilities. Gains or losses fromIn addition, in 2022 AspenTech entered into foreign currency forward contracts to mitigate the ineffective portionimpact of any hedge, as well as any gainsforeign currency exchange associated with the Micromine purchase price. On June 21, 2023, AspenTech terminated all outstanding foreign currency forward contracts and on August 1, 2023, announced the termination of the agreement to purchase Micromine. Gains or losses on derivative instruments not designated as hedges are recognized in the income statement immediately.
Counterparties to derivative arrangements are companies with highinvestment-grade credit ratings, and theratings. The Company has bilateral collateral arrangements with them for whichcounterparties with credit rating-based posting thresholds that vary depending on the arrangement. If credit ratings on the Company's debt fall below preestablishedpre-established levels, counterparties can require immediate full collateralization on all instrumentsderivatives in net liability positions. The maximum amount that could potentially have been required was immaterial. The Company also can demand full collateralization of derivatives in net asset positions should any counterparty credit ratings fall below certain thresholds. No collateral was posted with counterparties and none was held by the Company at year end. If contractual thresholds had been exceeded, the maximum collateral the Company could have been required to post was $4. The Company can also demand full collateralization of instruments in net asset positions should any of the Company's counterparties' credit ratings fall below certain thresholds. Risk from credit loss when derivatives are in asset positions is not considered material. The Company has master netting arrangements in place with its counterparties that allow the offsetting of certain derivative-related amounts receivable and payable when settlement occurs in the same period. Accordingly, counterparty balances are netted in the consolidated balance sheet and are reported in other current assets or accrued expenses as appropriate, depending on positions with counterparties as of the balance sheet date. See Note 8.
11.
Income Taxes
The provision for income taxes is based on pretax income reported in the consolidated statements of earnings and tax rates currently enacted in each jurisdiction. Certain income and expense items are recognized in different time periods for financial reporting and income tax filing purposes, and deferred income taxes are provided for the effect of temporary differences. The Tax Cuts and Jobs Act subjects the Company to U.S. tax on global intangible low-taxed income earned by certain of its non-U.S. subsidiaries. The Company has elected to recognize this tax as a period expense when it is incurred. The Company also provides for withholding taxes and any applicable U.S. federal income taxes net of available foreign tax credits, on earnings intended to be repatriated from non-U.S. locations. No provision has been made for U.S. incomethese taxes on approximately $4.9approximately $6.5 billion ofof undistributed earnings of non-U.S. subsidiaries as of September 30, 2017,2023, as these earnings are considered permanentlyindefinitely invested or otherwise indefinitely retained for continuing international operations. Recognition of withholding taxes and any applicable U.S. income taxes on undistributed non-U.S. earnings would be triggered by a management decision to repatriate those earnings. Determination of the amount of taxes that might be paid on these undistributed earnings if eventually remitted is not practicable. See Note 14.16.
(2) REVENUE RECOGNITION
The following table summarizes the balances of the Company's unbilled receivables (contract assets), which are reported in Other assets (current and noncurrent), and its customer advances (contract liabilities), which are reported in Accrued expenses and Other liabilities.
| 2022 | 2023 | |||||||||||||
| Unbilled receivables (contract assets) | $ | 1,390 | 1,453 | |||||||||||
| Customer advances (contract liabilities) | (776) | (897) | ||||||||||||
| Net contract assets | $ | 614 | 556 | |||||||||||
The majority of the Company's contract balances relate to (1) arrangements where revenue is recognized over time and payments from customers are made according to a contractual billing schedule, and (2) revenue from term software license arrangements sold by AspenTech where the license revenue is recognized upfront upon delivery. The decrease in net contract assets was due to customer billings exceeding revenue recognized for performance
42
completed during the period. Revenue recognized for 2023 included approximately $534 that was included in the beginning contract liability balance. Other factors that impacted the change in net contract liabilities were immaterial.
Revenue recognized for 2023 for performance obligations that were satisfied in previous periods, including cumulative catchup adjustments on the Company's long-term contracts, was not material. Capitalized amounts related to incremental costs to obtain customer contracts and costs to fulfill contracts are immaterial.
As of September 30, 2023, the Company's backlog relating to unsatisfied (or partially unsatisfied) performance obligations in contracts with its customers was approximately $7.8 billion (of which approximately $1.2 billion related to AspenTech). AspenTech's remaining performance obligations primarily relate to software maintenance in long-term contracts for unspecified future software updates provided on a when-and-if available basis. The Company expects to recognize approximately 75 percent of its remaining performance obligations as revenue over the next 12 months, with the remainder substantially over the subsequent two years thereafter.
See Note 20 for additional information about the Company's revenues.
(3) WEIGHTED-AVERAGE COMMON SHARES
Basic earnings per common share consider only the weighted-average of common shares outstanding while diluted earnings per common share also consider the dilutive effects of stock options and incentive shares. Options to purchase approximately 4.5 million, 13.3 million and 5.9 millionAn inconsequential number of shares of common stock were excluded from the computation of diluteddilutive earnings per share in 2017, 20162023, 2022 and 2015, respectively,2021 as the effect would have been antidilutive. Earnings allocated to participating securities were inconsequential for all years presented.
Reconciliations of weighted-average shares for basic and diluted earnings per common share follow (shares in millions):
| 2021 | 2022 | 2023 | |||||||||||||||
| Basic shares outstanding | 598.1 | 592.9 | 574.2 | ||||||||||||||
| Dilutive shares | 3.7 | 3.4 | 3.1 | ||||||||||||||
| Diluted shares outstanding | 601.8 | 596.3 | 577.3 | ||||||||||||||
| 2015 | 2016 | 2017 | ||||||
| Basic shares outstanding | 673.3 | 644.0 | 642.1 | |||||
| Dilutive shares | 3.2 | 2.8 | 1.3 | |||||
| Diluted shares outstanding | 676.5 | 646.8 | 643.4 | |||||
Aspen Technology
On April 28, 2017,May 16, 2022, the Company completed the transactions contemplated by its definitive agreement with Aspen Technology, Inc. ("Heritage AspenTech") to contribute two of Emerson's stand-alone industrial software businesses, Open Systems International, Inc. and the Geological Simulation Software business (collectively, the “Emerson Industrial Software Business”), along with approximately $6.0 billion in cash to Heritage AspenTech stockholders, to create "New AspenTech", a diversified, high-performance industrial software leader with greater scale, capabilities and technologies (defined as "AspenTech" herein). Upon closing of the transaction, Emerson beneficially owned 55 percent of the outstanding shares of AspenTech common stock (on a fully diluted basis) and former Heritage AspenTech stockholders owned the remaining outstanding shares of AspenTech common stock. AspenTech and its subsidiaries now operate under Heritage AspenTech’s previous name “Aspen Technology, Inc.” and AspenTech common stock is traded on NASDAQ under AspenTech’s previous stock ticker symbol “AZPN.”
The business combination has been accounted for using the acquisition method of Pentair's valves & controls business for $2.960 billion,accounting with Emerson considered the accounting acquirer of Heritage AspenTech. The net assets of cash acquired of $207, subject to certain post-closing adjustments. This business, with annualized sales of approximately $1.4 billion, is a manufacturer of control, isolationHeritage AspenTech were recorded at their estimated fair value and pressure relief valves and actuators, and complements the Valves, Actuators & Regulators product offering within Automation Solutions.Emerson Industrial Software Business continues at its historical basis. The Company recognized goodwillrecorded a noncontrolling interest of $1,472 (none$5.9 billion for the 45 percent ownership interest of which is expectedformer Heritage AspenTech stockholders in AspenTech. The noncontrolling interest associated with the Heritage AspenTech acquired net assets was recorded at fair value determined using the closing market price per share of Heritage AspenTech as of May 16, 2022, while the portion attributable to be tax deductible), and other identifiable intangible assetsthe Emerson Industrial Software business was recorded at its historical carrying amount. The impact of $1,045, primarily customer relationships and intellectual property with a weighted-average life of approximately fifteen years. The Company also acquired two smaller businessesrecognizing the noncontrolling interest in the Automation Solutions segment. Total cash paid for all businesses was $3.0 billion, netEmerson Industrial Software Business resulted in a decrease to additional paid-in-capital of cash acquired.$550.
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The purchase pricefollowing table summarizes the components of the valves & controls businesspurchase consideration reflected in the acquisition accounting using Heritage AspenTech's shares outstanding and closing market price per share as of May 16, 2022 (in millions except share and per share data):
| Heritage AspenTech shares outstanding | 66,662,482 | |||||||
| Heritage AspenTech share price | $ | 166.30 | ||||||
| Purchase price | $ | 11,086 | ||||||
| Value of stock-based compensation awards attributable to pre-combination service | 102 | |||||||
| Total purchase consideration | $ | 11,188 | ||||||
The total purchase consideration for Heritage AspenTech was preliminarily allocated to assets and liabilities as follows. Valuations
| Cash and equivalents | $ | 274 | ||||||
| Receivables | 43 | |||||||
| Other current assets | 280 | |||||||
| Property, plant equipment | 4 | |||||||
| Goodwill ($34 expected to be tax-deductible) | 7,225 | |||||||
| Other intangible assets | 4,390 | |||||||
| Other assets | 513 | |||||||
| Total assets | 12,729 | |||||||
| Short-term borrowings | 27 | |||||||
| Accounts payable | 8 | |||||||
| Accrued expenses | 115 | |||||||
| Long-term debt | 255 | |||||||
| Deferred taxes and other liabilities | 1,136 | |||||||
| Total purchase consideration | $ | 11,188 | ||||||
Emerson's cash contribution of acquiredapproximately $6.0 billion was paid out at approximately $87.69 per share (on a fully diluted basis) to holders of issued and outstanding shares of Heritage AspenTech common stock as of the closing of the transactions, with $168 of cash remaining on AspenTech's balance sheet as of the closing which is not included in the allocation of purchase consideration above.
The estimated intangible assets and liabilitiesattributable to the transaction are in-process and subject to refinement.comprised of the following (in millions):
| Amount | Estimated Useful Life (Years) | |||||||||||||
| Developed technology | $ | 1,350 | 10 | |||||||||||
| Customer relationships | 2,300 | 15 | ||||||||||||
| Trade names | 430 | Indefinite-lived | ||||||||||||
| Backlog | 310 | 3 | ||||||||||||
| Total | $ | 4,390 | ||||||||||||
| Accounts receivable | $ | 350 | ||
| Inventory | 525 | |||
| Property, plant & equipment | 355 | |||
| Goodwill | 1,472 | |||
| Intangibles | 1,045 | |||
| Other assets | 289 | |||
| Total assets | 4,036 | |||
| Accounts payable | 119 | |||
| Other current liabilities | 300 | |||
| Deferred taxes and other liabilities | 657 | |||
| Cash paid, net of cash acquired | $ | 2,960 | ||
Results of operations for 2017 included2023 attributable to the Heritage AspenTech acquisition include sales of $600 and a$752 compared to $356 for 2022, while the impact to GAAP net loss of $97, $0.15 per share, including restructuring expense of $25 and intangibles amortization of $29. These results also included first year pretax acquisition accounting charges related to inventory of $74 and backlog of $19, or a total of $93 ($65 after-tax, $0.10 per share), which are reportedearnings was not material in Corporate and other. See Note 18.both years.
Pro Forma Financial Information
The following pro formaunaudited proforma consolidated condensed financial results of operations are presented as if the acquisition of the valves & controls businessHeritage AspenTech occurred on OctoberOctober 1, 2015.2020. The pro forma information is presented for
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informational purposes only and is not indicative of the results of operations that would have been achieved had the acquisition occurred as of that time. time ($ in millions, except per share amounts).
| 2021 | 2022 | |||||||||||||||||
| 2016 | 2017 | |||||||||||||||||
| Net sales | $ | 16,201 | 16,112 | |||||||||||||||
| Net Sales | Net Sales | $ | 13,662 | 14,218 | ||||||||||||||
| Net earnings from continuing operations common stockholders | $ | 1,482 | 1,692 | Net earnings from continuing operations common stockholders | $ | 1,217 | 1,916 | |||||||||||
| Diluted earnings per share from continuing operations | $ | 2.28 | 2.62 | Diluted earnings per share from continuing operations | $ | 2.02 | 3.21 | |||||||||||
The pro forma results for 20162021 include $159 of transaction costs which were adjustedassumed to includebe incurred in the first yearquarter of 2021. Of these transaction costs, $91 were included in the Company's reported results for 2022, but have been excluded from the 2022 pro forma results above. In addition, Heritage AspenTech incurred $68 of transaction costs prior to the completion of the acquisition accounting charges related to inventory and backlog of $122that were not included in 2017.Emerson's reported results. The pro forma 2016 results alsofor 2021 include estimated interest expense of $147 related to the issuance of $3.0 billion of term debt and increased commercial paper borrowings to fund the acquisition, costswhile results for 2022 include additional interest expense of $52, while$56 to reflect the 2017 pro forma resultsincreased borrowings as if they were adjusted to exclude these charges.outstanding for the entire year.
In 2023, the Company sold its residential storage businessacquired two businesses, Flexim, which will be reported in the Measurement & Analytical segment, and Afag, which will be reported in the Discrete Automation segment, for $200 in cash, subject to post-closing adjustments, and expects to recognize a loss of approximately $40 in 2018 due to income taxes resulting from nondeductible goodwill. The Company expects to realize approximately $140 in after-tax cash proceeds from the sale. This business, with sales of $298 and pretax earnings of $15 in 2017, is a leader in home organization and storage systems, and was reported within the Tools & Home Products segment. Assets and liabilities were classified as held-for-sale as of September 30, 2017.
On July 27, 2022, AspenTech entered into an agreement to acquire Micromine, a global leader in design and operational solutions for the mining industry, for AU $900 (approximately $623 USD based on exchange rates when the transaction was announced). On August 1, 2023, AspenTech announced the termination of the agreement to purchase Micromine. AspenTech, along with the sellers of Micromine, had been waiting to secure a final Russian regulatory approval as a condition to the closing of the transaction. As this process continued, the timing and requirements necessary to get this approval became increasingly unclear. This lack of clarity on the potential for, and timing of, a successful review led AspenTech and the sellers of Micromine to this mutual course of action. AspenTech did not pay any termination fee as part of this arrangement.
On March 31, 2023, Emerson completed the divestiture of Metran, its Russia-based manufacturing subsidiary. In 2023, the Company recognized a pretax loss of $47 in Other deductions ($47 after-tax, in total $0.08 per share) related to its exit of business operations in Russia. The Company completed eight acquisitionshad previously announced its intention to exit business operations in 2015, seven2022 and recognized a pretax loss of $181 ($190 after-tax, in Automation Solutionstotal $0.32 per share). This charge included a loss of $36 in operations and $145 reported in Other deductions ($10 of which is reported in restructuring costs) and was primarily non-cash. Emerson's historical net sales in Russia represented approximately 2.0 percent of consolidated annual sales.
In 2022, the Company acquired three other businesses, two in the Control Systems & Software segment and one in Tools & Home Products, which had combined annualized sales of approximately $115. Total cash paidthe AspenTech segment, for all businesses was $324,$130, net of cash acquired. The Company recognized goodwill of $178 ($42 of which is expected to be tax deductible) and other intangible assets of $128, primarily customer relationships and intellectual property with a weighted-average lifethree businesses had combined annual sales of approximately ten years.
$40.
In January 2015,the first quarter of 2022, the Company completed the salereceived a distribution of $438 related to its mechanical power transmission solutions business for $1.4 billion, and recognizedsubordinated interest in Vertiv (in total, a pretax gain fromof $453 was recognized in the transactionfirst quarter of $9392022, $358 after-tax, $0.60 per share) and received the remaining $15 related to the pretax gain in the first quarter of 2023. In 2023, the Company received additional distributions totaling $161 ($532122 after-tax, $0.78$0.21 per share). AssetsBased on the terms of the agreement and liabilities sold were as follows:the current assets, $182 (accounts receivable, inventories, other current assets); other
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transaction was announced due to Blackstone's decision to purchase an additional 5 percent of the common equity) and a note receivable with a face value of $2.25 billion (which will accrue 5 percent interest payable in kind by capitalizing interest), while retaining a 40 percent non-controlling common equity interest (down from 45 percent when the transaction was announced) in a new standalone joint venture between Emerson and Blackstone. The Climate Technologies business, which includes the Copeland compressor business and the entire portfolio of products and services across all residential and commercial HVAC and refrigeration end-markets, had 2022 net sales of approximately $5.0 billion and pretax earnings of $1.0 billion. The Company recognized a pretax gain of approximately $10.6 billion (approximately $8.4 billion after-tax including tax expense recognized in prior quarters related to subsidiary restructurings). The new standalone business is named Copeland. See Note 8 for further details.
On November 30, 2016,October 31, 2022, the Company completed the saledivestiture of its network power systemsInSinkErator business, which manufactures food waste disposers, to Whirlpool Corporation for $4.0 billion in cash and retained a subordinated interest in distributions, contingent upon the equity holders first receiving a threshold return on their initial investment.$3.0 billion. This business comprisedhad net sales of $630 and pretax earnings of $152 in 2022. The Company recognized a pretax gain of approximately $2.8 billion (approximately $2.1 billion after-tax) in the former Network Power segment. Additionally, on Januaryfirst quarter of 2023.
On May 31, 2017,2022 the Company completedcompleted the saledivestiture of its power generation, motorsTherm-O-Disc sensing and drivesprotection technologies business for approximately $1.2 billion, subject to post-closing adjustments. This business was previously reportedan affiliate of One Rock Capital Partners, LLC. The Company recognized a pretax gain of $486 ($429 after-tax) in the former Industrial Automation segment. third quarter of 2022.
The financial results of operations for these businesses wereClimate Technologies, InSinkErator ("ISE") and Therm-O-Disc ("TOD") (through the completion of the divestitures), are reported withinas discontinued operations for all years presented and the assets and liabilities were reflected as held-for-sale.
| Network Power Systems | Power Generation, Motors and Drives | Total | ||||||||||||||||||||||||||
| 2015 | 2016 | 2017 | 2015 | 2016 | 2017 | 2015 | 2016 | 2017 | ||||||||||||||||||||
| Net sales | $ | 4,426 | 4,378 | 630 | 1,668 | 1,368 | 407 | 6,094 | 5,746 | 1,037 | ||||||||||||||||||
| Cost of sales | 2,810 | 2,708 | 394 | 1,244 | 1,033 | 307 | 4,054 | 3,741 | 701 | |||||||||||||||||||
| SG&A | 1,143 | 1,101 | 180 | 306 | 269 | 83 | 1,449 | 1,370 | 263 | |||||||||||||||||||
| Other deductions, net | 222 | 172 | (515 | ) | 15 | 149 | 42 | 237 | 321 | (473 | ) | |||||||||||||||||
| Earnings (Loss) before income taxes | 251 | 397 | 571 | 103 | (83 | ) | (25 | ) | 354 | 314 | 546 | |||||||||||||||||
| Income taxes | 134 | 218 | 577 | 27 | 51 | 94 | 161 | 269 | 671 | |||||||||||||||||||
| Earnings (Loss), net of tax | $ | 117 | 179 | (6 | ) | 76 | (134 | ) | (119 | ) | 193 | 45 | (125 | ) | ||||||||||||||
| Climate Technologies | ISE and TOD | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2022 | 2023 | 2021 | 2022 | 2023 | 2021 | 2022 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 4,401 | 4,976 | 3,156 | 903 | 848 | 49 | 5,304 | 5,824 | 3,205 | |||||||||||||||||||||||||||||||||||||||||||
| Cost of sales | 2,899 | 3,405 | 2,000 | 572 | 538 | 29 | 3,471 | 3,943 | 2,029 | ||||||||||||||||||||||||||||||||||||||||||||
| SG&A | 560 | 514 | 390 | 125 | 119 | 7 | 685 | 633 | 397 | ||||||||||||||||||||||||||||||||||||||||||||
| Gain on sale of business | — | — | (10,610) | — | (486) | (2,783) | — | (486) | (13,393) | ||||||||||||||||||||||||||||||||||||||||||||
| Other deductions, net | (10) | 55 | 75 | 8 | 26 | 12 | (2) | 81 | 87 | ||||||||||||||||||||||||||||||||||||||||||||
| Earnings before income taxes | 952 | 1,002 | 11,301 | 198 | 651 | 2,784 | 1,150 | 1,653 | 14,085 | ||||||||||||||||||||||||||||||||||||||||||||
| Income taxes | 196 | 209 | 2,358 | 43 | 97 | 654 | 239 | 306 | 3,012 | ||||||||||||||||||||||||||||||||||||||||||||
| Earnings, net of tax | $ | 756 | 793 | 8,943 | 155 | 554 | 2,130 | 911 | 1,347 | 11,073 | |||||||||||||||||||||||||||||||||||||||||||
Climate Technologies' results for repatriation of sales proceeds, and2023 include lower expense of $32 primarily$96 due to ceasing depreciation and amortization upon the held-for-sale classification and $57 of transaction-related costs reported in Other deductions, net. Income taxes for 2023 included approximately $2.2 billion for the discontinued businesses held-for-sale.gain on the Copeland transaction and subsidiary restructurings, and approximately $660 related to the gain on the InSinkErator divestiture.
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The aggregate carrying amounts of the major classes of assets and liabilities classified as held-for-sale as of September 30, 20162023 and 2022 are summarized as follows:
| Network Power Systems | Power Generation, Motors and Drives | Total | ||||||||||||||
| 2016 | 2016 | 2016 | ||||||||||||||
| Assets | ||||||||||||||||
| Receivables, less allowances | $ | 1,202 | 290 | 1,492 | ||||||||||||
| Inventories | 381 | 197 | 578 | |||||||||||||
| Property, plant & equipment, net | 352 | 259 | 611 | |||||||||||||
| Goodwill | 2,111 | 580 | 2,691 | |||||||||||||
| Other assets | 581 | 77 | 658 | |||||||||||||
| Total assets held-for-sale | $ | 4,627 | 1,403 | 6,030 | ||||||||||||
| Liabilities | ||||||||||||||||
| Accounts payable | $ | 664 | 176 | 840 | ||||||||||||
| Other current liabilities | 620 | 141 | 761 | |||||||||||||
| Deferred taxes and other noncurrent liabilities | 227 | 99 | 326 | |||||||||||||
| Total liabilities held-for-sale | $ | 1,511 | 416 | 1,927 | ||||||||||||
| Climate Technologies | ISE | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| September 30, | September 30, | September 30, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Receivables | $ | 747 | — | 68 | — | 815 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Inventories | 449 | — | 81 | — | 530 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other current assets | 49 | — | 4 | — | 53 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, plant & equipment, net | 1,122 | — | 141 | — | 1,263 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill | 716 | — | 2 | — | 718 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other noncurrent assets | 265 | — | 12 | — | 277 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total assets held-for-sale | $ | 3,348 | — | 308 | — | 3,656 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounts payable | $ | 752 | — | 60 | — | 812 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other current liabilities | 475 | — | 61 | — | 536 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred taxes and other noncurrent liabilities | 154 | — | 13 | — | 167 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities held-for-sale | $ | 1,381 | — | 134 | — | 1,515 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Net cash from operating and investing activities for Climate Technologies, InSinkErator and Therm-O-Disc were as follows:
| Climate Technologies | ISE and TOD | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2022 | 2023 | 2021 | 2022 | 2023 | 2021 | 2022 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||
| Cash from operating activities | $ | 906 | 881 | (1,330) | 211 | (7) | (759) | 1,117 | 874 | (2,089) | |||||||||||||||||||||||||||||||||||||||||||
| Cash from investing activities | $ | (80) | (202) | 9,475 | (49) | 552 | 3,055 | (129) | 350 | 12,530 | |||||||||||||||||||||||||||||||||||||||||||
Cash from operating activities for 2023 reflects approximately $2.3 billion of income taxes paid related to the gains on the Copeland transaction and InSinkErator divestiture and subsidiary restructurings related to the Copeland transaction. Cash from investing activities for 2023 reflects the network power systems business and the power generation, motors and drives business for the years ending September 30, 2017, 2016 and 2015, were as follows:
| Network Power Systems | Power Generation, Motors and Drives | Total | ||||||||||||||||||||||||||
| 2015 | 2016 | 2017 | 2015 | 2016 | 2017 | 2015 | 2016 | 2017 | ||||||||||||||||||||
| Cash from operating activities | $ | 378 | 343 | (615 | ) | 111 | 39 | (163 | ) | 489 | 382 | (778 | ) | |||||||||||||||
| Cash from investing activities | $ | (48 | ) | (33 | ) | 3,952 | (40 | ) | (44 | ) | 1,095 | (88 | ) | (77 | ) | 5,047 | ||||||||||||
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(6) OTHER DEDUCTIONS, NET
| Other deductions, net are summarized below: | |||||||||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||
| Amortization of intangibles (intellectual property and customer relationships) | $ | 277 | 336 | 482 | |||||||||||||
| Restructuring costs | 132 | 75 | 72 | ||||||||||||||
| Acquisition/divestiture costs | — | 91 | 69 | ||||||||||||||
| Foreign currency transaction (gains) losses | 2 | 12 | 50 | ||||||||||||||
| Investment-related gains & gains from sales of capital assets | (21) | (30) | (69) | ||||||||||||||
| Loss on Copeland equity method investment | — | — | 177 | ||||||||||||||
| Russia business exit | — | 135 | 47 | ||||||||||||||
| Other | (71) | (100) | (145) | ||||||||||||||
| Total | $ | 319 | 519 | 683 | |||||||||||||
| Other deductions, net are summarized as follows: | |||||||||
| 2015 | 2016 | 2017 | |||||||
| Amortization of intangibles (intellectual property and customer relationships) | $ | 94 | 84 | 136 | |||||
| Restructuring costs | 138 | 96 | 78 | ||||||
| Other | 98 | 114 | 72 | ||||||
| Total | $ | 330 | 294 | 286 | |||||
In 2023, intangibles amortization included $258 related to the Heritage AspenTech acquisition compared to $97 in 2022, while 2021 included backlog amortization related to the OSI acquisition of $30. Foreign currency transaction losses included a mark-to-market gain of $24 in 2023 related to foreign currency forward contracts entered into by AspenTech to mitigate the impact of foreign currency exchange associated with the Micromine purchase price compared to a mark-to-market loss of $50 in 2022. On June 21, 2023, AspenTech terminated all outstanding foreign currency forward contracts. The Company recognized a mark-to-market gain of $56 in 2023 related to its equity investment in National Instruments Corporation (see Note 11 for further information). Other is composed of several items, including foreign currency transaction gains and losses,pension expense, litigation costs, provision for bad debt expense, equity investment income and losses, litigation and other items. The decrease in other for 2017items, none of which is due to favorable foreign currency transactions comparisons of $78 (unfavorable in the prior year), partially offset by higher acquisition/divestiture costs of $24 and the comparative impact of a $21 gain from payments received related toindividually significant.
Each year the Company incurs costs to size its businesses to levels appropriate for current economic conditions and to continually improve its cost structure and operational efficiency, deploy assets globally, and remain competitive on a worldwide basis. Costs result from numerous individual actions implemented across the Company's various operating units on an ongoing basis and can include costs for moving facilities to best-cost locations, restarting plants after relocation or geographic expansion to better serve local markets, reducing forcecountheadcount or the number of facilities, exiting certain product lines, and other costs resulting from asset deployment decisions. By category, shutdown costs include severance and benefits, stay bonuses, lease and otherdecisions (such as contract termination costs, asset write-downs and asset write-downs. Vacantvacant facility costs include security, maintenance, utilities and other costs. Start-up and moving costs include the costs of relocating fixed assets and employee training and relocation.costs).
Restructuring expenses were $78, $96$72, $75 and $138, respectively,$132 for 2017, 20162023, 2022 and 2015.2021, respectively. The 2017Company expects fiscal year 2024 restructuring expense included $25and related costs to be approximately $160, including incremental costs related to the acquired valves & controls business. Restructuring activity in 2015 and 2016 was initiated in connection with the slowdown in global capital spending and the Company's strategic portfolio repositioning activities. The Company currently expects 2018 restructuring expense to be approximately $80, including costs to complete actions initiated before the end of 2017 and for actions anticipated to be approved and initiated during 2018.
National Instruments acquisition.
Restructuring costs by business segment follows:
| 2021 | 2022 | 2023 | |||||||||||||||
| Measurement & Analytical | $ | 58 | 3 | 9 | |||||||||||||
| Final Control | 41 | 38 | 12 | ||||||||||||||
| Discrete Automation | 11 | — | 27 | ||||||||||||||
| Safety & Productivity | 4 | 10 | — | ||||||||||||||
| Intelligent Devices | 114 | 51 | 48 | ||||||||||||||
| AspenTech | 2 | — | 1 | ||||||||||||||
| Control Systems & Software | 11 | 11 | 9 | ||||||||||||||
| Software and Control | 13 | 11 | 10 | ||||||||||||||
| Corporate | 5 | 13 | 14 | ||||||||||||||
| Total | $ | 132 | 75 | 72 | |||||||||||||
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| 2015 | 2016 | 2017 | |||||||
| Automation Solutions | $ | 102 | 80 | 63 | |||||
| Climate Technologies | 20 | 5 | 10 | ||||||
| Tools & Home Products | 11 | 2 | 2 | ||||||
| Commercial & Residential Solutions | 31 | 7 | 12 | ||||||
| Corporate | 5 | 9 | 3 | ||||||
| Total | $ | 138 | 96 | 78 | |||||
The change in the liability for restructuring costs during the years ended September 30 follows:
| 2022 | Expense | Utilized/Paid | 2023 | ||||||||||||||||||||||||||||||||
| Severance and benefits | $ | 117 | 42 | 74 | 85 | ||||||||||||||||||||||||||||||
| Other | 5 | 30 | 33 | 2 | |||||||||||||||||||||||||||||||
| Total | $ | 122 | 72 | 107 | 87 | ||||||||||||||||||||||||||||||
| 2021 | Expense | Utilized/Paid | 2022 | ||||||||||||||||||||||||||||||||
| Severance and benefits | $ | 140 | 44 | 67 | 117 | ||||||||||||||||||||||||||||||
| Other | 4 | 31 | 30 | 5 | |||||||||||||||||||||||||||||||
| Total | $ | 144 | 75 | 97 | 122 | ||||||||||||||||||||||||||||||
The tables above do not include $20, $40 and $34 of costs related to restructuring actions incurred in 2023, 2022 and 2021 respectively, that are required to be reported in cost of sales and selling, general and administrative expenses.
(8) EQUITY METHOD INVESTMENT AND NOTE RECEIVABLE
| 2016 | Expense | Utilized/Paid | 2017 | |||||||||||||
| Severance and benefits | $ | 44 | 49 | 33 | 60 | |||||||||||
| Lease and other contract terminations | 5 | 4 | 5 | 4 | ||||||||||||
| Asset write-downs | — | 7 | 7 | — | ||||||||||||
| Vacant facility and other shutdown costs | 3 | 5 | 7 | 1 | ||||||||||||
| Start-up and moving costs | 2 | 13 | 15 | — | ||||||||||||
| Total | $ | 54 | 78 | 67 | 65 | |||||||||||
As discussed in Note 5, the Company completed the divestiture of a majority stake in Copeland on May 31, 2023, and received upfront, pre-tax cash proceeds of approximately $9.7 billion and a note receivable with a face value of $2.25 billion, while retaining a 40 percent non-controlling common equity interest in Copeland. As a result of the transaction, the Company deconsolidated Copeland from its financial statements, as it no longer has a controlling interest, and initially recognized its common equity investment and note receivable at fair values of $1,359 and $2,052, respectively. The fair value of the common equity investment was determined using a discounted cash flow model, which included estimating financial projections for Copeland and applying an appropriate discount rate, and an option pricing model based on various assumptions. Fair value for the note receivable was determined using a market approach primarily based on interest rates for companies with similar credit quality and the expected duration of the note.
The Company records its share of Copeland's income or loss using the equity method of accounting. For the year ended September 30, 2023 the Company recorded a loss of $177 in Other deductions to reflect its share of Copeland's reported GAAP losses and a tax benefit of $43 in Income taxes related to Copeland's U.S. business, which is taxed as a partnership (in total, $0.24 per share). The Company recognized non-cash interest income on the note receivable of $41, which is reported in Interest income from related party and capitalized to the carrying value of the note. Copeland's valuations of acquired assets and liabilities are in-process and subject to refinement.
As of September 30, 2023, the carrying values of the retained equity investment and note receivable were $1,162 and $2,093, respectively. During the year ended September 30, 2023, the Company settled a note receivable and note payable with Copeland of $918, which is reported in Investing and Financing cash flows, respectively.
Summarized financial information for Copeland as of and for the year ended September 30, 2023 is as follows. Copeland's results only reflect activity subsequent to the Company's divestiture of its majority stake.
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| 2023 | |||||
| Current assets | $ | 1,737 | |||
| Noncurrent assets | $ | 13,818 | |||
| Current liabilities | $ | 1,371 | |||
| Noncurrent liabilities | $ | 8,007 | |||
| Noncontrolling interests | $ | 215 | |||
| 2023 | |||||
| Net sales | $ | 1,677 | |||
| Gross profit | $ | 479 | |||
| Income (loss) from continuing operations | $ | (442) | |||
| Net income (loss) | $ | (442) | |||
| Net income (loss) attributable to shareholders | $ | (442) | |||
(9) LEASES
The components of lease expensefor the years ended September 30 were as follows:
| 2021 | 2022 | 2023 | |||||||||||||||
| Operating lease expense | $ | 169 | 160 | 178 | |||||||||||||
| Variable lease expense | $ | 17 | 18 | 20 | |||||||||||||
Short-term lease expense and sublease income were immaterial for the years ended September 30, 2023, 2022 and 2021. Cash paid for operating leases is classified within operating cash flows from continuing operations and was $170, $163 and $167 for the years ended September 30, 2023, 2022 and 2021, respectively. Operating lease right-of-use asset additions were $247, $94 and $162 for the years ended September 30, 2023, 2022 and 2021, respectively.
The following table summarizes the balances of the Company's operating lease right-of-use assets and operating lease liabilities as of September 30, 2022 and 2023, the vast majority of which relates to offices and manufacturing facilities:
| 2022 | 2023 | ||||||||||||||||
| Right-of-use assets (Other assets) | $ | 439 | 550 | ||||||||||||||
| Current lease liabilities (Accrued expenses) | $ | 128 | 144 | ||||||||||||||
| Noncurrent lease liabilities (Other liabilities) | $ | 312 | 404 | ||||||||||||||
The weighted-average remaining lease term for operating leases was 6.2 years and 5.7 years, and the weighted-average discount rate was 4.2 percent and 3.0 percent as of September 30, 2023 and September 30, 2022, respectively.
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| 2015 | Expense | Utilized/Paid | 2016 | |||||||||||||
| Severance and benefits | $ | 64 | 66 | 86 | 44 | |||||||||||
| Lease and other contract terminations | 1 | 9 | 5 | 5 | ||||||||||||
| Asset write-downs | — | 4 | 4 | — | ||||||||||||
| Vacant facility and other shutdown costs | 3 | 7 | 7 | 3 | ||||||||||||
| Start-up and moving costs | 2 | 10 | 10 | 2 | ||||||||||||
| Total | $ | 70 | 96 | 112 | 54 | |||||||||||
| 2023 | |||||||||||||||||
| 2024 | $ | 160 | |||||||||||||||
| 2025 | 123 | ||||||||||||||||
| 2026 | 84 | ||||||||||||||||
| 2027 | 56 | ||||||||||||||||
| 2028 | 41 | ||||||||||||||||
| Thereafter | 150 | ||||||||||||||||
| Total lease payments | 614 | ||||||||||||||||
| Less: Interest | 66 | ||||||||||||||||
| Total lease liabilities | $ | 548 | |||||||||||||||
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(10) GOODWILL AND OTHER INTANGIBLES
The change in the carrying value of goodwill by business segment follows:
| Automation Solutions | Climate Technologies | Tools & Home Products | Commercial & Residential Solutions | ||||||||||||
| Total | |||||||||||||||
| Balance, September 30, 2015 | $ | 3,138 | 513 | 196 | 709 | 3,847 | |||||||||
| Acquisitions | 39 | 44 | — | 44 | 83 | ||||||||||
Foreign currency translation and other | (17 | ) | (4 | ) | — | (4 | ) | (21 | ) | ||||||
| Balance, September 30, 2016 | 3,160 | 553 | 196 | 749 | 3,909 | ||||||||||
| Acquisitions | 1,486 | — | — | — | 1,486 | ||||||||||
| Divestitures | — | — | (142 | ) | (142 | ) | (142 | ) | |||||||
Foreign currency translation and other | 58 | 2 | 3 | 5 | 63 | ||||||||||
| Balance, September 30, 2017 | $ | 4,704 | 555 | 57 | 612 | 5,316 | |||||||||
| Final Control | Measurement & Analytical | Discrete Automation | Safety & Productivity | Control Systems & Software | AspenTech | Total | |||||||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | 2,762 | 1,227 | 877 | 415 | 642 | 1,044 | 6,967 | |||||||||||||||||||||||||||||||||
| Acquisitions | — | — | — | — | 40 | 7,289 | 7,329 | ||||||||||||||||||||||||||||||||||
| Foreign currency translation and other | (146) | (57) | (70) | (51) | (19) | (7) | (350) | ||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | 2,616 | 1,170 | 807 | 364 | 663 | 8,326 | 13,946 | ||||||||||||||||||||||||||||||||||
| Acquisitions | — | 374 | 55 | — | — | — | 429 | ||||||||||||||||||||||||||||||||||
| Foreign currency translation and other | 44 | 1 | 30 | 24 | 5 | 1 | 105 | ||||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | 2,660 | 1,545 | 892 | 388 | 668 | 8,327 | 14,480 | |||||||||||||||||||||||||||||||||
The gross carrying amount and accumulated amortization of identifiable intangible assets by major class follow:
| Customer Relationships | Intellectual Property | Capitalized Software | Total | ||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | ||||||||||||||||||||||||||||||||||||||||
| Gross carrying amount | $ | 4,393 | 4,623 | 3,961 | 4,118 | 1,317 | 1,370 | 9,671 | 10,111 | ||||||||||||||||||||||||||||||||||||||
| Less: Accumulated amortization | 957 | 1,270 | 1,027 | 1,411 | 1,115 | 1,167 | 3,099 | 3,848 | |||||||||||||||||||||||||||||||||||||||
| Net carrying amount | $ | 3,436 | 3,353 | 2,934 | 2,707 | 202 | 203 | 6,572 | 6,263 | ||||||||||||||||||||||||||||||||||||||
| Customer Relationships | Intellectual Property | Capitalized Software | Total | |||||||||||||||||||||
| 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | |||||||||||||||||
| Gross carrying amount | $ | 580 | 1,392 | 730 | 1,012 | 1,071 | 1,137 | 2,381 | 3,541 | |||||||||||||||
| Less: Accumulated amortization | 286 | 361 | 393 | 435 | 800 | 855 | 1,479 | 1,651 | ||||||||||||||||
| Net carrying amount | $ | 294 | 1,031 | 337 | 577 | 271 | 282 | 902 | 1,890 | |||||||||||||||
Intangible asset amortization expense for 2017, 2016the major classes included above for 2023, 2022 and 20152021 was $222, $177$764, $530 and $174,$432, respectively. Based on intangible asset balances as of September 30, 2017,2023, amortization expense is expected to approximate $261$768 in 2018, $2262024, $696 in 2019, $2012025, $596 in 2020, $1682026, $564 in 20212027 and $148$537 in 2022.
2028. The increase in goodwill and intangibles is primarily due tointangible assets in 2022 reflects the valves & controlsHeritage AspenTech acquisition. See Note 3.
Following is a discussion regarding the Company’s use of financial instruments:
Hedging Activities
As of September 30, 2017,2023, the notional amount of foreign currency hedge positions was approximately $1.8 billion, while commodity hedge contracts totaled approximately $115 (primarily 49 million pounds of copper and aluminum).$2.4 billion. All derivatives receiving deferralhedge accounting are cash flow hedges. The majority of hedging gains and losses deferred as of September 30, 20172023 are expected to be recognized over the next 12 months as the underlying forecasted transactions occur. Gains and losses on foreign currency derivatives reported in otherOther deductions, net reflect hedges of balance sheet exposures that do not receive deferralhedge accounting.
In 2019, the Company issued euro-denominated debt of €1.5 billion. The euro notes reduce foreign currency risk associated with the Company's international subsidiaries that use the euro as their functional currency and have been designated as a hedge of a portion of the investment in these operations. Foreign currency gains or losses associated with the euro-denominated debt are deferred in accumulated other comprehensive income (loss) and will remain until the hedged investment is sold or substantially liquidated.
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The following gains and losses are included in earnings and other comprehensive income follow:(OCI):
| Gain (Loss) to Earnings | Gain (Loss) to OCI | ||||||||||||||||||||||||||||||||||||||||
| 2021 | 2022 | 2023 | 2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||||||||
| Location | |||||||||||||||||||||||||||||||||||||||||
| Commodity | Cost of sales | $ | 33 | 12 | (19) | 29 | (20) | 6 | |||||||||||||||||||||||||||||||||
| Foreign currency | Sales | 3 | (2) | (3) | 3 | (9) | — | ||||||||||||||||||||||||||||||||||
| Foreign currency | Cost of sales | 8 | 31 | 65 | 34 | 53 | 42 | ||||||||||||||||||||||||||||||||||
| Foreign currency | Other deductions, net | 53 | 48 | (128) | |||||||||||||||||||||||||||||||||||||
| Net Investment Hedge | |||||||||||||||||||||||||||||||||||||||||
| Euro denominated debt | 16 | 21 | 266 | (128) | |||||||||||||||||||||||||||||||||||||
| Total | $ | 97 | 89 | (69) | 87 | 290 | (80) | ||||||||||||||||||||||||||||||||||
| Gain (Loss) to Earnings | Gain (Loss) to OCI | |||||||||||||||||||
| 2015 | 2016 | 2017 | 2015 | 2016 | 2017 | |||||||||||||||
| Location | ||||||||||||||||||||
| Commodity | Cost of sales | $ | (24 | ) | (35 | ) | 10 | (43 | ) | (9 | ) | 25 | ||||||||
| Foreign currency | Sales, cost of sales | (12 | ) | (41 | ) | (15 | ) | (61 | ) | (38 | ) | 30 | ||||||||
| Foreign currency | Other deductions, net | 14 | (27 | ) | (39 | ) | ||||||||||||||
| Total | $ | (22 | ) | (103 | ) | (44 | ) | (104 | ) | (47 | ) | 55 | ||||||||
Regardless of whether derivatives and non-derivative financial instruments receive deferralhedge accounting, the Company expects hedging gains or losses to be essentially offset by losses or gains on the related underlying exposures. The amounts ultimately recognized will differ from those presented above for open positions, which remain subject to ongoing market price fluctuations until settlement. Derivatives receiving deferralhedge accounting are highly effective and no amounts were excluded from the assessment of hedge effectiveness. Hedge ineffectiveness was immaterial
Equity Investment
The Company had an equity investment in all years shown.National Instruments Corporation ("NI"), valued at $136 as of September 30, 2023 (reported in Other noncurrent assets), and recognized a mark-to-market gain of $56 in 2023. On April 12, 2023, Emerson announced an agreement to acquire NI for $60 per share in cash for the remaining shares not already owned by Emerson and the transaction closed on October 11, 2023. See Note 23.
Fair Value Measurement
Valuations for all derivatives, the Company's note receivable from Copeland, and the Company's long-term debt fall within Level 2 of the GAAP valuation hierarchy. The estimatedfair value of the note receivable as of September 30, 2023 was approximately $1.9 billion, which was lower than the carrying value by approximately $200. See Note 8 for further details. The fair value of long-term debt was $4,385$6.9 billion and $4,806, respectively,$7.6 billion, respectively, as of September 30, 20172023 and 2016,2022, which exceededwas lower than the carrying value by $321$1,275 and $488,$1,207, respectively. AsThe fair values of September 30, 2017, the fair value of commodity contracts and foreign currency contracts waswere reported in otherOther current assets and accrued expenses. ValuationsAccrued expenses as summarized below:
| 2022 | 2023 | ||||||||||||||||||||||||||||
| Assets | Liabilities | Assets | Liabilities | ||||||||||||||||||||||||||
| Commodity | $ | — | 25 | — | — | ||||||||||||||||||||||||
| Foreign currency | $ | 51 | 80 | 30 | 22 | ||||||||||||||||||||||||
Commodity contracts, which related to discontinued operations, were novated to Copeland upon the completion of derivative contract positionsthe transaction and therefore no amounts are reported in the Company's balance sheet as of September 30, follow:2023. The fair value of the Company's equity investment in National Instruments falls within Level 1 and was based on the most recent quoted closing market price from its principal exchange for the period ended September 30, 2023.
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| 2016 | 2017 | ||||||||||||||
| Assets | Liabilities | Assets | Liabilities | ||||||||||||
| Foreign currency | $ | 7 | 49 | 26 | 18 | ||||||||||
| Commodity | $ | 2 | 4 | 12 | — | ||||||||||
Short-term borrowings and current maturities of long-term debt are as follows:
| 2022 | 2023 | |||||||||||||
| Current maturities of long-term debt | $ | 516 | 546 | |||||||||||
| Commercial paper and other short-term borrowings | 1,599 | 1 | ||||||||||||
| Total | $ | 2,115 | 547 | |||||||||||
| Interest rate for weighted-average short-term borrowings at year end | 2.8% | 0.4% | ||||||||||||
| 2016 | 2017 | ||||||
| Current maturities of long-term debt | $ | 267 | 270 | ||||
| Commercial paper | 2,317 | 592 | |||||
| Total | $ | 2,584 | 862 | ||||
| Interest rate for weighted-average short-term borrowings at year end | 0.5% | 1.1% | |||||
The details of long-term debt follow:
| 2022 | 2023 | ||||||||||
| 2.625% notes due February 2023 | $ | 500 | — | ||||||||
| 0.375% euro notes due May 2024 | 490 | 529 | |||||||||
| 3.15% notes due June 2025 | 500 | 500 | |||||||||
| 1.25% euro notes due October 2025 | 490 | 529 | |||||||||
| 0.875% notes due October 2026 | 750 | 750 | |||||||||
| 1.8% notes due October 2027 | 500 | 500 | |||||||||
| 2.0% notes due December 2028 | 1,000 | 1,000 | |||||||||
| 2.0% euro notes due October 2029 | 490 | 529 | |||||||||
| 1.95% notes due October 2030 | 500 | 500 | |||||||||
| 2.20% notes due December 2031 | 1,000 | 1,000 | |||||||||
| 6.0% notes due August 2032 | 250 | 250 | |||||||||
| 6.125% notes due April 2039 | 250 | 250 | |||||||||
| 5.25% notes due November 2039 | 300 | 300 | |||||||||
| 2.75% notes due October 2050 | 500 | 500 | |||||||||
| 2.80% notes due December 2051 | 1,000 | 1,000 | |||||||||
| Other | 255 | 19 | |||||||||
| Long-term debt | 8,775 | 8,156 | |||||||||
| Less: Current maturities | 516 | 546 | |||||||||
| Total, net | $ | 8,259 | 7,610 | ||||||||
| 2016 | 2017 | |||||
| 5.125% notes due December 2016 | $ | 250 | — | |||
| 5.375% notes due October 2017 | 250 | 250 | ||||
| 5.25% notes due October 2018 | 400 | 400 | ||||
| 5.0% notes due April 2019 | 250 | 250 | ||||
| 4.875% notes due October 2019 | 500 | 500 | ||||
| 4.25% notes due November 2020 | 300 | 300 | ||||
| 2.625% notes due December 2021 | 500 | 500 | ||||
| 2.625% notes due February 2023 | 500 | 500 | ||||
| 3.15% notes due June 2025 | 500 | 500 | ||||
| 6.0% notes due August 2032 | 250 | 250 | ||||
| 6.125% notes due April 2039 | 250 | 250 | ||||
| 5.25% notes due November 2039 | 300 | 300 | ||||
| Other | 68 | 64 | ||||
| Long-term debt | 4,318 | 4,064 | ||||
| Less: Current maturities | 267 | 270 | ||||
| Total, net | $ | 4,051 | 3,794 | |||
Long-term debt maturing during each of the four years after 20182024 is $683, $516, $299$520, $538, $746 and $500,$497, respectively. Total interest paid on alllong-term debt was approximately $192, $209$200, $199 and $196$156 in 2017, 20162023, 2022 and 2015,2021, respectively.
During the year, the Company repaid $250$500 of 5.125%2.625% notes that matured in February 2023 and AspenTech repaid $264 to pay off the outstanding balance on its existing term loan facility plus accrued interest. In 2022, the Company repaid $500 of 2.625% notes that matured in December 2016.2021. In 2016,December 2021, the Company repaid $250issued $1,000 of 4.75%2.0% notes that matured in October 2015.due December 2028, $1,000 of 2.20% notes due December 2031 and $1,000 of 2.80% notes due December 2051.
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The Company maintains a universal shelf registration statement on file with the SEC under which it can issue debt securities, preferred stock, common stock, warrants, share purchase contracts or share purchase units without a predetermined limit. Securities can be sold in one or more separate offerings with the size, price and terms to be determined at the time of sale.
Retirement plans expense includes the following components:
| U.S. Plans | Non-U.S. Plans | U.S. Plans | Non-U.S. Plans | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2015 | 2016 | 2017 | 2015 | 2016 | 2017 | 2021 | 2022 | 2023 | 2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||||||||||||||
| Defined benefit plans: | Defined benefit plans: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Service cost (benefits earned during the period) | $ | 69 | 59 | 60 | 37 | 26 | 19 | Service cost (benefits earned during the period) | $ | 54 | 49 | 25 | 29 | 25 | 20 | ||||||||||||||||||||||||||||||||||||||
| Interest cost | 182 | 148 | 134 | 46 | 39 | 30 | Interest cost | 94 | 99 | 164 | 32 | 33 | 50 | ||||||||||||||||||||||||||||||||||||||||
| Expected return on plan assets | (303 | ) | (296 | ) | (290 | ) | (58 | ) | (52 | ) | (56 | ) | Expected return on plan assets | (264) | (253) | (247) | (74) | (56) | (39) | ||||||||||||||||||||||||||||||||||
| Net amortization and other | 174 | 166 | 211 | 20 | 17 | 22 | Net amortization and other | 143 | 102 | (55) | 14 | 3 | 18 | ||||||||||||||||||||||||||||||||||||||||
| Net periodic pension expense | 122 | 77 | 115 | 45 | 30 | 15 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net periodic pension expense (income) | Net periodic pension expense (income) | 27 | (3) | (113) | 1 | 5 | 49 | ||||||||||||||||||||||||||||||||||||||||||||||
| Defined contribution plans | 111 | 104 | 96 | 61 | 56 | 47 | Defined contribution plans | 114 | 124 | 111 | 52 | 52 | 49 | ||||||||||||||||||||||||||||||||||||||||
| Total retirement plans expense | $ | 233 | 181 | 211 | 106 | 86 | 62 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total retirement plans expense (income) | Total retirement plans expense (income) | $ | 141 | 121 | (2) | 53 | 57 | 98 | |||||||||||||||||||||||||||||||||||||||||||||
The Company transitioned from defined benefit to defined contribution retirement plans in 2016. TheCompany's principal U.S. defined benefit pension plan is closed to employees hired after January 1, 2016 and currentwhile shorter-tenured employees not meeting combined age and years of service criteria ceased accruing benefits effective October 1, 2016. Affected employees were enrolled in an enhanced defined contribution plan. The impact of these actions had an inconsequential impact on the Company's financial statements for all years presented. Over time, defined benefit plan expense will decline while defined contribution plan expense will increase, with an expectation of reduced earnings volatility.
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All of the following tables include defined benefit pension plans related to continuing and discontinued operations.
Details of the changes in the actuarial present value of the projected benefit obligation and the fair value of plan assets for defined benefit pension plans follow:
| U.S. Plans | Non-U.S. Plans | U.S. Plans | Non-U.S. Plans | ||||||||||||||||||||||||||||||||
| 2016 | 2017 | 2016 | 2017 | 2022 | 2023 | 2022 | 2023 | ||||||||||||||||||||||||||||
| Projected benefit obligation, beginning | $ | 4,263 | 4,696 | 1,248 | 1,320 | Projected benefit obligation, beginning | $ | 4,338 | 3,112 | 1,562 | 965 | ||||||||||||||||||||||||
| Service cost | 59 | 60 | 26 | 19 | Service cost | 49 | 25 | 25 | 20 | ||||||||||||||||||||||||||
| Interest cost | 148 | 134 | 39 | 30 | Interest cost | 99 | 164 | 33 | 50 | ||||||||||||||||||||||||||
| Actuarial (gain) loss | 565 | (144 | ) | 275 | (83 | ) | |||||||||||||||||||||||||||||
| Actuarial gain | Actuarial gain | (1,170) | (75) | (404) | (25) | ||||||||||||||||||||||||||||||
| Curtailments | Curtailments | — | (31) | — | — | ||||||||||||||||||||||||||||||
| Benefits paid | (191 | ) | (201 | ) | (31 | ) | (29 | ) | Benefits paid | (204) | (204) | (40) | (42) | ||||||||||||||||||||||
| Settlements | (151 | ) | (125 | ) | (82 | ) | (25 | ) | Settlements | — | (2) | (29) | (70) | ||||||||||||||||||||||
| Acquisitions (Divestitures), net | — | (55 | ) | (6 | ) | 163 | Acquisitions (Divestitures), net | — | (56) | — | (46) | ||||||||||||||||||||||||
| Foreign currency translation and other | 3 | 4 | (149 | ) | 94 | Foreign currency translation and other | — | 1 | (182) | 74 | |||||||||||||||||||||||||
| Projected benefit obligation, ending | $ | 4,696 | 4,369 | 1,320 | 1,489 | Projected benefit obligation, ending | $ | 3,112 | 2,934 | 965 | 926 | ||||||||||||||||||||||||
| Fair value of plan assets, beginning | $ | 3,928 | 4,110 | 935 | 909 | Fair value of plan assets, beginning | $ | 4,844 | 3,625 | 1,474 | 908 | ||||||||||||||||||||||||
| Actual return on plan assets | 491 | 516 | 155 | 61 | Actual return on plan assets | (1,030) | 230 | (337) | (40) | ||||||||||||||||||||||||||
| Employer contributions | 31 | 20 | 35 | 25 | Employer contributions | 15 | 14 | 28 | 32 | ||||||||||||||||||||||||||
| Benefits paid | (191 | ) | (201 | ) | (31 | ) | (29 | ) | Benefits paid | (204) | (204) | (40) | (42) | ||||||||||||||||||||||
| Settlements | (151 | ) | (125 | ) | (82 | ) | (25 | ) | Settlements | — | (2) | (29) | (70) | ||||||||||||||||||||||
| Acquisitions (Divestitures), net | — | (30 | ) | — | 232 | Acquisitions (Divestitures), net | — | (74) | — | 2 | |||||||||||||||||||||||||
| Foreign currency translation and other | 2 | 2 | (103 | ) | 63 | Foreign currency translation and other | — | 1 | (188) | 74 | |||||||||||||||||||||||||
| Fair value of plan assets, ending | $ | 4,110 | 4,292 | 909 | 1,236 | Fair value of plan assets, ending | $ | 3,625 | 3,590 | 908 | 864 | ||||||||||||||||||||||||
| Net amount recognized in the balance sheet | $ | (586 | ) | (77 | ) | (411 | ) | (253 | ) | Net amount recognized in the balance sheet | $ | 513 | 656 | (57) | (62) | ||||||||||||||||||||
| Location of net amount recognized in the balance sheet: | Location of net amount recognized in the balance sheet: | ||||||||||||||||||||||||||||||||||
| Noncurrent asset | $ | — | 154 | 1 | 43 | Noncurrent asset | $ | 663 | 815 | 205 | 180 | ||||||||||||||||||||||||
| Noncurrent asset held-for-sale | Noncurrent asset held-for-sale | 13 | — | — | — | ||||||||||||||||||||||||||||||
| Current liability | (11 | ) | (11 | ) | (7 | ) | (11 | ) | Current liability | (14) | (14) | (17) | (17) | ||||||||||||||||||||||
| Noncurrent liability | (565 | ) | (220 | ) | (279 | ) | (285 | ) | Noncurrent liability | (149) | (145) | (203) | (225) | ||||||||||||||||||||||
| Net liability held-for-sale | (10 | ) | — | (126 | ) | — | Net liability held-for-sale | — | — | (42) | — | ||||||||||||||||||||||||
| Net amount recognized in the balance sheet | (586 | ) | (77 | ) | (411 | ) | (253 | ) | Net amount recognized in the balance sheet | $ | 513 | 656 | (57) | (62) | |||||||||||||||||||||
| Pretax accumulated other comprehensive loss | $ | (1,527 | ) | (923 | ) | (389 | ) | (238 | ) | Pretax accumulated other comprehensive loss | $ | (284) | (257) | (136) | (181) | ||||||||||||||||||||
As of the September 30, 20172023 and 20162022 measurement dates, the plans' total accumulated benefit obligation was $5,607$3,719 and $5,729,$3,910, respectively. Also asThe total projected benefit obligation, accumulated benefit obligation and fair value of the measurement dates, theplan assets for individual plans with projected benefit obligations in excess of plan assets were $519, $435 and $118, respectively, for 2023, and $527, $444 and $102, respectively, for 2022. The total projected benefit obligation, accumulated benefit obligation and fair value of plan assets for individual plans with accumulated benefit obligations
56
in excess of plan assets were $1,182, $1,088$469, $413 and $663,$77, respectively, for 2017,2023, and $5,951, $5,678$477, $421 and $4,958,$63, respectively, for 2016.2022.
Future benefit payments by U.S. plans are estimated to be $212$222 in 2018, $2202024, $226 in 2019, $2282025, $229 in 2020, $2352026, $230 in 2021, $2412027, $231 in 20222028 and $1,272$1,142 in total over the five years 20232029 through 2027.2033. Based on foreign currency exchange rates as of September 30, 2017,2023, future benefit payments by non-U.S. plans are estimated to be $56$62 in 2018, $572024, $58 in 2019, $592025, $61 in 2020, $632026, $63 in 2021, $682027, $69 in 20222028 and $390$358 in total over the five years 20232029 through 2027.2033. The Company expects to contribute approximately $60$45 to its retirement plans in 2018.2024.
The weighted-average assumptions used in the valuation of pension benefits follow:
| U.S. Plans | Non-U.S. Plans | ||||||||||||||||||||||||||||||||||
| 2021 | 2022 | 2023 | 2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||
| Net pension expense | |||||||||||||||||||||||||||||||||||
| Discount rate used to determine service cost | 3.16 | % | 3.16 | % | 5.66 | % | 1.9 | % | 2.2 | % | 4.9 | % | |||||||||||||||||||||||
| Discount rate used to determine interest cost | 2.10 | % | 2.31 | % | 5.49 | % | 1.9 | % | 2.2 | % | 4.9 | % | |||||||||||||||||||||||
| Expected return on plan assets | 6.50 | % | 6.00 | % | 6.00 | % | 5.6 | % | 4.4 | % | 4.4 | % | |||||||||||||||||||||||
| Rate of compensation increase | 3.25 | % | 4.00 | % | 4.00 | % | 3.6 | % | 3.7 | % | 4.0 | % | |||||||||||||||||||||||
| Benefit obligations | |||||||||||||||||||||||||||||||||||
| Discount rate | 2.92 | % | 5.64 | % | 6.03 | % | 2.2 | % | 4.9 | % | 5.2 | % | |||||||||||||||||||||||
| Rate of compensation increase | 3.25 | % | 4.00 | % | 4.00 | % | 3.7 | % | 4.0 | % | 3.9 | % | |||||||||||||||||||||||
| U.S. Plans | Non-U.S. Plans | ||||||||||||||||
| 2015 | 2016 | 2017 | 2015 | 2016 | 2017 | ||||||||||||
| Net pension expense | |||||||||||||||||
| Discount rate used to determine service cost | 4.25 | % | 4.60 | % | 3.75 | % | 3.6 | % | 3.3 | % | 2.3 | % | |||||
| Discount rate used to determine interest cost | 4.25 | % | 3.50 | % | 2.90 | % | 3.6 | % | 3.3 | % | 2.3 | % | |||||
| Expected return on plan assets | 7.50 | % | 7.50 | % | 7.25 | % | 6.6 | % | 6.4 | % | 6.2 | % | |||||
| Rate of compensation increase | 3.25 | % | 3.25 | % | 3.25 | % | 3.4 | % | 3.4 | % | 3.2 | % | |||||
| Benefit obligations | |||||||||||||||||
| Discount rate | 4.35 | % | 3.50 | % | 3.76 | % | 3.3 | % | 2.3 | % | 2.6 | % | |||||
| Rate of compensation increase | 3.25 | % | 3.25 | % | 3.25 | % | 3.4 | % | 3.2 | % | 3.4 | % | |||||
The discount rate for the U.S. retirement plans was 3.766.03 percent as of September 30, 2017.2023. An actuarially developed, company-specific yield curve is used to determine the discount rate. To determine the service and interest cost components of pension expense for its U.S. retirement plans, the Company applies the specific spot rates along the yield curve, rather than the single weighted-average rate, to the projected cash flows to provide more precise measurement of these costs. The expected return on plan assets assumption is determined by reviewing the investment returns of the plans for the past 10 years plus longer-term historical returns of an asset mix approximating the Company's asset allocation targets, and periodically comparing these returns to expectations of investment advisors and actuaries to determine whether long-term future returns are expected to differ significantly from the past.
The Company's asset allocations at September 30, 20172023 and 2016,2022, and weighted-average target allocations follow:
| U.S. Plans | Non-U.S. Plans | ||||||||||||||||||||||||||||||||||
| 2022 | 2023 | Target | 2022 | 2023 | Target | ||||||||||||||||||||||||||||||
| Equity securities | 39 | % | 39 | % | 35-45% | 11 | % | 8 | % | 5-15% | |||||||||||||||||||||||||
| Debt securities | 54 | 51 | 50-60 | 73 | 75 | 70-80 | |||||||||||||||||||||||||||||
| Other | 7 | 10 | 0-10 | 16 | 17 | 10-20 | |||||||||||||||||||||||||||||
| Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||||||||||||
| U.S. Plans | Non-U.S. Plans | ||||||||||||||
| 2016 | 2017 | Target | 2016 | 2017 | Target | ||||||||||
| Equity securities | 66 | % | 67 | % | 60-70% | 51 | % | 52 | % | 50-60% | |||||
| Debt securities | 29 | 28 | 25-35 | 36 | 38 | 25-35 | |||||||||
| Other | 5 | 5 | 3-10 | 13 | 10 | 10-20 | |||||||||
| Total | 100 | % | 100 | % | 100% | 100 | % | 100 | % | 100% | |||||
The primary objective for the investment of pension assets is to secure participant retirement benefits by earning a reasonable rate of return. Plan assets are invested consistent with the provisions of the prudence and diversification rules of ERISA and with a long-term investment horizon. The Company continuously monitors the value of assets by class and routinely rebalances to remain within target allocations. The equity strategy is to minimize concentrations of risk by investing primarily in a mix of companies that are diversified across geographies, market capitalization, style, sectors and industries worldwide. The approach for bonds emphasizes investment-grade corporate and government debt with maturities matching a portion of the longer duration pension liabilities. The bonds strategy also includes a high-yield element which is generally shorter in duration. For diversification, a small
portion of U.S. plan assets is allocated to private equity partnerships and real asset fund investments, providing opportunities for above market returns. Leveraging techniques are not used and the use of derivatives in any fund is limited and inconsequential.
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The fair values of defined benefit pension assets asas of September 30, organizedorganized by asset class and by the fair value hierarchy of ASC 820, Fair Value Measurement, follow. Investments valued based on the net asset value (NAV) of fund units held, as derived from the fair value of the underlying assets, are excluded from the fair value hierarchy.
| Level 1 | Level 2 | Level 3 | Measured at NAV | Total | % | ||||||||||||||||||||||||||||||
| 2023 | |||||||||||||||||||||||||||||||||||
| U.S. equities | $ | 396 | 9 | — | 619 | 1,024 | 23 | % | |||||||||||||||||||||||||||
| International equities | 210 | 14 | — | 103 | 327 | 7 | % | ||||||||||||||||||||||||||||
| Emerging market equities | — | 1 | — | 118 | 119 | 3 | % | ||||||||||||||||||||||||||||
| Corporate bonds | — | 1,008 | — | 843 | 1,851 | 42 | % | ||||||||||||||||||||||||||||
| Government bonds | — | 505 | — | 124 | 629 | 14 | % | ||||||||||||||||||||||||||||
| Other | 121 | 7 | 126 | 250 | 504 | 11 | % | ||||||||||||||||||||||||||||
| Total | $ | 727 | 1,544 | 126 | 2,057 | 4,454 | 100 | % | |||||||||||||||||||||||||||
| 2022 | |||||||||||||||||||||||||||||||||||
| U.S. equities | $ | 405 | 6 | 633 | 1,044 | 23 | % | ||||||||||||||||||||||||||||
| International equities | 225 | 10 | 123 | 358 | 8 | % | |||||||||||||||||||||||||||||
| Emerging market equities | — | 1 | 124 | 125 | 3 | % | |||||||||||||||||||||||||||||
| Corporate bonds | — | 1,143 | 859 | 2,002 | 44 | % | |||||||||||||||||||||||||||||
| Government bonds | — | 468 | 152 | 620 | 14 | % | |||||||||||||||||||||||||||||
| Other | (9) | 7 | 130 | 256 | 384 | 8 | % | ||||||||||||||||||||||||||||
| Total | $ | 621 | 1,635 | 130 | 2,147 | 4,533 | 100 | % | |||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Measured at NAV | Total | % | |||||||||||||
| 2017 | ||||||||||||||||||
| U.S. equities | $ | 1,059 | 5 | 338 | 357 | 1,759 | 32 | % | ||||||||||
| International equities | 724 | 6 | — | 739 | 1,469 | 27 | % | |||||||||||
| Emerging market equities | — | — | — | 276 | 276 | 5 | % | |||||||||||
| Corporate bonds | — | 514 | — | 283 | 797 | 14 | % | |||||||||||
| Government bonds | 3 | 369 | — | 399 | 771 | 14 | % | |||||||||||
| High-yield bonds | — | — | — | 132 | 132 | 2 | % | |||||||||||
| Other | 132 | 6 | 113 | 73 | 324 | 6 | % | |||||||||||
| Total | $ | 1,918 | 900 | 451 | 2,259 | 5,528 | 100 | % | ||||||||||
| 2016 | ||||||||||||||||||
| U.S. equities | $ | 1,081 | 4 | 292 | 301 | 1,678 | 33 | % | ||||||||||
| International equities | 627 | 8 | — | 599 | 1,234 | 25 | % | |||||||||||
| Emerging market equities | — | — | — | 257 | 257 | 5 | % | |||||||||||
| Corporate bonds | — | 476 | — | 172 | 648 | 13 | % | |||||||||||
| Government bonds | 3 | 392 | — | 357 | 752 | 15 | % | |||||||||||
| High-yield bonds | — | — | — | 122 | 122 | 2 | % | |||||||||||
| Other | 144 | 2 | 113 | 69 | 328 | 7 | % | |||||||||||
| Total | $ | 1,855 | 882 | 405 | 1,877 | 5,019 | 100 | % | ||||||||||
Asset Classes
U.S. equities reflect companies domiciled in the U.S., including multinational companies. International equities are comprised of companies domiciled in developed nations outside the U.S. Emerging market equities are comprised of companies domiciled in portions of Asia, Eastern Europe and Latin America. Corporate bonds represent investment-grade debt of issuers primarily from the U.S. Government bonds include investment-grade instruments issued by federal, state and local governments, primarily in the U.S. High-yield bonds include noninvestment-grade debt from a diverse group of developed market issuers. Other includes cash, interests in mixed asset funds investing in commodities, natural resources, agriculture, real estate and infrastructure funds, life insurance contracts (U.S.), and shares in certain general investment funds of financial institutions or insurance arrangements (non-U.S.) that typically ensure no market losses or provide for a small minimum return guarantee.
Fair Value Hierarchy Categories
Valuations of Level 1 assets for all classes are based on quoted closing market prices from the principal exchanges where the individual securities are traded. Cash is valued at cost, which approximates fair value. Debt securities categorized as Level 2 assets are generally valued based on independent broker/dealer bids or by comparison to other debt securities having similar durations, yields and credit ratings. U.S. equity securities classified as Level 3 are fund investments in private companies. Valuation techniques and inputs for these assets include discounted cash flow analysis, earnings multiple approaches, recent transactions, transfer restrictions, prevailing discount rates, volatilities, credit ratings and other factors. In the Other class, interests in mixed asset funds are Level 2, and U.S. life insurance contracts and non-U.S. general fund investments and insurance arrangements are Level 3. Investments measured at net asset valueNAV are primarily nonexchange-traded commingled or collective funds where the underlying securities have observable prices available from active markets.
| 2016 | 2017 | |||||
| Level 3, beginning | $ | 371 | 405 | |||
| Gains (Losses) on assets held | 18 | 49 | ||||
| Gains (Losses) on assets sold | (20 | ) | (28 | ) | ||
| Purchases, sales and settlements, net | 36 | 25 | ||||
| Level 3, ending | $ | 405 | 451 | |||
Postretirement Plans
The Company also sponsors unfunded postretirement benefit plans (primarily health care) for certain U.S. retirees and their dependents. The components of netCompany’s principal U.S. postretirement benefits expense for the years ended September 30 follow:plan has been frozen to new employees since
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| 2015 | 2016 | 2017 | |||||||
| Service cost | $ | 1 | 1 | 1 | |||||
| Interest cost | 9 | 8 | 6 | ||||||
| Net amortization | (22 | ) | (21 | ) | (19 | ) | |||
| Net postretirement expense | $ | (12 | ) | (12 | ) | (12 | ) | ||
| 2016 | 2017 | |||||
| Benefit obligation, beginning | $ | 213 | 206 | |||
| Service cost | 1 | 1 | ||||
| Interest cost | 8 | 6 | ||||
| Actuarial (gain) loss | — | (24 | ) | |||
| Benefits paid | (16 | ) | (13 | ) | ||
| Divestitures | — | (2 | ) | |||
| Benefit obligation, ending (recognized in balance sheet) | $ | 206 | 174 | |||
The Company is a party to a number of pending legal proceedings and claims, including those involving general and product liability (including asbestos) and other matters, several of which claim substantial amounts of damages. The Company accrues for such liabilities when it is probable that future costs (including legal fees and expenses) will be incurred and such costs can be reasonably estimated. Accruals are based on developments to date; management's estimates of the outcomes of these matters; and the Company's experience in contesting, litigating and settling similar matters;matters. The Company engages an outside expert to develop an actuarial estimate of its expected costs to resolve all pending and anyfuture asbestos claims, including defense costs, as well as its related insurance coverage. receivables. The reserve for asbestos litigation, which is recorded on an undiscounted basis, is based on projected claims through 2065. See Note 21 for additional information about the Company's asbestos liabilities and related insurance receivables.
Although it is not possible to predict the ultimate outcome of these matters, the Company historically has been largely successful in defending itself against claims and suits that have been brought against it, and will continue to defend itself vigorously in all such matters. While the Company believes a material adverse impact is unlikely, given the inherent uncertainty of litigation, a remote possibility exists that a future development could have a material adverse impact on the Company. The Company enters into certain indemnification agreements in the ordinary course of business in which the indemnified party is
held harmless and is reimbursed for losses incurred from claims by third parties, usually up to a prespecified limit. In connection with divestitures of certain assets or businesses, the Company often provides indemnities to the buyer with respect to certain matters including, for example, environmental or unidentified tax liabilities related to periods prior to the disposition. Because of the uncertain nature of the indemnities, the maximum liability cannot be quantified. As such, contingent liabilities are recorded when they are both probable and reasonably estimable. Historically, payments under indemnity arrangements have been inconsequential.
At September 30, 2017,2023, there were no known contingent liabilities (including guarantees, pending litigation, taxes and other claims) that management believes will be material in relation to the Company's financial statements, nor were there any material commitments outside the normal course of business.
Pretax earnings from continuing operations consist of the following:
| 2021 | 2022 | 2023 | |||||||||||||||
| United States | $ | 675 | 1,345 | 1,352 | |||||||||||||
| Non-U.S. | 1,087 | 1,087 | 1,374 | ||||||||||||||
| Total pretax earnings | $ | 1,762 | 2,432 | 2,726 | |||||||||||||
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| 2015 | 2016 | 2017 | |||||||
| United States | $ | 2,688 | 1,312 | 1,350 | |||||
| Non-U.S. | 1,119 | 1,004 | 985 | ||||||
| Total pretax earnings | $ | 3,807 | 2,316 | 2,335 | |||||
The principal components of income tax expense follow:
| 2021 | 2022 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| U.S. federal | $ | 17 | 315 | 465 | |||||||||||||
| State and local | 14 | 36 | 47 | ||||||||||||||
| Non-U.S. | 258 | 306 | 369 | ||||||||||||||
| Deferred: | |||||||||||||||||
| U.S. federal | 84 | (92) | (198) | ||||||||||||||
| State and local | (2) | (13) | (23) | ||||||||||||||
| Non-U.S. | (25) | (3) | (61) | ||||||||||||||
| Income tax expense | $ | 346 | 549 | 599 | |||||||||||||
| 2015 | 2016 | 2017 | |||||||
| Current: | |||||||||
| Federal | $ | 831 | 394 | 351 | |||||
| State and local | 86 | 11 | 40 | ||||||
| Non-U.S. | 398 | 305 | 311 | ||||||
| Deferred: | |||||||||
| Federal | 12 | 2 | 7 | ||||||
| State and local | (1 | ) | 4 | 4 | |||||
| Non-U.S. | (59 | ) | (19 | ) | (53 | ) | |||
| Income tax expense | $ | 1,267 | 697 | 660 | |||||
Reconciliations of the U.S. federal statutory income tax rate to the Company's effective tax rate follow:follow.
| 2021 | 2022 | 2023 | |||||||||||||||
| U.S. federal statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| State and local taxes, net of U.S. federal tax benefit | 0.5 | 0.7 | 0.7 | ||||||||||||||
| Non-U.S. rate differential | 2.6 | 1.2 | 0.8 | ||||||||||||||
| Non-U.S. tax holidays | (1.2) | (1.1) | (0.9) | ||||||||||||||
| Research and development credits | (0.9) | (0.5) | (0.5) | ||||||||||||||
| Foreign derived intangible income | (1.6) | (2.0) | (2.8) | ||||||||||||||
| Subsidiary restructuring | (0.8) | 0.8 | — | ||||||||||||||
| Russia business exit | — | 2.0 | 0.2 | ||||||||||||||
| Other | — | 0.5 | 3.5 | ||||||||||||||
| Effective income tax rate | 19.6 | % | 22.6 | % | 22.0 | % | |||||||||||
| 2015 | 2016 | 2017 | ||||||
| Federal statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | ||
| State and local taxes, net of federal tax benefit | 0.7 | 0.5 | 1.2 | |||||
| Non-U.S. rate differential | (2.4 | ) | (2.9 | ) | (3.6 | ) | ||
| Non-U.S. tax holidays | (0.9 | ) | (1.1 | ) | (1.0 | ) | ||
| U.S. manufacturing deduction | (1.2 | ) | (1.8 | ) | (1.7 | ) | ||
| Gains on divestitures | 1.8 | — | — | |||||
| Non-U.S. subsidiary restructuring | — | — | (1.8 | ) | ||||
| Other | 0.3 | 0.4 | 0.2 | |||||
| Effective income tax rate | 33.3 | % | 30.1 | % | 28.3 | % | ||
The 2023 increase in other was driven by a 1 percentage point impact from U.S. taxation of Non-U.S. operations and a 2 percentage point impact due to an increase in unrecognized tax benefits.
The Company has elected to recognize the tax on global intangible low-taxed income earned by certain of its non-U.S. subsidiaries as a period expense when it is incurred.
On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic, and among other things, provides tax relief to businesses. Tax provisions of the CARES Act included the deferral of certain payroll taxes, relief for retaining employees, and other provisions. The Company deferred $73 of certain payroll taxes through the end of calendar year 2020, of which approximately $37 was paid in December 2021 and the remainder paid in December 2022.
Non-U.S. tax holidays reduce tax rates in certain foreign jurisdictions and are expected tojurisdictions. Approximately 80 percent of the tax holidays expire over the next five years.four years, with the remainder expiring by 2030.
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Following are changes in unrecognized tax benefits before considering recoverability of any cross-jurisdictional tax credits (federal,(U.S. federal, state and non-U.S.) and temporary differences. The amount of unrecognized tax benefits is not expected to change significantly withinin the next 12 months.
| 2022 | 2023 | ||||||||||
| Unrecognized tax benefits, beginning | $ | 209 | 167 | ||||||||
| Additions for current year tax positions | 24 | 78 | |||||||||
| Additions for prior year tax positions | 9 | 13 | |||||||||
| Reductions for prior year tax positions | (65) | (10) | |||||||||
| Acquisitions and divestitures | 1 | — | |||||||||
| Reductions for settlements with tax authorities | — | (5) | |||||||||
| Reductions for expiration of statutes of limitations | (11) | (8) | |||||||||
| Unrecognized tax benefits, ending | $ | 167 | 235 | ||||||||
| 2016 | 2017 | |||||
| Unrecognized tax benefits, beginning | $ | 84 | 86 | |||
| Additions for current year tax positions | 12 | 54 | ||||
| Additions for prior year tax positions | 16 | 4 | ||||
| Reductions for prior year tax positions | (13 | ) | (6 | ) | ||
| Acquisitions and divestitures | — | 9 | ||||
| Reductions for settlements with tax authorities | (4 | ) | (4 | ) | ||
| Reductions for expiration of statutes of limitations | (9 | ) | (11 | ) | ||
| Unrecognized tax benefits, ending | $ | 86 | 132 | |||
If none of the unrecognized tax benefits shown is ultimately paid, the tax provision and the calculation of the effective tax rate would be favorably impacted by $100,$196, which is net of cross-jurisdictional tax credits and temporary differences. The Company accrues interest and penalties related to income taxes in income tax expense. Total interestexpense (income) recognized was $1, $(7) and penalties recognized were $(1), $2$(6) in 2023, 2022 and $(4) in 2017, 2016 and 2015,2021, respectively. As of September 30, 20172023 and 2016,2022, total accrued interest and penalties were $16$22 and $21,$21, respectively.
The U.S. is the major jurisdiction for which the Company files income tax returns. Examinations for U.S. federal tax returns are closedcomplete through 2013.2017, except for 2014. The status of state and non-U.S. tax examinations varies due to the numerous legal entities and jurisdictions in which the Company operates.
The principal items that gave rise to deferred income tax assets and liabilities follow:
| 2022 | 2023 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating losses, capital losses and tax credits | $ | 209 | 253 | ||||||||
| Accrued liabilities | 213 | 163 | |||||||||
| Postretirement and postemployment benefits | 21 | 17 | |||||||||
| Employee compensation and benefits | 122 | 103 | |||||||||
| Other | 125 | 158 | |||||||||
| Total | $ | 690 | 694 | ||||||||
| Valuation allowances | $ | (171) | (164) | ||||||||
| Deferred tax liabilities: | |||||||||||
| Intangibles | $ | (1,622) | (1,387) | ||||||||
| Pensions | (126) | (151) | |||||||||
| Property, plant and equipment | (207) | (148) | |||||||||
| Undistributed non-U.S. earnings | (37) | (32) | |||||||||
| Deferred gains | (10) | (596) | |||||||||
| Other | (146) | (75) | |||||||||
| Total | $ | (2,148) | (2,389) | ||||||||
| Net deferred income tax liability | $ | (1,629) | (1,859) | ||||||||
| 2016 | 2017 | |||||
| Deferred tax assets: | ||||||
| Net operating losses and tax credits | $ | 164 | 444 | |||
| Accrued liabilities | 277 | 319 | ||||
| Postretirement and postemployment benefits | 82 | 70 | ||||
| Employee compensation and benefits | 206 | 173 | ||||
| Pensions | 271 | 72 | ||||
| Other | 158 | 196 | ||||
| Total | $ | 1,158 | 1,274 | |||
| Valuation allowances | $ | (132 | ) | (309 | ) | |
| Deferred tax liabilities: | ||||||
| Intangibles | $ | (510 | ) | (753 | ) | |
| Property, plant and equipment | (239 | ) | (265 | ) | ||
| Undistributed non-U.S. earnings | (9 | ) | (249 | ) | ||
| Other | (42 | ) | (37 | ) | ||
| Total | $ | (800 | ) | (1,304 | ) | |
| Net deferred income tax asset (liability) | $ | 226 | (339 | ) | ||
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The Company's stock-based compensation plans include stock options, performance shares, restricted stock, and restricted stock units.units, and stock options. Although the Company has discretion, shares distributed under these plans are issued from treasury stock.
In fiscal 2022, the Company changed the terms of its annual performance share awards that were issued in the first quarter. The terms meet the criteria for equity classification in accordance with ASC 718, Compensation - Stock Compensation, and therefore expense will be recognized on a fixed basis over the three-year performance period. The terms of the performance share awards issued in fiscal 2021 are unchanged and therefore continue to be accounted for as liability awards and marked-to-market each period based on changes in the stock price.
AspenTech also has stock-based compensation plans that are settled in its own stock. These plans consist of performance shares, restricted stock units and stock options.
Total compensation expense and income tax benefits for Emerson and AspenTech stock options and incentive shares follows.
| 2021 | 2022 | 2023 | |||||||||||||||
| Performance shares | $ | 203 | 89 | 165 | |||||||||||||
| Restricted stock and restricted stock units | 21 | 23 | 24 | ||||||||||||||
| AspenTech stock-based compensation plans | — | 32 | 82 | ||||||||||||||
| Total stock compensation expense | 224 | 144 | 271 | ||||||||||||||
| Less: discontinued operations | 27 | 19 | 21 | ||||||||||||||
| Stock compensation expense from continuing operations | $ | 197 | 125 | 250 | |||||||||||||
| Income tax benefits recognized | $ | 27 | 19 | 28 | |||||||||||||
As of September 30, 2023, total unrecognized compensation expense related to unvested shares awarded under Emerson plans was $119, which is expected to be recognized over a weighted-average period of 1.1 years, while the total future unrecognized compensation cost related to AspenTech stock options, RSUs and performance stock units was $18, $59 and $12 respectively, which is expected to be recorded over a weighted average period of 2.1 years, 3.0 years and 2.8 respectively.
Emerson Performance Shares, Restricted Stock and Restricted Stock Units
The Company's incentive shares plans include performance shares awards which distribute the value of common stock to key management employees at the conclusion of a three-year period subject to certain operating performance conditions and other terms and restrictions. The form of distribution is primarily shares of common stock, with a portion in cash in the first quarter following the end of the applicable three-year performance period. Dividend equivalents are only paid on earned awards after the performance period has concluded. Compensation expense for performance shares is recognized over the service period based on the number of shares ultimately expected to be earned.
Information related to performance share payouts for the years ended September 30, 2022 and 2023 follows (shares in thousands):
| 2022 | 2023 | ||||||||||
| Performance period | 2019 - 2021 | 2020 - 2022 | |||||||||
| Percent payout | 101 | % | 106 | % | |||||||
| Total shares earned | 1,341 | 1,557 | |||||||||
| Shares distributed in cash, primarily for tax withholding | 586 | 684 | |||||||||
As of September 30, 2023, approximately 1,468,000 shares awarded primarily in 2021 were outstanding, contingent on the Company achieving its performance objectives through 2023. The objectives for these shares were met at the 118 percent level and the shares will be distributed in early fiscal 2024.
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Additionally, the rights to receive approximately 975,000 and 928,000 shares awarded in 2023 and 2022, respectively, are outstanding and contingent upon the Company achieving its performance objectives through 2025 and 2024, respectively.
Incentive shares plans also include restricted stock awards and restricted stock units. Restricted stock awards involve distribution of common stock to key management employees subject to cliff vesting at the end of service periods ranging from three to ten years while restricted stock units granted to employees cliff vest at the end of a three-year period. The fair value of restricted stock awards and restricted stock units is determined based on the average of the high and low market prices of the Company's common stock on the date of grant, with compensation expense recognized ratably over the applicable vesting period. In 2023, approximately 125,000 shares of restricted stock and approximately 220,000 restricted stock units vested as a result of participants fulfilling the applicable service requirements. Consequently, approximately 80,000 shares and 158,000 units were issued while 45,000 shares and 62,000 units were withheld for income taxes in accordance with minimum withholding requirements. As of September 30, 2023, there were approximately 1,065,000 shares of unvested restricted stock and restricted stock units outstanding.
In addition to the employee stock option and incentive share plans, in 2023 the Company awarded approximately 22,000 restricted stock units under the restricted stock plan for non-management directors. As of September 30, 2023, approximately 57,000 shares were available for issuance under this plan.
As of September 30, 2023, 2.7 million shares remained available for award under incentive shares plans.
Changes in shares outstanding but not yet earned under incentive shares plans during the year ended September 30, 2023 follow (shares in thousands; assumes 100 percent payout of unvested awards):
| Shares | Average Grant Date Fair Value Per Share | ||||||||||||||||
| Beginning of year | 5,280 | $ | 77.58 | ||||||||||||||
| Granted | 1,263 | $ | 87.33 | ||||||||||||||
| Earned/vested | (1,814) | $ | 71.70 | ||||||||||||||
| Canceled | (292) | $ | 89.49 | ||||||||||||||
| End of year | 4,437 | $ | 82.02 | ||||||||||||||
Information related to Emerson incentive shares plans follows:
| 2021 | 2022 | 2023 | |||||||||||||||
| Total fair value of shares earned/vested | $ | 131 | 158 | 158 | |||||||||||||
| Share awards distributed in cash, primarily for tax withholding | $ | 58 | 69 | 73 | |||||||||||||
Emerson Stock Options
There were no stock option grants in 2023, 2022 and 2021. The Company's stock option plans permitexpired in 2021. Previously awarded stock options allow key officers and employees to purchase common stock at specified prices, which are equal to 100 percent of the closing market price of the Company's stock on the date of grant. Options generally vest one-third in each of the three years subsequent to grant and expire 10 years from the date of grant. Compensation expense is recognized ratably over the vesting period based on the number of options expected to vest. As of September 30, 2017, 11.5 million options were available for grant under the plans.
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Changes in shares subject to options during the year ended September 30, 20172023 follow (shares in thousands):
| Weighted- Average Exercise Price Per Share | Shares | Total Intrinsic Value of Shares | Average Remaining Life (Years) | ||||||||||||||||||||||||||||||||||||||
| Beginning of year | $ | 58.10 | 1,692 | ||||||||||||||||||||||||||||||||||||||
| Options exercised | $ | 60.66 | (1,099) | ||||||||||||||||||||||||||||||||||||||
| Options canceled | $ | 53.05 | (4) | ||||||||||||||||||||||||||||||||||||||
| End of year | $ | 53.35 | 589 | $ | 26 | 2.1 | |||||||||||||||||||||||||||||||||||
| Exercisable at end of year | $ | 53.35 | 589 | $ | 26 | 2.1 | |||||||||||||||||||||||||||||||||||
Information related to Emerson stock options follows:
| 2021 | 2022 | 2023 | |||||||||||||||
| Cash received for option exercises | $ | 114 | 15 | 49 | |||||||||||||
| Intrinsic value of options exercised | $ | 53 | 11 | 27 | |||||||||||||
| Tax benefits related to option exercises | $ | 6 | 7 | 4 | |||||||||||||
AspenTech Stock-Based Compensation
As discussed in Note 4, Emerson completed the acquisition of Heritage AspenTech in the third quarter of 2022. AspenTech, as defined in Note 4, operates as a separate publicly traded company and has various stock-based compensation plans, including stock options and restricted stock units, which are settled in their own common stock and are accounted for as equity awards. Restricted stock units generally vest over four years. Option awards have been granted with an exercise price equal to the market closing price of AspenTech's stock on the trading day prior to the grant date. These options generally vest over four years and expire within seven years or ten years of grant. AspenTech's policy is to issue new shares upon the exercise of vested stock awards.
Pursuant to the terms of the transaction agreement between Emerson and Heritage AspenTech, each outstanding option to purchase shares of Heritage AspenTech common stock, whether vested or unvested, that was unexercised as of immediately prior to the closing date was converted into an option to acquire shares of AspenTech. Each converted option is subject to the same terms and conditions as applied to the original option. In addition, each outstanding award of restricted stock units with respect to shares of Heritage AspenTech common stock that were unvested as of immediately prior to the closing date was converted into an award of restricted stock units with respect to shares of AspenTech. Each converted restricted stock unit is also subject to the same terms and conditions as applied to the original restricted stock unit.
ASC 805 required the Company to determine the fair value of the AspenTech share-based payment awards related to the replacement of the Heritage AspenTech share-based payment awards, and allocate the total fair value based on the services that are attributable to the pre- and post-combination service periods, respectively. The portion that is attributable to the pre-combination service period was considered part of the consideration transferred for Heritage AspenTech and included as part of the purchase price. The portion that is attributable to the post-combination service period is recognized as stock-based compensation expense in the post-combination consolidated financial statements over the remaining requisite service period.
AspenTech Stock Options
AspenTech utilizes the Black-Scholes option valuation model for estimating the fair value of options granted. The Black-Scholes option valuation model incorporates assumptions regarding expected stock price volatility, the expected life of the option, the risk-free interest rate, dividend yield and the market value of AspenTech's common stock. The expected stock price volatility is determined based on AspenTech's stock’s historic prices over a period commensurate with the expected life of the award. The expected life of an option represents the period for which options are expected to be outstanding as determined by historic option exercises and cancellations. The risk-free interest rate is based on the U.S. Treasury yield curve for notes with terms approximating the expected life of the options granted. The expected dividend yield is zero, based on AspenTech's history and expectation of not paying dividends on common shares. Stock-based compensation expense is recognized on a straight-line basis, net of forfeitures as they occur, over the requisite service period for time-vested awards.
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| Weighted- Average Exercise Price Per Share | Shares | Total Intrinsic Value of Shares | Average Remaining Life (Years) | |||||||||||||||
| Beginning of year | $ | 54.87 | 15,276 | |||||||||||||||
| Options granted | $ | 53.71 | 386 | |||||||||||||||
| Options exercised | $ | 51.09 | (3,812 | ) | ||||||||||||||
| Options canceled | $ | 61.48 | (1,091 | ) | ||||||||||||||
| End of year | $ | 55.49 | 10,759 | $ | 87 | 5.8 | ||||||||||||
| Exercisable at end of year | $ | 56.73 | 8,222 | $ | 58 | 5.1 | ||||||||||||
The weighted-average grant dateassumptions used in valuations for 2023 are: risk-free interest rate, 3.8 percent; dividend yield, none; expected volatility, 39.3 percent; and expected life, approximately 5 years.
A summary of AspenTech stock option activity in 2023 is as follows (shares in thousands):
| Weighted- Average Exercise Price Per Share | Shares | Total Intrinsic Value of Shares | Average Remaining Contractual Term (Years) | ||||||||||||||||||||||||||||||||||||||
| Beginning of year | $ | 131.26 | 1,256 | ||||||||||||||||||||||||||||||||||||||
| Granted | $ | 196.04 | 47 | ||||||||||||||||||||||||||||||||||||||
| Exercised | $ | 93.04 | (302) | ||||||||||||||||||||||||||||||||||||||
| Canceled / Forfeited | $ | 179.87 | (27) | ||||||||||||||||||||||||||||||||||||||
| End of year | $ | 161.26 | 974 | $ | 59 | 6.3 | |||||||||||||||||||||||||||||||||||
| Exercisable at end of year | $ | 128.61 | 667 | $ | 51 | 5.3 | |||||||||||||||||||||||||||||||||||
| Vested and expected to vest at September 30, 2023 | $ | 143.96 | 957 | $ | 59 | 6.3 | |||||||||||||||||||||||||||||||||||
The weighted average estimated fair value perof option awards granted during 2023 was $8.36, $9.02 and $12.48 in 2017, 2016 and 2015, respectively. Cash received for option exercises was $148 in 2017, $31 in 2016 and $36 in 2015.$76.99. The total intrinsic value of options exercised during 2023 was $38. Cash proceeds of $29 from issuances of shares of AspenTech common stock were received during 2023.
AspenTech Restricted Stock Units and Performance Stock Units
A summary of AspenTech restricted stock unit and performance stock unit activity in 2017, 20162023 is as follows (shares in thousands):
| Weighted- Average Grant Date Fair Value | Shares | ||||||||||||||||
| Beginning of year | $ | 190.44 | 589 | ||||||||||||||
| Granted | $ | 192.51 | 367 | ||||||||||||||
| Settled | $ | 193.23 | (268) | ||||||||||||||
| Canceled / Forfeited | $ | 195.48 | (35) | ||||||||||||||
| End of year | $ | 193.17 | 653 | ||||||||||||||
| Vested and expected to vest at September 30, 2023 | $ | 193.24 | 566 | ||||||||||||||
During 2023, AspenTech granted performance stock units with a performance condition and 2015 was $36, $9 and $16, respectively, while the tax benefit realized by the Company from tax deductions related to option exercises was $2, $2 and $10, respectively.
At September 30, 2023, common stock reserved for future issuance under incentive sharesall AspenTech equity compensation plans was $245, $11 and $9, respectively, in 2017, 2016 and 2015, of which $101, $4 and $5 was paid in cash, primarily for tax withholding. As of September 30, 2017, 12.93.7 million shares remained available for award under incentive shares plans.shares.
| Shares | Average Grant Date Fair Value Per Share | |||||||
| Beginning of year | 7,328 | $ | 49.17 | |||||
| Granted | 2,134 | $ | 51.91 | |||||
| Earned/vested | (4,372 | ) | $ | 49.14 | ||||
| Canceled | (91 | ) | $ | 51.18 | ||||
| End of year | 4,999 | $ | 50.33 | |||||
At September 30, 2017, 40.02023, 8.8 million shares of common stock were reserved for issuance under the Company's stock-based compensation plans. During 2017, 6.6 million common shares were purchased and 5.5 million treasury shares were reissued. In 2016, 12.52023, 21.3 million common shares were purchased and 0.71.8 million
65
treasury shares were reissued. In 2022, 5.7 million common shares were purchased and 1.3 million treasury shares were reissued.
At September 30, 20172023 and 2016,2022, the Company had 5.4 million shares of $2.50 par value preferred stock authorized, with none issued.
| Activity in Accumulated other comprehensive income (loss) is shown below, net of income taxes: | |||||||||||||||||
| Foreign currency translation | 2021 | 2022 | 2023 | ||||||||||||||
| Beginning balance | $ | (711) | (629) | (1,265) | |||||||||||||
| Other comprehensive income (loss), net of tax of $(5), $(62) and $26, respectively | 82 | (636) | 158 | ||||||||||||||
| Reclassified to gain on sale of business | — | — | 95 | ||||||||||||||
| Ending balance | (629) | (1,265) | (1,012) | ||||||||||||||
| Pension and postretirement | |||||||||||||||||
| Beginning balance | (864) | (259) | (222) | ||||||||||||||
| Actuarial gains (losses) deferred during the period, net of taxes of $(150), $10 and $0, respectively | 499 | (33) | 4 | ||||||||||||||
| Amortization of deferred actuarial losses into earnings, net of tax of $(34), $(21) and $17, respectively | 106 | 70 | (51) | ||||||||||||||
| Reclassified to gain on sale of business | — | — | 22 | ||||||||||||||
| Ending balance | (259) | (222) | (247) | ||||||||||||||
| Cash flow hedges | |||||||||||||||||
| Beginning balance | (2) | 16 | 2 | ||||||||||||||
Gains deferred during the period, net of taxes of $(15), $(6) and $(11), respectively | 51 | 18 | 37 | ||||||||||||||
| Reclassifications of realized (gains) losses to sales and cost of sales, net of tax of $11, $10 and $4, respectively | (33) | (32) | (14) | ||||||||||||||
| Reclassified to gain on sale of business | — | — | (19) | ||||||||||||||
| Ending balance | 16 | 2 | 6 | ||||||||||||||
| Accumulated other comprehensive income (loss) | $ | (872) | (1,485) | (1,253) | |||||||||||||
Activity in accumulated other comprehensive income (loss) attributable to common stockholders is shown below: | |||||||||
| Foreign currency translation | 2015 | 2016 | 2017 | ||||||
| Beginning balance | $ | 171 | (622 | ) | (812 | ) | |||
| Other comprehensive income (loss) | (793 | ) | (190 | ) | 58 | ||||
| Reclassified to gain/loss on sale of businesses | — | — | 385 | ||||||
| Ending balance | (622 | ) | (812 | ) | (369 | ) | |||
| Pension and postretirement | |||||||||
| Beginning balance | (746 | ) | (952 | ) | (1,162 | ) | |||
| Actuarial gains (losses) deferred during the period | (315 | ) | (310 | ) | 315 | ||||
| Amortization of deferred actuarial losses into earnings | 109 | 100 | 135 | ||||||
| Reclassified to gain/loss on sale of businesses | — | — | 50 | ||||||
| Ending balance | (952 | ) | (1,162 | ) | (662 | ) | |||
| Cash flow hedges | |||||||||
| Beginning balance | — | (43 | ) | (25 | ) | ||||
| Gains (Losses) deferred during the period | (66 | ) | (30 | ) | 34 | ||||
| Reclassifications of realized (gains) losses to sales and cost of sales | 23 | 48 | 3 | ||||||
| Ending balance | (43 | ) | (25 | ) | 12 | ||||
| Accumulated other comprehensive income (loss) | $ | (1,617 | ) | (1,999 | ) | (1,019 | ) | ||
| INTELLIGENT DEVICES | SOFTWARE AND CONTROL | |||||||||||||
•Final Control | •Control Systems & Software | |||||||||||||
•Measurement & Analytical | •AspenTech | |||||||||||||
•Discrete Automation | ||||||||||||||
•Safety & Productivity | ||||||||||||||
The new segments were previously described as follows: deferral of pension and postretirement actuarial gains (losses): $(170), $159 and $192; amortization of pension and postretirement deferred actuarial losses: $(75), $(59) and $(59); deferral of cash flow hedging gains (losses): $(21), $17 and $38; reclassification of realized cash flow hedging (gains) losses: $(2), $(28) and $(13).
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Software product offering; and, AspenTech remains unchanged. The AspenTech segment was identified in the third quarter of fiscal 2022 as a result of the businessesHeritage AspenTech acquisition and reflects the combined results of Heritage AspenTech and the Emerson Industrial Software Business (see Note 4 for further details). The results for this new segment include the historical results of the Emerson Industrial Software Business (which were previously reported in the CommercialControl Systems & Residential SolutionsSoftware segment), while results related to the Heritage AspenTech business only include periods subsequent to the close of the transaction. Prior year amounts have been reclassified to conform to the current year presentation.
The Final Control segment in fiscal 2016 and 2015.
The Measurement & Analytical segment is a leading supplier of intelligent instrumentation measuring the physical properties of liquids or gases, such as pressure, temperature, level, flow, acoustics, corrosion, pH, conductivity, water quality, toxic gases, and flame. The instrumentation transfers data to control systems and automation software, allowing process fluids, smart actuation and hybrid industry operators to make educated decisions regarding production, reliability and safety.
The Discrete Automation segment includes solenoid valves, pneumatic valves, valve position indicators, pneumatic cylinders and actuators, air preparation equipment, pressure and temperature switches, electric linear motion solutions, programmable automation control technologies, pressure management products,systems and industrial and residential regulators that reduce the pressure of fluids moving from high-pressure supply lines into lower pressure systems.
The Control Systems & Software segment provides control systems and wet-dry vacuums.software that control plant processes by collecting and analyzing information from measurement devices in the plant and using that information to adjust valves, pumps, motors, drives and other control hardware for maximum product quality, process efficiency and safety. These solutions include distributed control systems, safety instrumented systems, SCADA systems, application software, digital twins, asset performance management and cybersecurity. Control Systems & Software solutions are predominantly used by process and hybrid manufacturers.
AspenTech is a global leader in asset optimization software that enables industrial manufacturers to design, operate, and maintain their operations for maximum performance. AspenTech combines decades of modeling, simulation, and optimization capabilities with industrial operations expertise and applies advanced analytics to improve the profitability and sustainability of production assets. The purpose-built software drives value for customers by improving operational efficiency and maximizing productivity, reducing unplanned downtime and safety risks, and minimizing energy consumption and emissions.
The principal distribution method for each segment is direct sales forces, although the Company also uses independent sales representatives and distributors. Due to its global presence, certain of the Company's international operations are subject to risks including the stability of governments and business conditions in foreign countries which could result in adverse changes in exchange rates, changes in regulationregulations or disruption of operations.
The primary income measure used for assessing segment performance and making operating decisions is earnings before interest and income taxes. Intersegment selling prices approximate market prices. Accounting method differences between segment reportingCertain expenses are reported at Corporate, including stock compensation expense and the consolidated financial statements are primarily management fees allocated to segments based on a percentageportion of sales and the accounting for pension and other retirement plans.postretirement benefit costs. Corporate and other includes unallocated corporate operations, stock compensation expense,expenses, acquisition/divestiture costs, first year acquisition accounting charges (which include fair value adjustments related coststo inventory, backlog and deferred revenue) and other items. Corporate assets are primarily comprised of cash and cash equivalents, investments, and certain fixed assets.assets and assets held-for-sale. Summarized below is information about the Company's operations by business segment and by geography.
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Business Segments
| Sales | Earnings (Loss) | Total Assets | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2022 | 2023 | 2021 | 2022 | 2023 | 2021 | 2022 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||
| Final Control | $ | 3,488 | 3,607 | 3,970 | $ | 432 | 592 | 865 | $ | 5,245 | 4,805 | 5,614 | |||||||||||||||||||||||||||||||||||||||||
| Measurement & Analytical | 3,078 | 3,215 | 3,595 | 684 | 785 | 936 | 4,410 | 4,395 | 3,976 | ||||||||||||||||||||||||||||||||||||||||||||
| Discrete Automation | 2,474 | 2,612 | 2,635 | 457 | 542 | 509 | 2,405 | 2,284 | 2,493 | ||||||||||||||||||||||||||||||||||||||||||||
| Safety & Productivity | 1,340 | 1,402 | 1,388 | 256 | 250 | 306 | 1,163 | 1,125 | 1,238 | ||||||||||||||||||||||||||||||||||||||||||||
| Intelligent Devices | 10,380 | 10,836 | 11,588 | 1,829 | 2,169 | 2,616 | 13,223 | 12,609 | 13,321 | ||||||||||||||||||||||||||||||||||||||||||||
| Control Systems & Software | 2,321 | 2,398 | 2,606 | 382 | 437 | 529 | 1,674 | 1,700 | 2,151 | ||||||||||||||||||||||||||||||||||||||||||||
| AspenTech | 319 | 656 | 1,042 | (7) | 12 | (107) | 2,089 | 14,484 | 14,048 | ||||||||||||||||||||||||||||||||||||||||||||
| Software and Control | 2,640 | 3,054 | 3,648 | 375 | 449 | 422 | 3,763 | 16,184 | 16,199 | ||||||||||||||||||||||||||||||||||||||||||||
| Corporate items: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock compensation | (197) | (125) | (250) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Unallocated pension and postretirement costs | 94 | 99 | 171 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate and other (includes assets held-for-sale) | (184) | (419) | (224) | 7,729 | 6,879 | 13,226 | |||||||||||||||||||||||||||||||||||||||||||||||
| Gain on subordinated interest | — | 453 | 161 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Loss on Copeland equity method investment | — | — | (177) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Eliminations/Interest | (88) | (86) | (71) | (155) | (194) | (34) | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest income from related party | — | — | 41 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 12,932 | 13,804 | 15,165 | $ | 1,762 | 2,432 | 2,726 | $ | 24,715 | 35,672 | 42,746 | |||||||||||||||||||||||||||||||||||||||||
| Sales | Earnings | Total Assets | |||||||||||||||||||||||||||
| 2015 | 2016 | 2017 | 2015 | 2016 | 2017 | 2015 | 2016 | 2017 | |||||||||||||||||||||
| Automation Solutions | $ | 10,153 | 8,977 | 9,418 | $ | 1,846 | 1,456 | 1,522 | $ | 8,817 | 8,759 | 12,581 | |||||||||||||||||
| Climate Technologies | 4,006 | 3,944 | 4,212 | 835 | 902 | 975 | 2,455 | 2,489 | 2,547 | ||||||||||||||||||||
| Tools & Home Products | 1,625 | 1,611 | 1,645 | 364 | 384 | 383 | 817 | 809 | 830 | ||||||||||||||||||||
| Commercial & Residential Solutions | 5,631 | 5,555 | 5,857 | 1,199 | 1,286 | 1,358 | 3,272 | 3,298 | 3,377 | ||||||||||||||||||||
| Divested businesses (a) | 477 | — | — | 58 | — | — | — | — | — | ||||||||||||||||||||
| Differences in accounting methods | 174 | 189 | 148 | ||||||||||||||||||||||||||
| Corporate and other (b) | 705 | (427 | ) | (528 | ) | 9,999 | 9,675 | 3,631 | |||||||||||||||||||||
| Eliminations/Interest | (12 | ) | (10 | ) | (11 | ) | (175 | ) | (188 | ) | (165 | ) | |||||||||||||||||
| Total | $ | 16,249 | 14,522 | 15,264 | $ | 3,807 | 2,316 | 2,335 | $ | 22,088 | 21,732 | 19,589 | |||||||||||||||||
| Depreciation and Amortization | Capital Expenditures | ||||||||||||||||||||||||||||||||||
| 2021 | 2022 | 2023 | 2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||
| Final Control | $ | 210 | 212 | 170 | $ | 73 | 62 | 93 | |||||||||||||||||||||||||||
| Measurement & Analytical | 128 | 117 | 121 | 130 | 90 | 93 | |||||||||||||||||||||||||||||
| Discrete Automation | 96 | 88 | 84 | 100 | 68 | 56 | |||||||||||||||||||||||||||||
| Safety & Productivity | 60 | 57 | 57 | 59 | 27 | 35 | |||||||||||||||||||||||||||||
| Intelligent Devices | 494 | 474 | 432 | 362 | 247 | 277 | |||||||||||||||||||||||||||||
| Control Systems & Software | 103 | 93 | 90 | 17 | 27 | 33 | |||||||||||||||||||||||||||||
| AspenTech | 95 | 242 | 492 | 6 | 4 | 6 | |||||||||||||||||||||||||||||
| Software and Control | 198 | 335 | 582 | 23 | 31 | 39 | |||||||||||||||||||||||||||||
| Corporate and other | 70 | 33 | 37 | 19 | 21 | 47 | |||||||||||||||||||||||||||||
| Total | $ | 762 | 842 | 1,051 | $ | 404 | 299 | 363 | |||||||||||||||||||||||||||
Depreciation and amortization includes intellectual property, customer relationships and capitalized software.
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| 2015 | 2016 | 2017 | ||||||||
| Measurement & Analytical Instrumentation | $ | 3,619 | 3,137 | 3,070 | ||||||
| Valves, Actuators & Regulators | 2,559 | 2,137 | 2,668 | |||||||
| Industrial Solutions | 1,779 | 1,621 | 1,680 | |||||||
| Process Control Systems & Solutions | 2,196 | 2,082 | 2,000 | |||||||
| Total | $ | 10,153 | 8,977 | 9,418 | ||||||
Depreciation and Amortization | Capital Expenditures | ||||||||||||||||||
| 2015 | 2016 | 2017 | 2015 | 2016 | 2017 | ||||||||||||||
| Automation Solutions | $ | 311 | 330 | 400 | $ | 298 | 246 | 234 | |||||||||||
| Climate Technologies | 149 | 150 | 156 | 154 | 133 | 182 | |||||||||||||
| Tools & Home Products | 42 | 44 | 45 | 46 | 44 | 45 | |||||||||||||
| Commercial & Residential Solutions | 191 | 194 | 201 | 200 | 177 | 227 | |||||||||||||
| Corporate and other | 71 | 44 | 35 | 90 | 24 | 15 | |||||||||||||
| Total | $ | 573 | 568 | 636 | $ | 588 | 447 | 476 | |||||||||||
Geographic Information
| Sales by Destination | Property, Plant and Equipment | ||||||||||||||||||
| 2015 | 2016 | 2017 | 2015 | 2016 | 2017 | ||||||||||||||
| United States and Canada | $ | 8,370 | 7,505 | 7,854 | $ | 1,756 | 1,780 | 1,852 | |||||||||||
| Asia | 3,363 | 2,926 | 3,253 | 481 | 459 | 525 | |||||||||||||
| Europe | 2,381 | 2,300 | 2,434 | 426 | 435 | 626 | |||||||||||||
| Latin America | 981 | 834 | 767 | 216 | 203 | 203 | |||||||||||||
| Middle East/Africa | 1,154 | 957 | 956 | 50 | 54 | 115 | |||||||||||||
| Total | $ | 16,249 | 14,522 | 15,264 | $ | 2,929 | 2,931 | 3,321 | |||||||||||
| 2021 | 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Americas | AMEA | Europe | Total | Americas | AMEA | Europe | Total | |||||||||||||||||||||||||||||||||||||||||||
| Measurement & Analytical | $ | 1,338 | 1,181 | 559 | 3,078 | $ | 1,529 | 1,199 | 487 | 3,215 | ||||||||||||||||||||||||||||||||||||||||
| Final Control | 1,504 | 1,385 | 599 | 3,488 | 1,706 | 1,373 | 528 | 3,607 | ||||||||||||||||||||||||||||||||||||||||||
| Discrete Automation | 1,084 | 700 | 690 | 2,474 | 1,217 | 732 | 663 | 2,612 | ||||||||||||||||||||||||||||||||||||||||||
| Safety & Productivity | 992 | 66 | 282 | 1,340 | 1,057 | 71 | 274 | 1,402 | ||||||||||||||||||||||||||||||||||||||||||
| Intelligent Devices | 4,918 | 3,332 | 2,130 | 10,380 | 5,509 | 3,375 | 1,952 | 10,836 | ||||||||||||||||||||||||||||||||||||||||||
| AspenTech | 200 | 60 | 59 | 319 | 362 | 140 | 154 | 656 | ||||||||||||||||||||||||||||||||||||||||||
| Control Systems & Software | 1,042 | 721 | 558 | 2,321 | 1,170 | 745 | 483 | 2,398 | ||||||||||||||||||||||||||||||||||||||||||
| Software and Control | 1,242 | 781 | 617 | 2,640 | 1,532 | 885 | 637 | 3,054 | ||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 6,160 | 4,113 | 2,747 | 13,020 | $ | 7,041 | 4,260 | 2,589 | 13,890 | ||||||||||||||||||||||||||||||||||||||||
| 2023 | |||||||||||||||||||||||||||||
| Americas | AMEA | Europe | Total | ||||||||||||||||||||||||||
| Measurement & Analytical | $ | 1,847 | 1,222 | 526 | 3,595 | ||||||||||||||||||||||||
| Final Control | 1,949 | 1,481 | 540 | 3,970 | |||||||||||||||||||||||||
| Discrete Automation | 1,234 | 720 | 681 | 2,635 | |||||||||||||||||||||||||
| Safety & Productivity | 1,049 | 70 | 269 | 1,388 | |||||||||||||||||||||||||
| Intelligent Devices | 6,079 | 3,493 | 2,016 | 11,588 | |||||||||||||||||||||||||
| AspenTech | 470 | 286 | 286 | 1,042 | |||||||||||||||||||||||||
| Control Systems & Software | 1,259 | 818 | 529 | 2,606 | |||||||||||||||||||||||||
| Software and Control | 1,729 | 1,104 | 815 | 3,648 | |||||||||||||||||||||||||
| Total | $ | 7,808 | 4,597 | 2,831 | 15,236 | ||||||||||||||||||||||||
Sales in the U.S. were $7,273, $6,940$6,327, $5,671 and $7,608$4,982 for 2017, 20162023, 2022 and 2015,2021, respectively, while Asia, Middle East & Africa includes sales in China of $1,540, $1,320$1,804, $1,824 and $1,575$1,662 in those years. Assets
| Property, Plant and Equipment | ||||||||||||||||||||
| 2021 | 2022 | 2023 | ||||||||||||||||||
| Americas | $ | 1,422 | 1,373 | 1,442 | ||||||||||||||||
| Asia, Middle East & Africa | 448 | 398 | 428 | |||||||||||||||||
| Europe | 574 | 468 | 493 | |||||||||||||||||
| Total | $ | 2,444 | 2,239 | 2,363 | ||||||||||||||||
Property, plant and equipment located in the U.S. were $1,840was $1,261 in 2017, $1,7722023, $1,219 in 20162022 and $1,746$1,273 in 2015.2021.
(21) OTHER FINANCIAL DATA
Items reported in earnings from continuing operations during the years ended September 30 included the following:
| 2021 | 2022 | 2023 | |||||||||||||||
| Research and development expense | $ | 347 | 385 | 523 | |||||||||||||
| Rent expense | $ | 199 | 187 | 210 | |||||||||||||
| 2015 | 2016 | 2017 | |||||||
| Research and development expense | $ | 336 | 320 | 340 | |||||
| Depreciation expense | $ | 399 | 391 | 414 | |||||
| Rent expense | $ | 287 | 273 | 289 | |||||
The components of depreciation and amortization expense reported for the years ended September 30 included the following:
| 2021 | 2022 | 2023 | |||||||||||||||
| Depreciation expense | $ | 330 | 312 | 287 | |||||||||||||
| Amortization of intangibles (includes $57, $108 and $196 reported in Cost of Sales in 2021, 2022 and 2023, respectively) (a) | 334 | 444 | 678 | ||||||||||||||
| Amortization of capitalized software | 98 | 86 | 86 | ||||||||||||||
| Total | $ | 762 | 842 | 1,051 | |||||||||||||
(a) Amortization of intangibles includes $397 and office equipment, $148 related to the Heritage AspenTech acquisition for 2023 and various other items under operating lease agreements. Minimum annual rentals under noncancelable long-term leases, exclusive of maintenance, taxes, insurance2022, respectively, and other operating costs, will approximate $171 in 2018, $125 in 2019, $81 in 2020, $49 in 2021 and $31$14 that is reported as a restructuring related cost in 2022. Backlog amortization of $30 related to the OSI acquisition is included in 2021.
Items reported in other noncurrent assets included the following:
| 2022 | 2023 | ||||||||||
| Pension assets | $ | 868 | 995 | ||||||||
| Operating lease right-of-use assets | $ | 439 | 550 | ||||||||
| Unbilled receivables (contract assets) | $ | 428 | 559 | ||||||||
| Deferred income taxes | $ | 85 | 100 | ||||||||
| Asbestos-related insurance receivables | $ | 68 | 53 | ||||||||
Items reported in accrued expenses included the following:
| 2022 | 2023 | ||||||||||
| Customer advances (contract liabilities) | $ | 751 | 861 | ||||||||
| Employee compensation | $ | 523 | 618 | ||||||||
| Operating lease liabilities (current) | $ | 128 | 144 | ||||||||
| Product warranty | $ | 84 | 84 | ||||||||
| 2016 | 2017 | |||||
| Employee compensation | $ | 431 | 531 | |||
| Customer advanced payments | $ | 433 | 505 | |||
| Product warranty | $ | 106 | 120 | |||
Other liabilities are summarized as follows:
| 2022 | 2023 | ||||||||||
| Deferred income taxes | $ | 1,714 | 1,959 | ||||||||
| Pension and postretirement liabilities | 427 | 435 | |||||||||
| Operating lease liabilities (noncurrent) | 312 | 404 | |||||||||
| Asbestos litigation | 205 | 173 | |||||||||
| Other | 495 | 535 | |||||||||
| Total | $ | 3,153 | 3,506 | ||||||||
| 2016 | 2017 | |||||
| Pension and postretirement liabilities | $ | 1,037 | 664 | |||
| Deferred income taxes | 210 | 425 | ||||
| Asbestos litigation | 52 | 340 | ||||
| Other | 430 | 546 | ||||
| Total | $ | 1,729 | 1,975 | |||
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| 2015 | 2016 | 2017 | |||||||
| Pension expense | $ | 153 | 95 | 127 | |||||
| Stock compensation expense | 24 | 145 | 110 | ||||||
| Deferred income taxes and other | 19 | 45 | 27 | ||||||
| Total | $ | 196 | 285 | 264 | |||||
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Full Year | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Full Year | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 3,337 | 3,216 | 3,579 | 3,574 | 3,674 | 4,039 | 3,932 | 4,435 | 14,522 | 15,264 | Net sales | $ | 3,156 | 3,373 | 3,291 | 3,756 | 3,465 | 3,946 | 3,892 | 4,090 | 13,804 | 15,165 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross profit | $ | 1,414 | 1,365 | 1,542 | 1,557 | 1,593 | 1,678 | 1,713 | 1,804 | 6,262 | 6,404 | Gross profit | $ | 1,415 | 1,620 | 1,476 | 1,801 | 1,586 | 1,994 | 1,829 | 2,012 | 6,306 | 7,427 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings from continuing operations common stockholders | $ | 303 | 364 | 367 | 376 | 441 | 407 | 479 | 496 | 1,590 | 1,643 | Earnings from continuing operations common stockholders | $ | 746 | 329 | 428 | 530 | 226 | 592 | 486 | 701 | 1,886 | 2,152 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net earnings common stockholders | $ | 349 | 309 | 369 | 292 | 479 | 413 | 438 | 504 | 1,635 | 1,518 | Net earnings common stockholders | $ | 896 | 2,331 | 674 | 792 | 921 | 9,352 | 740 | 744 | 3,231 | 13,219 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings per common share from continuing operations: | Earnings per common share from continuing operations: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basic | $ | 0.47 | 0.56 | 0.57 | 0.58 | 0.68 | 0.63 | 0.74 | 0.77 | 2.46 | 2.54 | Basic | $ | 1.25 | 0.56 | 0.72 | 0.93 | 0.38 | 1.04 | 0.82 | 1.23 | 3.17 | 3.74 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Diluted | $ | 0.46 | 0.56 | 0.57 | 0.58 | 0.68 | 0.63 | 0.74 | 0.77 | 2.45 | 2.54 | Diluted | $ | 1.25 | 0.56 | 0.72 | 0.92 | 0.38 | 1.03 | 0.82 | 1.22 | 3.16 | 3.72 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net earnings per common share: | Net earnings per common share: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basic | $ | 0.54 | 0.48 | 0.57 | 0.45 | 0.74 | 0.64 | 0.68 | 0.78 | 2.53 | 2.35 | Basic | $ | 1.51 | 3.99 | 1.13 | 1.39 | 1.55 | 16.36 | 1.25 | 1.30 | 5.44 | 23.00 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Diluted | $ | 0.53 | 0.48 | 0.57 | 0.45 | 0.74 | 0.64 | 0.68 | 0.78 | 2.52 | 2.35 | Diluted | $ | 1.50 | 3.97 | 1.13 | 1.38 | 1.54 | 16.28 | 1.24 | 1.29 | 5.41 | 22.88 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends per common share | $ | 0.475 | 0.48 | 0.475 | 0.48 | 0.475 | 0.48 | 0.475 | 0.48 | 1.90 | 1.92 | Dividends per common share | $ | 0.515 | 0.520 | 0.515 | 0.520 | 0.515 | 0.520 | 0.515 | 0.520 | 2.06 | 2.08 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock prices: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| High | $ | 51.47 | 58.28 | 55.54 | 64.36 | 56.82 | 61.63 | 56.72 | 64.18 | 56.82 | 64.36 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Low | $ | 42.21 | 49.22 | 41.25 | 55.40 | 48.45 | 56.77 | 50.41 | 57.81 | 41.25 | 49.22 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings per share are computed independently each period; as a result, the quarterly amounts may not sum to the calculated annual figure.
Emerson Electric Co. common stock (symbol EMR) is listed on the New York Stock Exchange and NYSE Chicago.
(23) SUBSEQUENT EVENTS
On October 11, 2023, the Chicago Stock Exchange.Company completed the acquisition of National Instruments Corporation (“NI”) for $60 per share in cash at an equity value of $8.2 billion. The effective price per share is $59.61 considering shares previously acquired by Emerson. NI, which provides software-connected automated test and measurement systems that enable enterprises to bring products to market faster and at a lower cost, had revenues of approximately $1.7 billion and pretax earnings of approximately $170 for the 12 months ended September 30, 2023. NI will be referred to as Test & Measurement and reported as a new segment in the Software and Control business group in 2024. The initial accounting for this transaction is not yet complete.
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Report of Independent Registered Public Accounting Firm
Emerson Electric Co.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Emerson Electric Co. and subsidiaries (the Company) as of September 30, 20172023 and 2016, and2022, the related consolidated statements of earnings, comprehensive income, equity, and cash flows for each of the years in the three-year period ended September 30, 2017.2023, and the related notes (collectively, the consolidated financial statements). We also have audited Emerson Electric Co.'sthe Company’s internal control over financial reporting as of September 30, 2017,2023, based on criteria established in Internal Control -– Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Emerson Electric Co.'sCommission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2023, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2023 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control overOver Financial Reporting.Reporting. Our responsibility is to express an opinion on thesethe Company’s consolidated financial statements and an opinion on the Company'sCompany’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company'scompany’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company'scompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company'scompany’s assets that could have a material effect on the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The critical audit matter communicated below is a matter arising from the assessment represented approximately 20 percent and 4 percent, respectively, of the Company's related consolidated financial statement amounts as of and for the year ended September 30, 2017. Ourcurrent period audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of the acquired business.
Sufficiency of Emerson Electric Co.Audit Evidence over Net Sales
As discussed in Notes 1, 2 and subsidiaries20 to the Company’s consolidated financial statements, and disclosed in the consolidated statement of earnings, the Company recorded $15.2 billion of net sales in 2023.
We identified the evaluation of the sufficiency of audit evidence over net sales as a critical audit matter. Net sales are recognized primarily from the sale of September 30, 2017 and 2016,tangible products from hundreds of Company locations around the world. Evaluating the sufficiency of audit evidence obtained required especially subjective auditor judgment because of the geographical dispersion of the Company’s net sales generating activities. This included determining the Company locations at which procedures were performed and the resultssupervision and review of its operationsprocedures performed at those locations.
The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgment to determine the nature and its cash flows for eachextent of procedures to be performed over net sales, including the determination of the years inCompany locations at which those procedures were to be performed. At each Company location where procedures were performed, we:
•Evaluated the three-year period ended September 30, 2017, in conformitydesign and tested the operating effectiveness of certain internal controls over the Company’s net sales processes, including the Company’s controls over the accurate recording of amounts.
•Assessed the recorded net sales by selecting a sample of transactions and compared the amounts recognized for consistency with U.S. generally accepted accounting principles. Also inunderlying documentation, including contracts with customers and shipping documentation.
| /s/ | KPMG LLP | |||||||||||||
We or our opinion, Emerson Electric Co. maintained, in all material respects, effective internal control over financial reportingpredecessor firms have served as of September 30, 2017,
St. Louis, Missouri
November 20, 201713, 2023
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A - CONTROLS AND PROCEDURES
The Company maintains a system of disclosure controls and procedures which is designed to ensure that information required to be disclosed by the Company in the reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and is accumulated and communicated to management, including the Company’s certifying officers, as appropriate to allow timely decisions regarding required disclosure. Based on an evaluation performed, the Company's certifying officers have concluded that the disclosure controls and procedures were effective as of September 30, 20172023 to provide reasonable assurance of achieving these objectives.
Notwithstanding the foregoing, there can be no assurance that the Company's disclosure controls and procedures will detect or uncover all failures of persons within the Company and its consolidated subsidiaries to report material information otherwise required to be set forth in the Company's reports. There was no change in the Company's internal control over financial reportingreporting during the quarter ended September 30, 2017,2023, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
In the fourth quarter, AspenTech implemented a new revenue management system and consequently, modified the design of certain internal controls within their revenue process.
Management’s report on internal control over financial reporting, and the related report of the Company’s auditor, KPMG LLP, an independent registered public accounting firm, set forth in Item 7 and Item 8, respectively, of this Annual Report on Form 10-K, are hereby incorporated by reference.
ITEM 9B - OTHER INFORMATION
ITEM 9C - DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding nominees and directors appearing under "Proxy Item No. 1: Election of Directors" in the Emerson Electric Co. Notice of Annual Meeting of Shareholders and Proxy Statement for the February 20182024 annual shareholders' meeting (the "2018"2024 Proxy Statement") is hereby incorporated by reference. Information regarding executive officers is set forth in Part I of this report. Information appearing under "Section 16(a) Beneficial Ownership Reporting Compliance" in the 2018 Proxy Statement is hereby incorporated by reference. Information regarding the Audit Committee and Audit Committee Financial Expert appearing under "Board and Committee Operations - Operations—Board and Corporate Governance -Governance— Committees of Our Board of Directors," "Board and Committee Operations - Operations—Corporate Governance and Nominating Committee - Committee—Nomination Process" and "-"— Proxy Access" in the 20182024 Proxy Statement is hereby incorporated by reference.
The Company has adopted a Code of Ethics that applies to the Company's Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer; has posted such Code of Ethics on its website; and intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K by posting such information on its website. The Company has adopted Charters for its Audit Committee, Compensation Committee, and Corporate Governance and Nominating Committee and a Code of Business Ethics for directors, officers and employees, which are available on its website and in print to any stockholder who requests them. The Company has also adopted Corporate Governance Principles and Practices, which are available on its website and in print to any stockholder who requests them. The Corporate Governance section of the Company's website may be accessed as follows: www.Emerson.com, Investors, Corporate Governance.
74
ITEM 11 - EXECUTIVE COMPENSATION
Information appearing under “Executive Compensation" (including the information set forth under "Compensation Discussion and Analysis"), "Compensation Tables,"Tables" (other than "Pay vs. Performance"), "Board and Committee Operations—Corporate Governance and Nominating Committee—Director Compensation," "Board and Committee Operations—Compensation Committee" (including, but not limited to, the information set forth under "Role of Executive Officers and the Compensation Consultant" andConsultant," "Compensation Committee Report") and "Compensation Committee Interlocks and Insider Participation") in the 20182024 Proxy Statement is hereby incorporated by reference.
The information contained in “Compensationthe "Compensation Committee Report” shall not be deemed to be filed with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), except to the extent that the Company specifically incorporates such information into future filings under the Securities Act of 1933 or the Exchange Act.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information regarding beneficial ownership of shares by nominees and continuing directors, named executive officers, five percent beneficial owners, and by all directors and executive officers as a group appearing under "Ownership of Emerson Equity Securities" in the 20182024 Proxy Statement is hereby incorporated by reference.
The following table sets forth aggregate information regarding the Company’s equity compensation plans as of September 30, 2017:2023:
Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | |||||||||||||||||||||||||||||||||||||||||
| Plan Category | (a) | (b) | (c) | Plan Category | (a) | (b) | (c) | |||||||||||||||||||||||||||||||||||||||
Equity compensation plans approved by security holders (1) | 15,428,415 | $55.49 | 24,580,373 | Equity compensation plans approved by security holders (1) | 6,056,000 | $53.35 | 2,747,000 | |||||||||||||||||||||||||||||||||||||||
Equity compensation plans not approved by security holders | — | — | — | Equity compensation plans not approved by security holders | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Total | 15,428,415 | $55.49 | 24,580,373 | Total | 6,056,000 | $53.35 | 2,747,000 | |||||||||||||||||||||||||||||||||||||||
(1)Includes the Stock Option and Incentive Shares Plans previously approved by the Company's security holders. Shares included in column (a) assume the maximum payouts, where applicable, and are as follows: (i) 589,000 shares reserved for outstanding stock option awards, (ii) 1,414,000 shares reserved for performance share awards granted in 2023, (iii) 1,346,000 shares reserved for performance share awards granted in 2022, (iv) 2,129,000 shares reserved for performance share awards granted in 2021 and (v) 578,000 shares reserved for outstanding restricted stock unit awards. As provided by the Company’s Incentive Shares Plans, performance shares awards represent a commitment to issue such shares without cash payment by the employee, contingent upon achievement of the performance objectives and continued service by the employee.
The price in column (b) represents the weighted-average exercise price for outstanding options. Included in column (c) are shares remaining available for award under previously approved plans as follows: (i) 11,483,140 under the 2011 Stock Option Plan, (ii) 10,481,9002,001,000 under the 2015 Incentive Shares Plan, (iii) 2,440,978(ii) 689,000 under the 2006 Incentive Shares Plan, and (iv) 174,355(iii) 57,000 under the Restricted Stock Plan for Non-Management Directors.
Information regarding stock option plans and incentive shares plans is set forth in Note 15.17.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information appearing under “Board and Committee Operations—Board and Corporate Governance—Review, Approval or Ratification of Transactions with Related Persons," "—Certain Business Relationships and Related
75
Party Transactions" and "—Director Independence" in the 20182024 Proxy Statement is hereby incorporated by reference.
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information appearing under "Board and Committee Operations—Audit Committee—Fees Paid to KPMG LLP" in the 20182024 Proxy Statement is hereby incorporated by reference.
PART IV
ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A) Documents filed as a part of this report:
1. The consolidated financial statements and accompanying notes of the Company and subsidiaries and the report thereon of KPMG LLP set forth in Item 8 of this Annual Report on Form 10-K.
2. Financial Statement Schedules - All schedules are omitted because they are not required, not applicable or the required information is provided in the financial statements or notes thereto contained in this Annual Report on Form 10-K.
3. Exhibits (Listed by numbers corresponding to the Exhibit Table of Item 601 in Regulation S-K). 2(a)** Transaction Agreement and Plan of Merger, dated as of October 10, 2021, among Emerson Electric Co., Aspen Technology, Inc., EMR Worldwide, Inc., Emersub CX, Inc. and Emersub CXI, Inc., incorporated by reference to the Company’s Form 8-K, filed on October 12, 2021, File No. 1-278, Exhibit 2.1. 2(b) Amendment No. 1 to the Transaction Agreement and Plan of Merger, dated as of March 23, 2022, among Emerson Electric Co., Aspen Technology, Inc., EMR Worldwide Inc., Emersub CX, Inc. and Emersub CXI, Inc., incorporated by reference to Emerson Electric Co. Form 10-Q for the quarter ended March 31, 2022, filed on May 4, 2022, File No. 1-278, Exhibit 2(b). 2(c)** Amendment No. 2 to the Transaction Agreement and Plan of Merger, dated as of May 3, 2022, among Emerson Electric Co., Aspen Technology, Inc., EMR Worldwide Inc., Emersub CX, Inc. and Emersub CXI, Inc., incorporated by reference to Emerson Electric Co. Form 10-Q for the quarter ended March 31, 2022, filed on May 4, 2022, File No. 1-278, Exhibit 2(c). 2(d)** Transaction Agreement, dated as of October 30, 2022, among Emerson Electric Co., BCP Emerald Aggregator L.P., Emerald Debt Merger Sub L.L.C and Emerald JV Holdings L.P, incorporated by reference to Emerson Electric Co. Form 8-K, filed on October 31, 2022, File No. 1-278, Exhibit 2.1. 2(e)** Agreement and Plan of Merger, dated as of April 12, 2023, among Emerson Electric Co., Emersub CXIV, Inc., and National Instruments Corporation*,incorporated by reference to the Company’s Form 8-K, filed on April 12, 2023, File No. 1-278, Exhibit 2.1. 3(a) Restated Articles of Incorporation of Emerson Electric Co., incorporated by reference to Emerson Electric Co. Form 10-Q for the quarter ended March 31, 2001, File No. 1-278, Exhibit 3(a); Termination of Designated Shares of Stock and Certificate of Designation, Preferences and Rights of Series B Junior Participating Preferred Stock, incorporated by reference to Emerson Electric Co. 1998 Form 10-K, File No. 1-278, Exhibit 3(a). 3(b) Bylaws of Emerson Electric Co., as amended through May 4, 2021, incorporated by reference to the Company's Form 8-K dated May 4, 2021, filed on May 4, 2021, File No. 1-278, Exhibit 3.1. 4(a) Indenture dated as of December 10, 1998, between Emerson Electric Co. and Computershare Trust Company, N.A., as successor to Wells Fargo Bank, National Association, as successor trustee to The Bank of New York Mellon Trust Company, N.A. (successor to The Bank of New York Mellon (formerly known as the Bank of New York)), as trustee, incorporated by reference to 76 |
Emerson Electric Co. 1998 Form 10-K, File No. 1-278, Exhibit 4(b), ***Form of 2.000% Notes due 2028, incorporated by reference to Emerson Electric Co. Form 8-K, filed on December 21, 2021, File No. 1-278, Exhibit 4.2, ***Form of 2.200% Notes due 2031, incorporated by reference to Emerson Electric Co. Form 8-K, filed on December 21, 2021, File No. 1-278, Exhibit 4.3, ***Form of 2.800% Notes due 2051, incorporated by reference to Emerson Electric Co. Form 8-K, filed on December 21, 2021, File No. 1-278, Exhibit 4.4.
4(b) Agreement of Resignation, Appointment and Acceptance dated as of April 26, 2019 by and among Emerson Electric Co., Computershare Trust Company, N.A., as successor to Wells Fargo Bank, National Association, as successor trustee, and The Bank of New York Mellon Trust Company, N.A., as resigning trustee, incorporated by reference to the Company's Form 8-K dated May 15, 2019, filed on May 17, 2019, File No. 1-278, Exhibit 4.4.
4(c)Description of Capital Stock incorporated by reference to Emerson Electric Co., 2020 Form 10-K, File No. 1-278, Exhibit 4(c).
4(d) Description of 0.375% Notes due 2024, 1.250% Notes due 2025 and 2.000% Notes due 2029, incorporated by reference to Emerson Electric Co., 2019 Form 10-K, File No. 1-278, Exhibit 4(d).
No other long-term debt instruments are filed since the total amount of securities authorized under any such instrument does not exceed 10 percent of the total assets of Emerson Electric Co. and its subsidiaries on a consolidated basis. Emerson Electric Co. agrees to furnish a copy of such instruments to the SEC upon request.
10(a)* Amended and Restated Emerson Electric Co. Continuing Compensation Plan for Non-Management Directors, incorporated by reference to Emerson Electric Co. 2007 Form 10-K, File No. 1-278, Exhibit 10(c).
10(b)* Amended and Restated Deferred Compensation Plan for Non-Employee Directors and Forms of Payment Election Form, Initial Notice of Election and Notice of Election Change, incorporated by reference to Emerson Electric Co. 2007 Form 10-K, File No. 1-278, Exhibit 10(d).
10(c)* First Amendment to the Emerson Electric Co. Supplemental Executive Retirement Plan, incorporated by reference to Emerson Electric Co. 1999 Form 10-K, File No. 1-278, Exhibit 10(h), and Form of Change of Control Election, incorporated by reference to Emerson Electric Co. Form 8-K dated October 1, 2004, Exhibit 10.9 (applicable only with respect to benefits vested as of December 31, 2004).
10(d)* Amended and Restated Emerson Electric Co. Pension Restoration Plan dated October 6, 2015, incorporated by reference to Emerson Electric Co. 2015 Form 10-K, File No. 1-278, Exhibit 10(e); Forms of Participation Award Letter, Acceptance of Award and Benefit Election Forms (applicable only with respect to benefits after January 1, 2005), incorporated by reference to Emerson Electric Co. 2007 Form 10-K, File No. 1-278, Exhibit 10(f); and Lump Sum Distribution Election Forms.
10(e)* Fifth Amendment to the Supplemental Executive Savings Investment Plan, incorporated by reference to Emerson Electric Co. Form 10-Q for the quarter ended March 31, 1999, File No. 1-278, Exhibit 10(j), and Form of Participation Agreement and Form of Annual Election, incorporated by reference to Emerson Electric Co. Form 8-K filed October 1, 2004, Exhibit 10.8 (applicable only with respect to benefits vested as of December 31, 2004).
10(f)* Amended and Restated Emerson Electric Co. Savings Investment Restoration Plan and Forms of Participation Agreement, Annual Election Form and Payment Election Form (applicable only with respect to benefits after January 1, 2005), incorporated by reference to Emerson Electric Co. 2007 Form 10-K, File No. 1-278, Exhibit 10(h), First Amendment to Emerson Electric Co. Savings Investment Restoration Plan, incorporated by reference to Emerson Electric Co. Form 10-Q for the quarter ended March 31, 2008, File No. 1-278, Exhibit 10.1 and Second Amendment to the Emerson Electric Co. Savings Investment Restoration Plan, incorporated by reference to Emerson Electric Co., Form 10-Q for the quarter ended March 31, 2020, File No. 1-278, Exhibit 10.2.
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10(g)* Amended and Restated Emerson Electric Co. Annual Incentive Plan and Form of Acceptance of Award, incorporated by reference to Emerson Electric Co. 2007 Form 10-K, File No. 1-278, Exhibit 10(i).
10(h)* Emerson Electric Co. Description of Split Dollar Life Insurance Program Transition, incorporated by reference to Emerson Electric Co. Form 8-K filed September 2, 2005, Exhibit 10.1.
10(i)* Amended and Restated Restricted Stock Plan for Non-Management Directors, incorporated by reference to Emerson Electric Co. Form 10-Q for the quarter ended December 31, 2009, File No. 1-278, Exhibit 10.1, Form of Restricted Stock Award Letter under the Emerson Electric Co. Restricted Stock Plan for Non-Management Directors, incorporated by reference to Emerson Electric Co. Form 8-K filed February 1, 2005, Exhibit 10.2, and Form of Restricted Stock Unit Award Letter under the Emerson Electric Co. Restricted Stock Plan for Non-Management Directors, incorporated by reference to Emerson Electric Co. Form 10-Q for the quarter ended December 31, 2009, File No. 1-278, Exhibit 10.1.
10(j)* Description of Non-Management Director Compensation, incorporated by reference to Emerson Electric Co. Form 10-K filed November 20, 2017, Exhibit 10(n).
10(k)* Description of Named Executive Officer Compensation, incorporated by reference to Emerson Electric Co. Form 10-K filed November 20, 2017, Exhibit 10(o).
10(l)* Emerson Electric Co. 2006 Incentive Shares Plan, incorporated by reference to Emerson Electric Co. 2006 Proxy Statement dated December 16, 2005, Appendix C, Amendment for 409A Compliance, incorporated by reference to Emerson Electric Co. 2007 Form 10-K, File No. 1-278, Exhibit 10(q), Forms of Performance Shares Award Certificate and Acceptance of Award (used on or prior to September 30, 2009) and Restricted Shares Award Agreement (used on or prior to September 30, 2011), incorporated by reference to Emerson Electric Co. 2007 Form 10-K, File No. 1-278, Exhibit 10(q), Amendment to Emerson Electric Co. 2006 Incentive Shares Plan, incorporated by reference to Emerson Electric Co. Form 10-Q for the quarter ended June 30, 2008, File No. 1-278, Exhibit 10.1, Forms of Performance Shares Award Certificate, Acceptance of Award and 2010 Performance Shares Program Award Summary, incorporated by reference to Emerson Electric Co. Form 10-Q for the quarter ended December 31, 2009 (used after September 30, 2009 and on or prior to September 30, 2011), File No. 1-278, Exhibit 10.2, Forms of Performance Shares Award Certificate and Acceptance of Award, incorporated by reference to Emerson Electric Co. Form 10-Q for the quarter ended December 31, 2011, File No. 1-278, Exhibit 10.3 (used after September 30, 2011), and Form of Restricted Shares Award Agreement, incorporated by reference to Emerson Electric Co. Form 10-Q for the quarter ended December 31, 2011, File No. 1-278, Exhibit 10.4 (used after September 30, 2011).
10(m) Credit Agreement dated as of February 17, 2023., incorporated by reference to the Company’s Form 8-K, filed on February 21, 2023, File No. 1-278, Exhibit 10.1.
10(n)* 2011 Stock Option Plan, incorporated by reference to Emerson Electric Co. 2011 Proxy Statement dated December 10, 2010, File No. 1-278, Appendix B, 2011 Stock Option Plan as Amended and Restated effective October 1, 2012, incorporated by reference to Emerson Electric Co. 2012 Form 10-K, File No. 1-278, Exhibit 10(r), Forms of Notice of Grant of Stock Options, Option Agreement and Incentive Stock Option Agreement under the 2011 Stock Option Plan, incorporated by reference to Emerson Electric Co. Form 10-Q for the quarter ended March 31, 2012, File No. 1-278, Exhibit 10.1 and Forms of Notice of Grant of Stock Options, Option Agreement and Nonqualified Stock Option Agreement under the 2011 Stock Option Plan, incorporated by reference to Emerson Electric Co. Form 10-Q for the quarter ended March 31, 2012, File No. 1-278, Exhibit 10.2.
10(o)* Emerson Electric Co. 2015 Incentive Shares Plan, incorporated by reference to Emerson Electric Co. 2015 Proxy Statement dated December 12, 2014, Appendix B, Forms of Performance Shares Award Certificate and Acceptance of Award (used on or prior to November 5, 2018), Performance Shares Program Award Summary (used on or prior to November 5, 2018) and Form of Restricted Shares Award Agreement (used on or prior to November 5, 2018), incorporated by reference to Emerson Electric Co. 2015 Form 10-K, File No. 1-278, Exhibit 10(u), Form of Restricted Shares
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Award Agreement (used after November 5, 2018), incorporated by reference to Emerson Electric Co. Form 10-Q for the quarter ended December 31, 2018, Exhibit 10.1, Form of Restricted Stock Units Program Acceptance of Award (used after November 5, 2018), incorporated by reference to Emerson Electric Co. Form 10-Q for the quarter ended December 31, 2018, Exhibit 10.2 and Form of Performance Share Program Acceptance of Award (used after November 5, 2018), incorporated by reference to Emerson Electric Co. Form 10-Q for the quarter ended December 31, 2018, Exhibit 10.3., Form of Emerson Electric Co. Performance Shares Program Award Agreement (used after November 1, 2021), incorporated by reference to Emerson Electric Co. Form 10-Q for the quarter ended December 31, 2021, File No. 1-278, Exhibit 10.2
10(p) Transaction Agreement dated as of July 29, 2016 among Emerson Electric Co., Cortes NP Holdings, LLC, Cortes NP Acquisition Corporation, ASCO Power Grp, LLC and Cortes NP JV Holdings, LLC, incorporated by reference to Emerson Electric Co. 2016 Form 10-K, File No. 1-278, Exhibit 10(w).
10(q)* Emerson Electric Co. Savings Investment Restoration Plan II, incorporated by reference to the Emerson Electric Co. Form 10-Q for the quarter ended June 30, 2018, File No. 1-278, Exhibit 10.1, Second Amendment to the Emerson Electric Co. Savings Investment Restoration Plan, incorporated by reference to Emerson Electric Co., Form 10-Q for the quarter ended March 31, 2020, File No. 1-278, Exhibit 10.2 and First Amendment to the Emerson Electric Co. Savings Investment Restoration Plan II, incorporated by reference to Emerson Electric Co., Form 10-Q for the quarter ended March 31, 2020, File No. 1-278, Exhibit 10.1.
10(r)* Letter Agreement dated November 16, 2022 between Emerson Electric Co. and Mark J. Bulanda, signed November 22, 2022., incorporated by reference to the Company’s Form 8-K, filed on November 28, 2022, File No. 1-278, Exhibit 10.1.
10(s)* Amended and Restated Deferred Compensation Plan for Non-Employee Directors and Forms of Payment Election Forms, incorporated by reference to the Emerson Electric Co. Form 10-Q for the quarter ended December 31, 2022, File No. 1-278, Exhibit 10(a).
10(t)* Amended and Restated Restricted Stock Plan for Non-Management Directors and Form of Restricted Stock Unit Award Letter under the Emerson Electric Co. Restricted Stock Plan for Non-Management Directors,incorporated by reference to the Emerson Electric Co. Form 10-Q for the quarter ended December 31, 2022, File No. 1-278, Exhibit 10(b).
10(v)* Letter Agreement dated May 2, 2023 between Emerson Electric Co. and Frank J. Dellaquila., incorporated by reference to the Company’s Form 8-K, filed on May 3, 2023, File No. 1-278, Exhibit 10.1.
101 Attached as Exhibit 101 to this report are the following documents formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Statements of Earnings for the years ended September 30, 2021, 2022 and 2023, (ii) Consolidated Statements of Comprehensive Income for the years ended September 30, 2021, 2022, and 2023 (iii) Consolidated Balance Sheets at September 30, 2022 and 2023, (iv) Consolidated Statements of Equity for the years ended September 30, 2021, 2022 and 2023, (v) Consolidated Statements of Cash Flows for the years
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ended September 30, 2021, 2022 and 2023, and (vi) Notes to Consolidated Financial Statements for the year ended September 30, 2023.
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Management contract or compensatory plan.
** Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. Emerson agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request. Portions of these exhibits have been redacted in compliance with Regulation S-K Item 601(b)(10).
*** The Company entered into two global notes for each series of notes (Notes A-1 and A-2), which are identical other than with respect to the note number
ITEM 16 - FORM 10-K SUMMARY
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| EMERSON ELECTRIC CO. | |||||||||||
| By | /s/ | ||||||||||
| Chief Financial Officer | |||||||||||
| November | |||||||||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on November 20, 2017,13, 2023, by the following persons on behalf of the registrant and in the capacities indicated.
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| Signature | Title | |||||||
| /s/ S. L. Karsanbhai | President and Chief Executive Officer | |||||||
| S. L. Karsanbhai | ||||||||
| /s/ M. J. Baughman | Executive Vice President, Chief Financial Officer and Chief Accounting Officer | |||||||
| M. J. Baughman | ||||||||
| * | Chair of the Board | |||||||
| J. S. Turley | ||||||||
| M. A. Blinn | ||||||||
| Director | ||||||||
| J. B. Bolten | ||||||||
| * | Director | |||||||
| * | Director | |||||||
| * | Director | |||||||
| * | Director | |||||||
| A. F. Golden | ||||||||
| * | Director | |||||||
| L. Goncalves | ||||||||
| * | Director | |||||||
| C. Kendle | ||||||||
| * | Director | ||||||||
| L. M. Lee | |||||||||
| * | Director | ||||||||
| M. S. Levatich | |||||||||
| * | Director | ||||||||
| J. M. McKelvey | |||||||||
| * By | /s/ | M. J. Baughman | |||||||||
| M. J. Baughman | |||||||||||
| Attorney-in-Fact | |||||||||||
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