EMERSON ELECTRIC CO. & SUBSIDIARIES
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows
EMERSON ELECTRIC CO. & SUBSIDIARIES
Three months endedMonths Ended December 31, 20162022 and 20172023
(Dollars in millions; unaudited) |
| | | | | | | |
| | Three Months Ended |
| | December 31, |
| | 2016 |
| | 2017 |
|
Operating activities | | | | |
Net earnings | | $ | 315 |
| | 394 |
|
Loss from discontinued operations, net of tax | | 55 |
| | — |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 143 |
| | 187 |
|
Changes in operating working capital | | (138 | ) | | (160 | ) |
Other, net | | 35 |
| | 26 |
|
Cash from continuing operations | | 410 |
| | 447 |
|
Cash from discontinued operations | | (172 | ) | | — |
|
Cash provided by operating activities | | 238 |
| | 447 |
|
| | | | |
Investing activities | | | | |
Capital expenditures | | (100 | ) | | (96 | ) |
Purchases of businesses, net of cash and equivalents acquired | | (16 | ) | | (513 | ) |
Divestitures of businesses | | — |
| | 235 |
|
Other, net | | (20 | ) | | (18 | ) |
Cash from continuing operations | | (136 | ) | | (392 | ) |
Cash from discontinued operations | | 3,894 |
| | — |
|
Cash provided by (used in) investing activities | | 3,758 |
| | (392 | ) |
| | | | |
Financing activities | | | | |
Net increase (decrease) in short-term borrowings | | (2,225 | ) | | 1,061 |
|
Payments of short-term borrowings greater than three months | | (90 | ) | | — |
|
Payments of long-term debt | | (251 | ) | | (251 | ) |
Dividends paid | | (311 | ) | | (311 | ) |
Purchases of common stock | | — |
| | (500 | ) |
Other, net | | (43 | ) | | (30 | ) |
Cash used in financing activities | | (2,920 | ) | | (31 | ) |
| | | | |
Effect of exchange rate changes on cash and equivalents | | (107 | ) | | 10 |
|
Increase in cash and equivalents | | 969 |
| | 34 |
|
Beginning cash and equivalents | | 3,182 |
| | 3,062 |
|
Ending cash and equivalents | | $ | 4,151 |
| | 3,096 |
|
| | | | |
Changes in operating working capital | | | | |
Receivables | | $ | 212 |
| | 216 |
|
Inventories | | (103 | ) | | (149 | ) |
Other current assets | | 10 |
| | (14 | ) |
Accounts payable | | (119 | ) | | (129 | ) |
Accrued expenses | | (162 | ) | | (166 | ) |
Income taxes | | 24 |
| | 82 |
|
Total changes in operating working capital | | $ | (138 | ) | | (160 | ) |
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | December 31, |
| | 2022 | | | 2023 | |
Operating activities | | | | |
Net earnings | | $ | 2,326 | | | 132 | |
Earnings from discontinued operations, net of tax | | (2,002) | | | — | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 260 | | | 422 | |
Stock compensation | | 102 | | | 74 | |
Amortization of acquisition-related inventory step-up | | — | | | 231 | |
Changes in operating working capital | | (289) | | | (247) | |
Other, net | | (95) | | | (168) | |
Cash from continuing operations | | 302 | | | 444 | |
Cash from discontinued operations | | 116 | | | (29) | |
Cash provided by operating activities | | 418 | | | 415 | |
| | | | |
Investing activities | | | | |
Capital expenditures | | (59) | | | (77) | |
Purchases of businesses, net of cash and equivalents acquired | | — | | | (8,339) | |
Proceeds from subordinated interest | | 15 | | | — | |
Other, net | | (23) | | | (37) | |
Cash from continuing operations | | (67) | | | (8,453) | |
Cash from discontinued operations | | 2,953 | | | 1 | |
Cash provided by (used in) investing activities | | 2,886 | | | (8,452) | |
| | | | |
Financing activities | | | | |
Net increase (decrease) in short-term borrowings | | (539) | | | 2,647 | |
Payments of long-term debt | | (9) | | | — | |
Dividends paid | | (306) | | | (300) | |
Purchases of common stock | | (2,000) | | | (175) | |
AspenTech purchases of common stock | | — | | | (72) | |
Other, net | | (41) | | | (45) | |
Cash provided by (used in) financing activities | | (2,895) | | | 2,055 | |
| | | | |
Effect of exchange rate changes on cash and equivalents | | 58 | | | 7 | |
Increase (decrease) in cash and equivalents | | 467 | | | (5,975) | |
Beginning cash and equivalents | | 1,804 | | | 8,051 | |
Ending cash and equivalents | | $ | 2,271 | | | 2,076 | |
| | | | |
Changes in operating working capital | | | | |
Receivables | | $ | 78 | | | 94 | |
Inventories | | (193) | | | (97) | |
Other current assets | | 14 | | | (3) | |
Accounts payable | | (58) | | | (89) | |
Accrued expenses | | (130) | | | (152) | |
Total changes in operating working capital | | $ | (289) | | | (247) | |
See accompanying Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
EMERSON ELECTRIC CO. & SUBSIDIARIES
(Dollars and shares in millions, except per share amounts or where noted)
| |
1. | In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary for a fair presentation of operating results for the interim periods presented. Adjustments consist of normal and recurring accruals. The consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all disclosures required for annual financial statements presented in conformity with U.S. generally accepted accounting principles (GAAP). For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2017. |
On December 22, 2017,(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary for a fair presentation of operating results for the interim periods presented. Adjustments consist of normal and recurring accruals. The consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all disclosures required for annual financial statements presented in conformity with U.S. government enacted tax reform,generally accepted accounting principles (GAAP). For further information, refer to the Tax Cutsconsolidated financial statements and Jobs Act (the “Act”)notes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2023.
(2) 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 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, while a smaller portion is recognized over time or relates to sales arrangements with multiple performance obligations. See Note 14 for additional information about the Company's revenues.
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. | | | | | | | | | | | | | | | | | |
| Sept 30, 2023 | | Dec 31, 2023 |
Unbilled receivables (contract assets) | | $ | 1,453 | | | | 1,502 | |
Customer advances (contract liabilities) | | (897) | | | | (1,225) | |
Net contract assets (liabilities) | | $ | 556 | | | | 277 | |
The majority of the Company's contract balances relate to (1) arrangements where revenue is recognized over time and payments from customers are made comprehensive changes to federal income tax laws by moving from a globalaccording to a modified territorial tax regime.contractual billing schedule, and (2) revenue from term software license arrangements where the license revenue is recognized upfront upon delivery. The Act includes a reduction of the U.S. corporate income tax rate from 35 percent to 21 percent along with the elimination of certain deductions and credits, and a one-time “deemed repatriation” of accumulated foreign earnings. In the first quarter, the Company recognized adecrease in net tax benefit of $43 ($0.07 per share)contract assets was primarily due to impactsthe acquisition of National Instruments, which increased contract liabilities by approximately $200, while customer billings slightly exceeded revenue recognized for performance completed during the Act, consisting of a $98 benefit on revaluation of net deferred income tax liabilities to the lower tax rate, and $185 of expenseperiod. Revenue recognized for the tax on deemed repatriation of accumulated foreign earnings and withholding taxes partially offset by $130 accruedthree months ended December 31, 2023 included $368 that was included in the beginning contract liability balance. Other factors that impacted the change in net contract assets were immaterial. Revenue recognized for the three months ended December 31, 2023 for performance obligations that were satisfied in previous periods, forincluding cumulative catchup adjustments on the planned repatriationCompany's long-term contracts, was immaterial.
As of non-U.S. cash. GivenDecember 31, 2023, the complexities associatedCompany's backlog relating to unsatisfied (or partially unsatisfied) performance obligations in contracts with its customers was approximately $8.8 billion (of which $1.2 billion was attributable to AspenTech and approximately $500 was attributable to the National Instruments acquisition). The Company expects to recognize approximately 75 percent of its remaining performance obligations as revenue over the next 12 months, with the Act,remainder substantially over the ultimate effects on repatriation cost and other tax items may differ materially from these provisional amounts due to additional regulatory guidance that may be issued and further evaluation of the Company’s actions, assumptions and interpretations.following two years.
The effective tax rate for full year 2018 is currently expected to be approximately 25 to 27 percent. In 2019 and thereafter, the tax rate is expected to be approximately 25 percent.
In the first quarter of fiscal 2018, the Company adopted updates to ASC 330, Inventory, which changed the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. These updates did not materially impact the Company's financial statements.
In the first quarter of fiscal 2018, the Company adopted updates to ASC 740, Income Taxes, requiring recognition of the income tax effects of intra-entity transfers of assets other than inventory when the transfer occurs. These updates were adopted on a modified retrospective basis and did not materially impact the Company's financial statements.
6
2.
(3) COMMON SHARES
Reconciliations of weighted-average shares for basic and diluted earnings per common share follow. Earnings allocated to participating securities were inconsequential. |
| | | | | |
| Three Months Ended December 31, |
| 2016 |
| | 2017 |
|
| | | |
Basic shares outstanding | 642.8 |
| | 638.2 |
|
Dilutive shares | 1.5 |
| | 2.3 |
|
Diluted shares outstanding | 644.3 |
| | 640.5 |
|
| | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | |
| 2022 | | | 2023 | | | | | |
| | | | | | | |
Basic shares outstanding | 583.6 | | | 570.8 | | | | | |
Dilutive shares | 3.1 | | | 2.5 | | | | | |
Diluted shares outstanding | 586.7 | | | 573.3 | | | | | |
3. (4) ACQUISITIONS AND DIVESTITURES
National Instruments
On October 11, 2023, the Company completed the acquisition of National Instruments Corporation (“NI”). 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 is now referred to as Test & Measurement and reported as a new segment in the Software and Control business group, see Note 14.
The following table summarizes the components of the purchase consideration reflected in the acquisition accounting for NI.
| | | | | | | | |
Cash paid to acquire remaining NI shares not already owned by Emerson | | $ | 7,833 | |
Payoff of NI debt at closing | | 634 | |
Total consideration paid in cash at closing | | 8,467 | |
Fair value of NI shares already owned by Emerson prior to acquisition | | 137 | |
Value of stock-based compensation awards attributable to pre-combination service | | 49 | |
Total purchase consideration | | $ | 8,653 | |
The total purchase consideration for NI was allocated to assets and liabilities as follows. Valuations of acquired assets and liabilities are in-process and subject to refinement.
| | | | | | | | |
Cash and equivalents | | $ | 135 | |
Receivables | | 310 | |
Inventory | | 524 | |
Other current assets | | 140 | |
Property, plant and equipment | | 336 | |
Goodwill ($130 expected to be tax-deductible) | | 3,418 | |
Other intangible assets | | 5,275 | |
Other assets | | 116 | |
Total assets | | 10,254 | |
| | |
Accounts payable | | 54 | |
Accrued expenses | | 325 | |
Deferred taxes and other liabilities | | 1,222 | |
Total purchase consideration | | $ | 8,653 | |
The estimated intangible assets attributable to the transaction are comprised of the following (in millions):
| | | | | | | | | | | | | | |
| | Amount | | Estimated Weighted Average Life (Years) |
Developed technology | | $ | 1,570 | | | 9 |
Customer relationships | | 3,360 | | | 15 |
Trade names | | 210 | | | 9 |
Backlog | | 135 | | | 1 |
Total | | $ | 5,275 | | | |
Results of operations for the three months ended December 31, 2023 attributable to the NI acquisition include sales of $382 and a net loss of $326. The net loss included the impact of inventory step-up amortization, intangibles amortization, retention bonuses, stock compensation expense and restructuring.
Pro Forma Financial Information
|
| | | | | | | | |
| Sept 30, 2017 | | Dec 31, 2017 |
Inventories | | | | | |
Finished products | | $ | 560 |
| | | 641 |
|
Raw materials and work in process | | 1,136 |
| | | 1,204 |
|
Total | | $ | 1,696 |
| | | 1,845 |
|
The following unaudited proforma consolidated condensed financial results of operations are presented as if the acquisition of NI occurred on October 1, 2022. The pro forma information is presented for 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 ($ in millions, except per share amounts).
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended December 31, |
| | | 2022 | | | | 2023 | | | | |
Net Sales | | | $ | 3,821 | | | | 4,136 | | | | |
Net earnings from continuing operations common stockholders | | | $ | (141) | | | | 420 | | | | |
Diluted earnings per share from continuing operations | | | $ | (0.24) | | | | 0.73 | | | | |
The pro forma results for the three months ended December 31, 2022 include total transaction costs of $198 which were assumed to be incurred in the first quarter of fiscal 2023. These transaction costs include $88 incurred by NI prior to the completion of the transaction and $110 incurred by Emerson in periods subsequent to the first quarter of fiscal 2023. The pro forma results for the three months ended December 31, 2022 also include $105 of ongoing intangibles amortization, as well as backlog amortization of $34, inventory step-up amortization of $213, and retention bonuses of $43 which were all assumed to be incurred in the first quarter of fiscal 2023.
Other Transactions
In the fourth quarter of fiscal 2023, the Company acquired two businesses, Flexim, which is reported in the Measurement & Analytical segment, and Afag, which is reported in the Discrete Automation segment, for $712, net of cash acquired. The Company recognized goodwill of $428 (none of which is expected to be tax deductible) and other identifiable intangible assets of $323, primarily customer relationships and intellectual property with a weighted-average useful life of approximately 9 years.
On March 31, 2023, Emerson completed the divestiture of Metran, its Russia-based manufacturing subsidiary. In the first quarter of fiscal 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.
(5) DISCONTINUED OPERATIONS
On May 31, 2023, the Company completed the 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 fiscal 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 accrues 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 fiscal 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 in the third quarter of fiscal 2023 (approximately $8.4 billion after-tax including tax expense recognized prior to the completion of the transaction related to subsidiary restructurings). The new standalone business is named Copeland. See Note 10 for further details.
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 and pretax earnings of $152 in fiscal 2022. The Company recognized a pretax gain of approximately $2.8 billion (approximately $2.1 billion after-tax) in the first quarter of fiscal 2023.
The financial results of Climate Technologies and InSinkErator ("ISE") are reported as discontinued operations for the three months ended December 31, 2022 and were as follows:
| | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2022 |
| Climate Technologies | | ISE | | Total |
Net sales | $ | 1,064 | | | 49 | | | 1,113 | |
Cost of sales | 702 | | | 29 | | | 731 | |
SG&A | 142 | | | 8 | | | 150 | |
Gain on sale of business | — | | | (2,780) | | | (2,780) | |
Other deductions, net | 32 | | | 12 | | | 44 | |
Earnings before income taxes | 188 | | | 2,780 | | | 2,968 | |
Income taxes | 313 | | | 653 | | | 966 | |
Earnings, net of tax | $ | (125) | | | 2,127 | | | 2,002 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Climate Technologies' results for the three months ended December 31, 2022 included lower expense of $27 due to ceasing depreciation and amortization upon the held-for-sale classification. Other deductions, net for Climate Technologies included $27 of transaction-related costs for the three months ended December 31, 2022. Income taxes for the three months ended December 31, 2022 included approximately $275 for Climate Technologies subsidiary restructurings and approximately $660 related to the gain on the InSinkErator divestiture.
Net cash from operating and investing activities for Climate Technologies, InSinkErator and Therm-O-Disc for the three months ended December 31, 2023 and 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Climate Technologies | | ISE and TOD | | | Total |
| Three Months Ended December 31, | | Three Months Ended December 31, | | Three Months Ended December 31, | |
| | 2022 | | | | 2023 | | | | 2022 | | | | 2023 | | | | 2022 | | | | 2023 | | |
Cash from operating activities | | $ | 205 | | | | (29) | | | | (89) | | | | — | | | | 116 | | | | (29) | | |
Cash from investing activities | | $ | (43) | | | | 1 | | | | 2,996 | | | | — | | | | 2,953 | | | | 1 | | |
For the three months ended December 31, 2022, net cash from operating activities reflects the payment of ISE transaction fees and unfavorable working capital. Cash from investing activities reflects the proceeds of approximately $3.0 billion related to the InSinkErator divestiture.
|
| | | | | | | | |
| Sept 30, 2017 | | Dec 31, 2017 |
Property, plant and equipment, net | | | |
Property, plant and equipment, at cost | | $ | 7,873 |
| | | 7,930 |
|
Less: Accumulated depreciation | | 4,552 |
| | | 4,651 |
|
Total | | $ | 3,321 |
| | | 3,279 |
|
(6) PENSION & POSTRETIREMENT PLANS
Total periodic pension and postretirement (income) expense is summarized below: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | |
| | 2022 | | | | 2023 | | | | | | | |
Service cost | | $ | 12 | | | | 9 | | | | | | | |
Interest cost | | 54 | | | | 55 | | | | | | | |
Expected return on plan assets | | (71) | | | | (74) | | | | | | | |
Net amortization | | (20) | | | | (14) | | | | | | | |
Total | | $ | (25) | | | | (24) | | | | | | | |
(7) OTHER DEDUCTIONS, NET
Other deductions, net are summarized below: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | |
| 2022 | | | | 2023 | | | | | | | |
| | | | | | | | | | | |
Amortization of intangibles (intellectual property and customer relationships) | | $ | 118 | | | | 274 | | | | | | | |
Restructuring costs | | 10 | | | | 83 | | | | | | | |
Acquisition/divestiture costs | | — | | | | 80 | | | | | | | |
Foreign currency transaction (gains) losses | | (7) | | | | 34 | | | | | | | |
Investment-related gains & gains from sales of capital assets | | (4) | | | | — | | | | | | | |
Loss on Copeland equity method investment | | — | | | | 36 | | | | | | | |
Russia business exit | | 47 | | | | — | | | | | | | |
Other | | (44) | | | | (20) | | | | | | | |
Total | | $ | 120 | | | | 487 | | | | | | | |
Intangibles amortization for the three months ended December 31, 2023 included $139 related to the NI acquisition. Foreign currency transaction gains for the three months ended December 31, 2022 included a mark-to-market gain of $35 related to foreign currency forward contracts that were terminated in June 2023. Other is composed of several items, including pension expense, litigation costs, provision for bad debt and other items, none of which is individually significant.
|
| | | | | | | | |
| Sept 30, 2017 | | Dec 31, 2017 |
Goodwill by business segment | | | | | |
Automation Solutions | | $ | 4,704 |
| | | 5,005 |
|
| | | | | |
Climate Technologies | | 555 |
| | | 555 |
|
Tools & Home Products | | 57 |
| | | 56 |
|
Commercial & Residential Solutions | | 612 |
| | | 611 |
|
| | | | | |
Total | | $ | 5,316 |
| | | 5,616 |
|
(8) RESTRUCTURING COSTS
Restructuring expense reflects costs associated with the Company’s ongoing efforts to improve operational efficiency and deploy assets globally in order to remain competitive on a worldwide basis. The Company expects fiscal 2024 restructuring expense and related costs to be approximately $250, including costs to complete actions initiated in the first three months of the year.
Restructuring expense by business segment follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | | |
| 2022 | | | 2023 | | | | | | |
| | | | | | | | | | | | |
Final Control | | $ | (1) | | | | 3 | | | | | | | | |
Measurement & Analytical | | 1 | | | | 3 | | | | | | | | |
Discrete Automation | | 1 | | | | 10 | | | | | | | | |
Safety & Productivity | | — | | | | — | | | | | | | | |
Intelligent Devices | | 1 | | | | 16 | | | | | | | | |
| | | | | | | | | | | | |
Control Systems & Software | | 1 | | | | 1 | | | | | | | | |
Test & Measurement | | — | | | | 40 | | | | | | | | |
AspenTech | | — | | | | — | | | | | | | | |
Software and Control | | 1 | | | | 41 | | | | | | | | |
| | | | | | | | | | | | |
Corporate | | 8 | | | | 26 | | | | | | | | |
| | | | | | | | | | | | |
Total | | $ | 10 | | | | 83 | | | | | | | | |
Corporate restructuring of $26 for the three months ended December 31, 2023 is comprised entirely of integration-related stock compensation expense attributable to NI.
Details of the change in the liability for restructuring costs during the three months ended December 31, 2023 follow:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sept 30, 2023 | | Expense | | Utilized/Paid | | Dec 31, 2023 |
| | | | | | | | | | | |
Severance and benefits | | $ | 85 | | | | 79 | | | | 56 | | | | 108 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Other | | 2 | | | | 4 | | | | 3 | | | | 3 | |
Total | | $ | 87 | | | | 83 | | | | 59 | | | | 111 | |
The tables above do not include $5 and $4 of costs related to restructuring actions incurred for the three months ended December 31, 2022 and 2023, respectively, that are required to be reported in cost of sales.
(9) TAXES
Income taxes were $7 in the first quarter of fiscal 2024 and $98 in 2023, resulting in effective tax rates of 5 percent and 23 percent, respectively. The current year rate included a $57 ($0.10 per share) benefit related to discrete tax items and the impact of inventory step-up amortization, which in total had a 16 percentage point impact on the rate. The prior year rate included a 2 percentage point unfavorable impact related to the Russia charge, which had no related tax benefit.
(10) EQUITY METHOD INVESTMENT AND NOTE RECEIVABLE
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.
The Company records its share of Copeland's income or loss using the equity method of accounting. For the three months ended December 31, 2023 the Company recorded a loss of $36 in Other deductions to reflect its share of Copeland's losses and a tax benefit of $9 in Income taxes related to Copeland's U.S. business, which is taxed as a partnership (in total, a loss of $0.04 per share). The Company recognized non-cash interest income on the note receivable of $31, which is reported in Interest income from related party and capitalized to the carrying value of the note.
As of December 31, 2023, the carrying values of the retained equity investment and note receivable were $1,129 and $2,124, respectively.
Summarized financial information for Copeland for the three months ended December 31, 2023 is as follows.
| | | | | |
| Three Months Ended December 31, |
| 2023 | |
Net sales | $ | 1,024 | |
Gross profit | $ | 345 | |
Income (loss) from continuing operations | $ | (93) | |
Net income (loss) | $ | (93) | |
Net income (loss) attributable to shareholders | $ | (90) | |
(11) OTHER FINANCIAL INFORMATION | | | | | | | | | | | | | | | | | |
| Sept 30, 2023 | | Dec 31, 2023 |
Inventories | | | | | |
Finished products | | $ | 446 | | | | 624 | |
Raw materials and work in process | | 1,560 | | | | 1,808 | |
Total | | $ | 2,006 | | | | 2,432 | |
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | |
Property, plant and equipment, net | | | | |
Property, plant and equipment, at cost | | $ | 5,524 | | | | 5,953 | | |
Less: Accumulated depreciation | | 3,161 | | | | 3,252 | | |
Total | | $ | 2,363 | | | | 2,701 | | |
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | |
Goodwill by business segment | | | | | | |
Final Control | | $ | 2,660 | | | | 2,687 | | |
Measurement & Analytical | | 1,545 | | | | 1,568 | | |
Discrete Automation | | 892 | | | | 910 | | |
Safety & Productivity | | 388 | | | | 399 | | |
Intelligent Devices | | 5,485 | | | | 5,564 | | |
| | | | | | |
| | | | | | |
Control Systems & Software | | 668 | | | | 672 | | |
Test & Measurement | | — | | | | 3,418 | | |
AspenTech | | 8,327 | | | | 8,329 | | |
Software and Control | | 8,995 | | | | 12,419 | | |
| | | | | | |
Total | | $ | 14,480 | | | | 17,983 | | |
| | | | | | | | | | | | | | | | | |
| Sept 30, 2023 | | Dec 31, 2023 |
Other intangible assets | | | |
Gross carrying amount | | $ | 10,111 | | | | 15,481 | |
Less: Accumulated amortization | | 3,848 | | | | 4,211 | |
Net carrying amount | | $ | 6,263 | | | | 11,270 | |
Other intangible assets include customer relationships, net, of $3,353 and $6,612 and intellectual property, net, of $2,707 and $4,445 as of September 30, 2023 and December 31, 2023, respectively.
The increase in goodwill and intangibles was primarily due to the NI acquisition. See Note 4. | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | |
| 2022 | | | 2023 | | | | | |
Depreciation and amortization expense include the following: | | | | | | | |
Depreciation expense | $ | 74 | | | 79 | | | | | |
Amortization of intangibles (includes $49 and $49 reported in Cost of Sales, respectively) | 167 | | | 323 | | | | | |
Amortization of capitalized software | 19 | | | 20 | | | | | |
Total | $ | 260 | | | 422 | | | | | |
Amortization of intangibles included $139 related to the NI acquisition for the three months ended December 31, 2023.
| | | | | | | | | | | | | | | | | |
| Sept 30, 2023 | | Dec 31, 2023 |
Other assets include the following: | | | |
Pension assets | | $ | 995 | | | | 1,024 | |
Operating lease right-of-use assets | | 550 | | | | 635 | |
Unbilled receivables (contract assets) | | 559 | | | | 606 | |
Deferred income taxes | | 100 | | | | 98 | |
Asbestos-related insurance receivables | | 53 | | | | 50 | |
As of December 31, 2023, the Company had one operating lease that had not yet commenced with a lease term of approximately 15 years and total undiscounted future minimum payments of approximately $80. This lease is expected to commence in the second quarter of fiscal 2024 and will be recorded as a right-of-use asset and lease liability.
| | | | | | | | | | | | | | | | | |
| | | |
Accrued expenses include the following: | | | | | |
Customer advances (contract liabilities) | | $ | 861 | | | | 1,133 | |
Employee compensation | | 618 | | | | 499 | |
Income taxes | | 207 | | | | 274 | |
Operating lease liabilities (current) | | 144 | | | | 157 | |
Product warranty | | 84 | | | | 73 | |
| | | | | | | | | | | | | | | | | |
| | | | |
Other liabilities include the following: | | | | | |
Deferred income taxes | | $ | 1,959 | | | | 2,827 | |
Operating lease liabilities (noncurrent) | | 404 | | | | 465 | |
Pension and postretirement liabilities | | 435 | | | | 449 | |
Asbestos litigation | | 173 | | | | 169 | |
| | | | | |
| | | | | |
The increase in goodwilldeferred income tax liabilities reflects the acquisitionimpact of Paradigm.the NI acquisition. See Note 11.4.
|
| | | | | | | | |
| Sept 30, 2017 | | Dec 31, 2017 |
Accrued expenses include the following | | | | | |
Employee compensation | | $ | 531 |
| | | 548 |
|
Customer advanced payments | | $ | 505 |
| | | 539 |
|
Product warranty | | $ | 120 |
| | | 128 |
|
|
| | | | | | | | |
| Sept 30, 2017 | | Dec 31, 2017 |
Other liabilities | | | | | |
Pension and postretirement liabilities | | $ | 664 |
| | | 659 |
|
Deferred income taxes | | 425 |
| | | 244 |
|
Asbestos litigation | | 340 |
| | | 336 |
|
Other | | 551 |
| | | 664 |
|
Total | | $ | 1,980 |
| | | 1,903 |
|
(12) FINANCIAL INSTRUMENTSOther long-term assets include $132 of asbestos-related insurance receivables.
| |
4. | Following is a discussion regarding the Company’s use of financial instruments: |
Hedging Activities – As of December 31, 2017,2023, the notional amount of foreign currency hedge positions was approximately $1.6 billion, and commodity hedge contracts totaled approximately $124 (primarily 49 million pounds of copper and aluminum).$2.8 billion. All derivatives receiving deferralhedge accounting are cash flow hedges. The majority of hedging gains and losses deferred as of December 31, 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.
Net Investment Hedge – In fiscal 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.
The following gains and losses are included in earnings and other comprehensive income (OCI) for the three months endedDecember 31, 20172022 and 2016:2023: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Into Earnings | | Into OCI |
| | | | 1st Quarter | | | | 1st Quarter | | |
Gains (Losses) | | Location | | 2022 | | | 2023 | | | | | | | 2022 | | | 2023 | | | | | |
Commodity | | Cost of sales | | $ | (8) | | | — | | | | | | | 11 | | | — | | | | | |
Foreign currency | | Sales | | (1) | | | — | | | | | | | 4 | | | 7 | | | | | |
Foreign currency | | Cost of sales | | 8 | | | 3 | | | | | | | (3) | | | 1 | | | | | |
Foreign currency | | Other deductions, net | | 5 | | | 15 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Net Investment Hedges | | | | | | | | | | | | | | | | |
Euro denominated debt | | | | | | — | | | | | | | (123) | | | (55) | | | | | |
Total | | | | $ | 4 | | | 18 | | | | | | | (111) | | | (47) | | | | | |
|
| | | | | | | | | | | | | | | |
| | | | Into Earnings | | Into OCI |
| | | | 1st Quarter | | 1st Quarter |
Gains (Losses) | | Location | | 2016 |
| | 2017 |
| | 2016 |
| | 2017 |
|
Commodity | | Cost of sales | | $ | (2 | ) | | 5 |
| | 10 |
| | 13 |
|
Foreign currency | | Sales, cost of sales | | (10 | ) | | — |
| | 2 |
| | (12 | ) |
Foreign currency | | Other deductions, net | | 6 |
| | — |
| | | | |
Total | | | | $ | (6 | ) | | 5 |
| | 12 |
| | 1 |
|
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 assessmentassessment of hedge effectiveness. Hedge ineffectiveness was immaterial for the three months ended December 31, 2017and 2016.
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 fair value of the note receivable as of December 31, 2023 was approximately $2.0 billion, which was lower than the carrying value by approximately $100. See Note 10 for further details. As of December 31, 2017,2023, the fair value of long-term debt was $4,092,approximately $7.4 billion, which exceededwas lower than the carrying value by $278. At December 31, 2017, the$847. The fair valuesvalue of commodity contracts and foreign currency contracts, werewhich are reported in otherOther current assets and accrued expenses. ValuationsAccrued expenses, did not materially change since September 30, 2023. Commodity contracts related to discontinued operations and were novated to Copeland upon the completion of derivative contract positions are summarized below: the transaction.
|
| | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2017 |
| Assets | | Liabilities | | Assets | | Liabilities |
Foreign Currency | | $ | 26 |
| | 18 |
| | 11 |
| | 19 |
|
Commodity | | $ | 12 |
| | — |
| | 20 |
| | — |
|
Counterparties to derivatives arrangementsarrangements are companies with investment-grade credit ratings. The Company has bilateral collateral arrangements with counterparties with credit rating-based posting thresholds that vary depending on the arrangement. If credit ratings on the Company's debt fall below pre-established levels, counterparties can require immediate full collateralization of all derivatives in net liability positions. The maximum amount that could potentially have been required was $11.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 as of December 31, 2017.2023.
| |
5. | The change in equity for the first three months of 2018 is shown below: |
|
| | | | | | | | | | | | |
| Common Stockholders' Equity | | Noncontrolling Interests in Subsidiaries | | Total Equity |
Balance at September 30, 2017 | | $ | 8,718 |
| | | 52 |
| | | 8,770 |
|
Net earnings | | 392 |
| | | 2 |
| | | 394 |
|
Other comprehensive income (loss) | | 27 |
| | | — |
| | | 27 |
|
Cash dividends | | (311 | ) | | | (15 | ) | | | (326 | ) |
Purchases of treasury stock, net of issuances | | (480 | ) | | | — |
| | | (480 | ) |
Adoption of accounting standard update | | 3 |
| | | — |
| | | 3 |
|
Balance at December 31, 2017 | | $ | 8,349 |
| | | 39 |
| | | 8,388 |
|
(13) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
| | | | | | | | | | | | | | | | | | | | | | | |
Activity in Accumulated other comprehensive income (loss) for the three months ended December 31, 2022 and 2023 is shown below, net of income taxes: |
| Three Months Ended December 31, | | |
| | 2022 | | | | 2023 | | | | | | | |
Foreign currency translation | | | | | | | | | | | |
Beginning balance | | $ | (1,265) | | | | (1,012) | | | | | | | |
Other comprehensive income (loss), net of tax of $28 and $13, respectively | | 236 | | | | 172 | | | | | | | |
| | | | | | | | | | | |
Ending balance | | (1,029) | | | | (840) | | | | | | | |
| | | | | | | | | | | |
Pension and postretirement | | | | | | | | | | | |
Beginning balance | | (222) | | | | (247) | | | | | | | |
Amortization of deferred actuarial losses into earnings, net of tax of $4 and $2, respectively | | (16) | | | | (12) | | | | | | | |
| | | | | | | | | | | |
Ending balance | | (238) | | | | (259) | | | | | | | |
| | | | | | | | | | | |
Cash flow hedges | | | | | | | | | | | |
Beginning balance | | 2 | | | | 6 | | | | | | | |
Gains deferred during the period, net of taxes of $(3) and $(2), respectively | | 9 | | | | 6 | | | | | | | |
Reclassification of realized (gains) losses to sales and cost of sales, net of tax of $— and $—, respectively | | 1 | | | | (3) | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Ending balance | | 12 | | | | 9 | | | | | | | |
| | | | | | | | | | | |
Accumulated other comprehensive income (loss) | | $ | (1,255) | | | | (1,090) | | | | | | | |
| | | | | | | | | | | |
| |
6. | Activity in accumulated other comprehensive income (loss) for the three months ended December 31, 2017 and 2016 is shown below: |
|
| | | | | | | | |
| Three Months Ended December 31, |
| | 2016 |
| | | 2017 |
|
Foreign currency translation | | | | | |
Beginning balance | | $ | (812 | ) | | | (369 | ) |
Other comprehensive income (loss) before reclassifications | | (367 | ) | | | 24 |
|
Reclassified to gain/loss on sale of businesses | | 266 |
| | | (17 | ) |
Ending balance | | (913 | ) | | | (362 | ) |
| | | | | |
Pension and postretirement | | | | | |
Beginning balance | | (1,162 | ) | | | (662 | ) |
Amortization of deferred actuarial losses into earnings | | 35 |
| | | 23 |
|
Reclassified to gain/loss on sale of businesses | | 20 |
| | | — |
|
Ending balance | | (1,107 | ) | | | (639 | ) |
| | | | | |
Cash flow hedges | | | | | |
Beginning balance | | (25 | ) | | | 12 |
|
Deferral of gains (losses) arising during the period | | 8 |
| | | 1 |
|
Reclassification of realized (gains) losses to sales and cost of sales | | 7 |
| | | (4 | ) |
Ending balance | | (10 | ) | | | 9 |
|
| | | | | |
Accumulated other comprehensive income (loss) | | $ | (2,030 | ) | | | (992 | ) |
| | | | | |
Activity above is shown net of income taxes for the three months ended December 31, 2017 and 2016, respectively, as follows: amortization of pension and postretirement deferred actuarial losses: $(8) and $(18); pension and postretirement divestiture: $- and $(7); deferral of cash flow hedging gains (losses): $- and $(4); reclassification of realized cash flow hedging (gains) losses: $1 and $(5). |
(14) BUSINESS SEGMENTS | |
7. | Total periodic pension and postretirement expense is summarized below: |
|
| | | | | | | | |
| Three Months Ended December 31, |
| | 2016 | | | 2017 |
Service cost | | $ | 21 |
| | | 19 |
|
Interest cost | | 42 |
| | | 46 |
|
Expected return on plan assets | | (86 | ) | | | (87 | ) |
Net amortization | | 53 |
| | | 31 |
|
Total | | $ | 30 |
| | | 9 |
|
| |
8. | Other deductions, net are summarized below: |
|
| | | | | | | | |
| Three Months Ended December 31, |
| 2016 | | | | 2017 |
|
| | | | | |
Amortization of intangibles | | $ | 22 |
| | | 56 |
|
Restructuring costs | | 11 |
| | | 15 |
|
Other | | — |
| | | 17 |
|
Total | | $ | 33 |
| | | 88 |
|
The increaseAs disclosed in amortizationNote 4, the Company completed the acquisition of NI on October 11, 2023. NI is now referred to as Test & Measurement and restructuringreported as a new segment in the first quarter of 2018 is due to the valves & controls acquisition. Other for the first quarter includes unfavorable foreign currency transactions of $22 compared with the prior year, partially offset by lower acquisition/divestiture costs of $4.Software and Control business group.
| |
9. | Restructuring expense reflects costs associated with the Company’s ongoing efforts to improve operational efficiency and deploy assets globally in order to remain competitive on a worldwide basis. The Company expects full year 2018 restructuring expense to be approximately $85. The full year expense includes $15 incurred to date, as well as costs to complete actions initiated before the end of the first quarter and actions anticipated to be approved and initiated during the remainder of the year. Costs for the three months endedDecember 31, 2017 largely relate to restructuring of the global cost structure consistent with the current level of economic activity, as well as the redeployment of resources for future growth.
|
Restructuring expense by business segment follows:
|
| | | | | | | | |
| Three Months Ended December 31, |
| 2016 | | | 2017 | |
| | | | | |
Automation Solutions | | $ | 6 |
| | | 10 |
|
| | | | | |
Climate Technologies | | 4 |
| | | 5 |
|
Tools & Home Products | | 1 |
| | | — |
|
Commercial & Residential Solutions | | 5 |
| | | 5 |
|
| | | | | |
Total | | $ | 11 |
| | | 15 |
|
Details of the change in the liability for restructuring costs during the three months ended December 31, 2017 follow: |
| | | | | | | | | | | | | | | | |
| Sept 30, 2017 | | | Expense | | | Utilized/Paid | | | Dec 31, 2017 | |
| | | | | | | | | | | |
Severance and benefits | | $ | 60 |
| | | 10 |
| | | 14 |
| | | 56 |
|
Lease and other contract terminations | | 4 |
| | | 2 |
| | | 1 |
| | | 5 |
|
Vacant facility and other shutdown costs | | 1 |
| | | 1 |
| | | 1 |
| | | 1 |
|
Start-up and moving costs | | — |
| | | 2 |
| | | 2 |
| | | — |
|
Total | | $ | 65 |
| | | 15 |
| | | 18 |
| | | 62 |
|
| |
10. | Business Segments – The Company designs and manufactures products and delivers services that bring technology and engineering together to provide innovative solutions for customers in a wide range of industrial, commercial and consumer markets around the world.
|
The Automation Solutions segment enables process, hybrid and discrete manufacturers to maximize production, protect personnel and the environment, and optimize their energy efficiency and operating costs through a broad offering of integrated solutions and products, including measurement and analytical instrumentation, industrial valves and equipment, and process control systems. Significant end markets serviced 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. The segment's major product offerings are described below.
Measurement & Analytical Instrumentation products measure the physical properties of liquids or gases in a process stream and communicate this information to a process control system or other software applications, and analyze the chemical composition of process fluids and emissions to enhance quality and efficiency, as well as environmental compliance.
Valves, Actuators & Regulators consists of control, isolation and pressure relief valves which respond to commands from a control system to continuously and precisely modulate the flow of process fluids, smart actuation and control technologies, pressure management products, and industrial and residential regulators that reduce the pressure of fluids moving from high-pressure supply lines into lower pressure systems.
Industrial Solutions provides fluid power and control mechanisms, electrical distribution equipment, and materials joining and precision cleaning products which are used in a variety of manufacturing operations to provide integrated solutions to customers.
Process Control Systems & Solutions provides a digital ecosystem that controls plant processes by communicating with and adjusting the "intelligent" plant devices described above to provide precision measurement, control, monitoring, asset optimization, and plant safety and reliability for plants that produce power, or process fluids or other items.
The Commercial & Residential Solutions business consists of the Climate Technologies and Tools & Home Products segments. This business provides products and solutions that promote energy efficiency, enhance household and commercial comfort, and protect food quality and sustainability through heating, air conditioning and refrigeration technology, as well as a broad range of tools and appliance solutions.
The Climate Technologies segment provides products, services and solutions for all areas of the climate control industry, including residential heating and cooling, commercial air conditioning, commercial and industrial refrigeration, and cold chain management. Products include compressors, temperature sensors and controls, thermostats, flow controls, and stationary and mobile remote monitoring technologies and services that enable homeowners and businesses to better manage their heating, air conditioning and refrigeration systems for improved control and comfort, and lower energy costs.
The Tools & Home Products segment offers tools for professionals and homeowners and appliance solutions. Products include professional pipe-working tools, residential and commercial food waste disposers, and wet-dry vacuums.
Summarized information about the Company's results of operations by business segment follows:
|
| | | | | | | | | | | | |
| Three Months Ended December 31, |
| Sales | | Earnings |
| 2016 |
| | 2017 |
| | 2016 |
| | 2017 |
|
| | | | | | | |
Automation Solutions | $ | 1,967 |
| | 2,572 |
| | 326 |
| | 386 |
|
| | | | | | | |
Climate Technologies | 859 |
| | 922 |
| | 161 |
| | 165 |
|
Tools & Home Products | 393 |
| | 330 |
| | 88 |
| | 87 |
|
Commercial & Residential Solutions | 1,252 |
| | 1,252 |
| | 249 |
| | 252 |
|
| | | | | | | |
Differences in accounting methods | | | | | 33 |
| | 51 |
|
Corporate and other | | | | | (98 | ) | | (148 | ) |
Eliminations/Interest | (3 | ) | | (8 | ) | | (46 | ) | | (38 | ) |
Total | $ | 3,216 |
| | 3,816 |
| | 464 |
| | 503 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | |
| Sales | | Earnings (Loss) | | | | |
| 2022 | | | 2023 | | | 2022 | | | 2023 | | | | | | | | | |
| | | | | | | | | | | | | | | |
Final Control | $ | 862 | | | 940 | | | 158 | | | 194 | | | | | | | | | |
Measurement & Analytical | 749 | | | 947 | | | 175 | | | 235 | | | | | | | | | |
Discrete Automation | 618 | | | 613 | | | 121 | | | 97 | | | | | | | | | |
Safety & Productivity | 310 | | | 322 | | | 63 | | | 68 | | | | | | | | | |
Intelligent Devices | 2,539 | | | 2,822 | | | 517 | | | 594 | | | | | | | | | |
| | | | | | | | | | | | | | | |
Control Systems & Software | 606 | | | 675 | | | 107 | | | 149 | | | | | | | | | |
Test & Measurement | — | | | 382 | | | — | | | (78) | | | | | | | | | |
AspenTech | 243 | | | 257 | | | (33) | | | (35) | | | | | | | | | |
Software and Control | 849 | | | 1,314 | | | 74 | | | 36 | | | | | | | | | |
| | | | | | | | | | | | | | | |
Stock compensation | | | | | (102) | | | (74) | | | | | | | | | |
Unallocated pension and postretirement costs | | | | | 45 | | | 31 | | | | | | | | | |
Corporate and other | | | | | (64) | | | (399) | | | | | | | | | |
Loss on Copeland equity method investment | | | | | — | | | (36) | | | | | | | | | |
Eliminations/Interest | (15) | | | (19) | | | (48) | | | (44) | | | | | | | | | |
Interest income from related party | | | | | — | | | 31 | | | | | | | | | |
Total | $ | 3,373 | | | 4,117 | | | 422 | | | 139 | | | | | | | | | |
Corporate and other for the first quarter of 2018 includes valves & controls first year acquisition accounting charges of $10 related to inventory and $15 for backlog amortization, as well as higher incentive stockStock compensation of $40.
Automation Solutions sales by major product offering are summarized below:
|
| | | | | | | | |
| Three Months Ended December 31, |
| | 2016 |
| | | 2017 |
|
| | | | | |
Measurement & Analytical Instrumentation | | $ | 682 |
| | | 772 |
|
Valves, Actuators & Regulators | | 449 |
| | | 867 |
|
Industrial Solutions | | 367 |
| | | 424 |
|
Process Control Systems & Solutions | | 469 |
| | | 509 |
|
Total | | $ | 1,967 |
| | | 2,572 |
|
| |
11. | On December 1, 2017, the Company acquired Paradigm, a provider of software solutions for the oil and gas industry, for $505, net of cash acquired. This business had annual sales of approximately $140 and is included in the Measurement & Analytical Instrumentation product offering within Automation Solutions. The Company recognized goodwill of $304 ($160 of which is expected to be tax deductible), and identifiable intangible assets of $248, primarily intellectual property and customer relationships with weighted-average useful lives of approximately 11 years. Valuations of acquired assets and liabilities are in process and subject to refinement. The Company also acquired one smaller business in the Automation Solutions segment. Total cash paid for all businesses was $513, net of cash acquired. |
On January 10, 2018, the Company completed the acquisition of Cooper-Atkins for $247, net of cash acquired. This business, which manufactures temperature management and monitoring products for foodservice markets, will be reported in the Climate Technologies segment.
On October 2, 2017, the Company sold its residential storage business for $200 in cash, subject to post-closing adjustments, and recognized a small pretax gain and an after-tax loss of $24 ($0.04 per share) in the first quarter of 2018 due to income taxes resulting from nondeductible goodwill. The Company will realize approximately $150 in after-tax cash proceeds from the sale. Assets and liabilities for this business were classified as held-for-sale in the consolidated balance sheet at September 30, 2017 as follows: current assets, $73; other assets, $176; and accrued expenses and other liabilities, $61. This business was previously reported within the Tools & Home Products segment.
On April 28, 2017, the Company completed the acquisition of Pentair's valves & controls business for $2.960 billion, net 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, isolation and pressure relief valves and actuators, and complements the Valves, Actuators & Regulators product offering within Automation Solutions.
Results for the first quarter ended December 31, 2017 included first year pretax acquisition accounting charges related to inventory and backlog of $25, $19 after-tax, $0.03 per share.
Pro Forma Financial Information
The following unaudited pro forma consolidated condensed financial results of operations are presented as if the acquisition of the valves & controls business occurred on October 1, 2015. The pro forma information is presented for 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. |
| | | | |
| Three Months Ended Dec 31, 2016
|
| | |
Net sales | | $ | 3,620 |
|
Net earnings from continuing operations common stockholders | | $ | 362 |
|
Diluted earnings per share from continuing operations | | $ | 0.56 |
|
| |
12. | Discontinued Operations – In fiscal 2017, the Company completed the previously announced strategic repositioning actions to streamline its portfolio and drive growth in its core businesses. On November 30, 2016, the Company completed the sale of its network power systems business for $4 billion in cash and retained a subordinated interest in distributions, contingent upon the equity holders first receiving a threshold return on their initial investment. Additionally, on January 31, 2017, the Company completed the sale of its power generation, motors and drives business for approximately $1.2 billion, subject to post-closing adjustments.
|
The financial results of the network power systems and power generation, motors and drives businesses reported as discontinued operations for the three months ended December 31, 2016 were2023 included $30 of integration-related stock compensation expense attributable to NI ($26 of which was reported as follows:
|
| | | |
| Three Months Ended Dec 31, 2016 |
| |
Net sales | $ | 940 |
|
Cost of sales | 626 |
|
SG&A | 242 |
|
Other (income) deductions, net | (421 | ) |
Earnings (Loss) before income taxes | 493 |
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Income taxes | 548 |
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Earnings (Loss), net of tax | $ | (55 | ) |
Discontinued operations for the first quarter of 2017 included a loss of $55, consisting of net earnings from operations of $14, an after-tax gain on the divestiture of the network power systems business of $86 ($465 pretax), income tax expense of$144 for repatriation of sales proceeds, a loss of $38 to write down the power generation, motorsrestructuring costs). Corporate and drives business to the sales price less cost to sell, and lower expense of $27 due to ceasing depreciation and amortization for the discontinued businesses held-for-sale.
Net cash from operating and investing activities for the network power systems and power generation, motors and drives businessesother for the three months ended December 31, 20162023 included acquisition-related inventory step-up amortization of $231 and acquisition/divestiture fees and related costs of $130, while 2022 included a loss of $47 related to the Company's exit of business operations in Russia and a mark-to-market gain of $35 related to foreign currency forward contracts that were as follows: terminated in June 2023.
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| | Three Months Ended Dec 31, 2016 |
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Cash from operating activities | | $ | (172 | ) |
Cash from investing activities | | $ | 3,894 |
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Depreciation and amortization (includes intellectual property, customer relationships and capitalized software) by business segment are summarized below: | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | |
| | 2022 | | | 2023 | | | | | | |
Final Control | | $ | 45 | | | 40 | | | | | | |
Measurement & Analytical | | 30 | | | 40 | | | | | | |
Discrete Automation | | 21 | | | 22 | | | | | | |
Safety & Productivity | | 14 | | | 14 | | | | | | |
Intelligent Devices | | 110 | | | 116 | | | | | | |
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Control Systems & Software | | 21 | | | 21 | | | | | | |
Test & Measurement | | — | | | 151 | | | | | | |
AspenTech | | 123 | | | 123 | | | | | | |
Software and Control | | 144 | | | 295 | | | | | | |
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Corporate and other | | 6 | | | 11 | | | | | | |
Total | | $ | 260 | | | 422 | | | | | | |
Operating cash flow used by discontinued operations of $172Test & Measurement depreciation and amortization for the three months ended December 31, 20162023 included paymentsintangibles amortization of $139 for income taxes and fees relateddue to the transactions.acquisition.
Sales by geographic destination, Americas, Asia, Middle East & Africa ("AMEA") and Europe, are summarized below:
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| Three Months Ended December 31, | | Three Months Ended December 31, |
| 2022 | | 2023 |
| | Americas | | AMEA | | Europe | | Total | | Americas | | AMEA | | Europe | | Total |
Final Control | | $ | 446 | | | 308 | | | 108 | | | 862 | | | 454 | | | 370 | | | 116 | | | 940 | |
Measurement & Analytical | | 396 | | | 246 | | | 107 | | | 749 | | | 475 | | | 325 | | | 147 | | | 947 | |
Discrete Automation | | 291 | | | 175 | | | 152 | | | 618 | | | 286 | | | 162 | | | 165 | | | 613 | |
Safety & Productivity | | 236 | | | 17 | | | 57 | | | 310 | | | 243 | | | 16 | | | 63 | | | 322 | |
Intelligent Devices | | 1,369 | | | 746 | | | 424 | | | 2,539 | | | 1,458 | | | 873 | | | 491 | | | 2,822 | |
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Control Systems & Software | | 294 | | | 185 | | | 127 | | | 606 | | | 325 | | | 209 | | | 141 | | | 675 | |
Test & Measurement | | — | | | — | | | — | | | — | | | 164 | | | 99 | | | 119 | | | 382 | |
AspenTech | | 112 | | | 63 | | | 68 | | | 243 | | | 140 | | | 60 | | | 57 | | | 257 | |
Software and Control | | 406 | | | 248 | | | 195 | | | 849 | | | 629 | | | 368 | | | 317 | | | 1,314 | |
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Total | | $ | 1,775 | | | 994 | | | 619 | | | 3,388 | | | 2,087 | | | 1,241 | | | 808 | | | 4,136 | |
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Items 2 and 3.
Management's Discussion and Analysis of Financial Condition and Results of Operations
(Dollars are in millions, except per share amounts or where noted)
OVERVIEW
Net sales
On October 11, 2023, the Company completed the acquisition of National Instruments Corporation (“NI”), which is now referred to as Test & Measurement and reported as a new segment in the Software and Control business group. NI provides software-connected automated test and measurement systems that enable enterprises to bring products to market faster and at a lower cost, and had revenues of approximately $1.7 billion for the 12 months ended September 30, 2023. See Note 4.
For the first quarter of 2018fiscal 2024, net sales were $3.8$4.1 billion, up 1922 percent supported by acquisitions, net of a divestiture, which added 9 percent.compared with the prior year. Underlying sales, increased 7which exclude foreign currency translation, acquisitions and divestitures, were up 10 percent. Foreign currency translation had a 1 percent reflecting improving trends in energy-relatedfavorable impact, the Test & Measurement acquisition added 12 percent and general industrial markets, while HVAC and refrigeration markets remained favorable.the divestiture of Metran, Emerson's Russia-based manufacturing subsidiary, deducted 1 percent.
Earnings from continuing operations attributable to common stockholders were $392 million, up 8$142, down 57 percent, compared with $364 million in 2017, and diluted earnings per share from continuing operations were $0.61, up 9$0.25, down 55 percent compared with $0.56 in 2017. Net earnings common stockholders were $392 million, up 27 percent, andthe prior year. Adjusted diluted earnings per share from continuing operations were $0.61,$1.22, up 2756 percent reflecting the impact of discontinued operationscompared with $0.78 in the prior year.year, reflecting the strong sales growth and operating performance, as well as a $0.13 contribution from Test & Measurement.
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 performance of the Company. Adjusted diluted earnings per share from continuing operations excludes intangibles amortization expense, restructuring expense, first year purchase accounting related items and transaction-related costs, and certain gains, losses or impairments.
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Three Months Ended Dec 31 | | | | 2022 | | 2023 |
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Diluted earnings from continuing operations per share | | | | $ | 0.56 | | | 0.25 | |
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Amortization of intangibles | | | | 0.15 | | | 0.36 | |
Restructuring and related costs | | | | 0.02 | | | 0.12 | |
Acquisition/divestiture fees and related costs | | | | — | | | 0.17 | |
Amortization of acquisition-related inventory step-up | | | | — | | | 0.38 | |
Loss on Copeland equity method investment | | | | — | | | 0.04 | |
Discrete tax benefits | | | | — | | | (0.10) | |
Russia business exit | | | | 0.08 | | | — | |
AspenTech Micromine purchase price hedge | | | | (0.03) | | | — | |
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Adjusted diluted earnings from continuing operations per share | | | | $ | 0.78 | | | 1.22 | |
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.
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| | Three Months Ended |
Adjusted diluted earnings from continuing operations per share - Dec 31, 2022 | | $ | 0.78 | |
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Operations | | 0.33 | |
Stock compensation | | 0.08 | |
Interest income from related party | | 0.04 | |
Share count | | 0.02 | |
Effective tax rate | | (0.03) | |
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Adjusted diluted earnings from continuing operations per share - Dec 31, 2023 | | $ | 1.22 | |
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31
Following is an analysis of the Company’s operating results for the first quarter ended December 31, 2017,2022, compared with the first quarter ended December 31, 2016.2023. | | | | | | | | | | | | | | | | | |
| 2022 | | 2023 | | Change |
(dollars in millions, except per share amounts) | | | | | |
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Net sales | $ | 3,373 | | | 4,117 | | | 22 | % |
Gross profit | $ | 1,620 | | | 1,916 | | | 18 | % |
Percent of sales | 48.0 | % | | 46.5 | % | | (1.5) pts |
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SG&A | $ | 1,030 | | | 1,277 | | | 24 | % |
Percent of sales | 30.5 | % | | 31.0 | % | | 0.5 pts |
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Other deductions, net | $ | 120 | | | 487 | | | |
Amortization of intangibles | $ | 118 | | | 274 | | | |
Restructuring costs | $ | 10 | | | 83 | | | |
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Interest expense, net | $ | 48 | | | 44 | | | |
Interest income from related party | $ | — | | | (31) | | | |
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Earnings from continuing operations before income taxes | $ | 422 | | | 139 | | | (67) | % |
Percent of sales | 12.5 | % | | 3.4 | % | | (9.1) pts |
Earnings from continuing operations common stockholders | $ | 329 | | | 142 | | | (57) | % |
Percent of sales | 9.8 | % | | 3.4 | % | | (6.4) pts |
Net earnings common stockholders | $ | 2,331 | | | 142 | | | (94) | % |
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Diluted EPS - Earnings from continuing operations | $ | 0.56 | | | 0.25 | | | (55) | % |
Diluted EPS - Net earnings | $ | 3.97 | | | 0.25 | | | (94) | % |
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Adjusted Diluted EPS - Earnings from continuing operations | $ | 0.78 | | | 1.22 | | | 56 | % |
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Three Months Ended Dec 31 | 2016 | | 2017 | | Change |
(dollars in millions, except per share amounts) | |
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Net sales | $ | 3,216 |
| | 3,816 |
| | 19 | % |
Gross profit | $ | 1,365 |
| | 1,621 |
| | 19 | % |
Percent of sales | 42.4 | % | | 42.5 | % | | |
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SG&A | $ | 822 |
| | 992 |
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Percent of sales | 25.5 | % | | 26.0 | % | | |
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Other deductions, net | $ | 33 |
| | 88 |
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Interest expense, net | $ | 46 |
| | 38 |
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Earnings from continuing operations before income taxes | $ | 464 |
| | 503 |
| | 9 | % |
Percent of sales | 14.4 | % | | 13.2 | % | | |
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Earnings from continuing operations common stockholders | $ | 364 |
| | 392 |
| | 8 | % |
Net earnings common stockholders | $ | 309 |
| | 392 |
| | 27 | % |
Percent of sales | 9.6 | % | | 10.3 | % | | |
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Diluted EPS - Earnings from continuing operations | $ | 0.56 |
| | 0.61 |
| | 9 | % |
Diluted EPS - Net earnings | $ | 0.48 |
| | 0.61 |
| | 27 | % |
Net sales for the first quarter of 2018fiscal 2024 were $3.8$4.1 billion, an increase of $600 millionup 22 percent compared with $3.2 billion in 2017. 2023. Intelligent Devices sales were up 11 percent, while Software and Control sales were up 55 percent, which included the impact of the Test & Measurement acquisition. Underlying sales increased 7were up 10 percent ($229 million) on 8 percent higher volume. Acquisitionsvolume and 2 percent higher price. Foreign currency translation had a 1 percent favorable impact, the Test & Measurement acquisition added 12 percent ($373 million) and foreign currency translation added 3 percent ($75 million), while the divestiture of the residential storage business subtracted 3 percent ($77 million). Metran, Emerson's Russia-based manufacturing subsidiary, deducted 1 percent. Underlying sales increased 8were up 9 percent in the U.S. and 7up 11 percent internationally. The Americas was up 8 percent, Europe was up 10 percent, and Asia, Middle East & Africa was up 15 percent (China up 239 percent), while sales in Europe were flat. Canada increased 14 percent and Latin America increased 4 percent. Middle East/Africa was down 5 percent. Sales increased $605 million in Automation Solutions, supported by acquisitions and broad-based demand across energy-related and general industrial markets. Commercial & Residential Solutions sales were flat, as favorable demand in global HVAC and refrigeration markets was offset by the divestiture of the residential storage business..
Cost of sales for the first quarter of 2018fiscal 2024 were $2.2 billion,$2,201, an increase of $344 million$448 compared with $1.9 billion in 2017, primarily due to acquisitions,2023, reflecting the impact of higher volume and the impact of foreign currency translation.Test & Measurement acquisition. Gross margin improved slightly to 42.5 percentof 46.5% decreased 1.5 percentage points, reflecting leverage on higher volume, savingsthe impact from cost reduction actions and favorable mix, largely offsetacquisition-related inventory step-up amortization of $231, which negatively impacted margins by dilution of 1.65.6 percentage pointspoints. Excluding this impact, gross margin improved due to the valvesTest & controls operationsMeasurement acquisition and first year acquisition accounting charges of $10 million related to inventory.higher price.
Selling, general and administrative (SG&A) expensesexpenses of $992 million$1,277 increased $170 million compared with the prior year, primarily due to acquisitions$247 and an increase in volume. SG&A as a percent of sales increased 0.5 percentage points to 26.031.0 percent reflecting higher incentive stock compensation of $40 million due to an increase in the Company's stock price, partially offset by leverage on the higher volume.
Other deductions, net were $88 million in 2018, an increase of $55 million compared with the prior year, largely due toreflecting the impact of the Test & Measurement acquisition, partially offset by lower stock compensation expense and strong operating leverage on higher sales.
Other deductions, net were $487 for the first quarter of fiscal 2024, an increase of $367 compared with the prior year. The current year included intangibles amortization related to the Test & Measurement acquisition of $19 million$139, restructuring costs of $83, acquisition/divestiture costs of $80 and backlog amortizationa loss of $15 million, primarily$36 on the Company's equity method investment in Copeland. The prior year included a charge of $47 related to the valves & controls acquisition,Company exiting its business in Russia and unfavorable a mark-to-market gain of $35 related to foreign currency transactions of $22 million. forward contracts that were terminated in June 2023. See Note 8.7 and Note 10.
Pretax earnings from continuing operations of $503 million increased $39 million, or 9 percent.$139 decreased $283, down 67 percent compared with the prior year. Earnings increased $60 million$77 in Automation SolutionsIntelligent Devices and $3 milliondecreased $38 in Commercial & Residential Solutions. See Note 10Software and Control, see the following Business Segments discussion.discussion that follows and Note 14.
On December 22, 2017, the U.S. government enacted tax reform, the Tax Cuts and Jobs Act (the "Act"), which made comprehensive changes to federal income tax laws by moving from a global to a modified territorial tax regime. The Act includes a reduction of the U.S. corporate income tax rate from 35 percent to 21 percent along with the elimination of certain deductions and credits, and a one-time “deemed repatriation” of accumulated foreign earnings. InIncome taxes were $7 in the first quarter the Company recognized a net tax benefit of $43 million ($0.07 per share) due to impacts of the Act, consisting of afiscal 2024 and $98 million benefit on revaluation of net deferred income tax liabilities to the lower tax rate, and $185 million of expense for the tax on deemed repatriation of accumulated foreign earnings and withholding taxes partially offset by $130 million accrued in previous periods for the planned repatriation of non-U.S. cash. Given the complexities associated with the Act, the ultimate effects on repatriation cost and other tax items may differ materially from these provisional amounts due to additional regulatory guidance that may be issued and further evaluation of the Company’s actions, assumptions and interpretations.
Income taxes were $109 million for 2018 and $94 million for 2017,2023, resulting in effective tax rates of 225 percent and 2023 percent, respectively. The effective taxcurrent year rate for the first quarter of 2017 included a $47 million$57 ($0.070.10 per share) incomebenefit related to discrete tax benefit from restructuringitems and the impact of inventory step-up amortization, which in total had a foreign subsidiary. 16 percentage point impact on the rate. The effectiveprior year rate included a 2 percentage point unfavorable impact related to the Russia charge, which had no related tax rate for full year 2018 is currently expected to be approximately 25 to 27 percent. In 2019 and thereafter, the tax rate is expected to be approximately 25 percent.benefit.
Earnings from continuing operations attributable to common stockholders were $392 million, up 8$142, down 57 percent, and diluted earnings per share from continuing operations were $0.61, up 9 percent. Earnings per share include a $0.03 per share benefit from$0.25, down 55 percent compared with $0.56 in the lower corporate federal income tax rate on first quarter earnings. In addition, results include the $0.07 per share net benefit of the tax law change, offset by a $(0.04) per share loss on the residential storage divestiture and $0.03prior year. Adjusted diluted earnings per share from firstcontinuing operations were $1.22 compared with $0.78 in the prior year, acquisition accounting charges.reflecting strong operating results. See the analysis above of adjusted earnings per share for further details.
Earnings from discontinued operations were $2,002 ($3.41 per share) in the prior year, reflecting the $2.1 billion after-tax gain on the InSinkErator divestiture. See Note 5.
Net earnings common stockholders in the first quarter of 2018fiscal 2024 were $392 million, up 27 percent,$142 compared with $309 million$2,331 in the prior year, and earnings per share were $0.61, up 27 percent,$0.25 compared with $0.48$3.97 in 2017. Resultsthe prior year.
The table below, which shows results from continuing operations on an adjusted EBITA basis, is intended to supplement the Company's discussion of its results of operations herein. The Company defines adjusted EBITA as earnings from continuing operations excluding interest expense, net, income taxes, intangibles amortization expense, restructuring expense, first year purchase accounting related items and transaction-related costs, gains or losses on the Copeland equity method investment, and certain gains, losses or impairments. Adjusted EBITA and adjusted EBITA margin are measures used by management and may be useful for 2017 includedinvestors to evaluate the impact of discontinued operations, which was a net loss of $55 million ($0.08 per share). See Note 12.Company's operational performance.
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Three Months Ended Dec 31 | 2022 | | 2023 | | Change |
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Earnings from continuing operations before income taxes | $ | 422 | | | 139 | | | (67) | % |
Percent of sales | 12.5 | % | | 3.4 | % | | (9.1) pts |
Interest expense, net | 48 | | | 44 | | | |
Interest income from related party | — | | | (31) | | | |
Amortization of intangibles | 167 | | | 323 | | | |
Restructuring and related costs | 15 | | | 87 | | | |
Acquisition/divestiture fees and related costs | — | | | 134 | | | |
Amortization of acquisition-related inventory step-up | — | | | 231 | | | |
Loss on Copeland equity method investment | — | | | 36 | | | |
Russia business exit | 47 | | | — | | | |
AspenTech Micromine purchase price hedge gain | (35) | | | — | | | |
Adjusted EBITA from continuing operations | $ | 664 | | | 963 | | | 45 | % |
Percent of sales | 19.7 | % | | 23.4 | % | | 3.7 pts |
Business Segments
Following is an analysis of operating results for the Company’s business segments for the first quarter ended December 31, 2017,2022, compared with the first quarter ended December 31, 2016.2023. The Company defines segment earnings as earnings before interest and taxes. See Notes 1 and 10Note 14 for a discussion of the Company's business segments.
AUTOMATION SOLUTIONSINTELLIGENT DEVICES
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| 2022 | | 2023 | | Change | | FX | | Acq/Div | | U/L |
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Sales: | | | | | | | | | | | |
Final Control | $ | 862 | | | 940 | | | 9 | % | | (1) | % | | 1 | % | | 9 | % |
Measurement & Analytical | 749 | | | 947 | | | 26 | % | | — | % | | 2 | % | | 28 | % |
Discrete Automation | 618 | | | 613 | | | (1) | % | | (1) | % | | — | % | | (2) | % |
Safety & Productivity | 310 | | | 322 | | | 4 | % | | (1) | % | | — | % | | 3 | % |
Total | $ | 2,539 | | | 2,822 | | | 11 | % | | (1) | % | | 1 | % | | 11 | % |
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Earnings: | | | | | | | | | | | |
Final Control | $ | 158 | | | 194 | | | 22 | % | | | | | | |
Measurement & Analytical | 175 | | | 235 | | | 34 | % | | | | | | |
Discrete Automation | 121 | | | 97 | | | (20) | % | | | | | | |
Safety & Productivity | 63 | | | 68 | | | 8 | % | | | | | | |
Total | $ | 517 | | | 594 | | | 15 | % | | | | | | |
Margin | 20.4 | % | | 21.0 | % | | 0.6 pts | | | | | | |
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Amortization of intangibles: | | | | | | | | | | | |
Final Control | $ | 22 | | | 22 | | | | | | | | | |
Measurement & Analytical | 5 | | | 20 | | | | | | | | | |
Discrete Automation | 7 | | | 9 | | | | | | | | | |
Safety & Productivity | 6 | | | 6 | | | | | | | | | |
Total | $ | 40 | | | 57 | | | | | | | | | |
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Restructuring and related costs: | | | | | | | | | | | |
Final Control | $ | 4 | | | 7 | | | | | | | | | |
Measurement & Analytical | 1 | | | 3 | | | | | | | | | |
Discrete Automation | 1 | | | 10 | | | | | | | | | |
Safety & Productivity | — | | | — | | | | | | | | | |
Total | $ | 6 | | | 20 | | | | | | | | | |
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Adjusted EBITA | $ | 563 | | | 671 | | | 19 | % | | | | | | |
Adjusted EBITA Margin | 22.2 | % | | 23.8 | % | | 1.6 pts | | | | | | |
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Three Months Ended Dec 31 | 2016 | | 2017 | | Change |
(dollars in millions) | | | | | |
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Sales | $ | 1,967 |
| | 2,572 |
| | 31 | % |
Earnings | $ | 326 |
| | 386 |
| | 18 | % |
Margin | 16.6 | % | | 15.0 | % | | |
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Sales by Major Product Offering | | | | | |
Measurement & Analytical Instrumentation | $ | 682 |
| | 772 |
| | 13 | % |
Valves, Actuators & Regulators | 449 |
| | 867 |
| | 93 | % |
Industrial Solutions | 367 |
| | 424 |
| | 15 | % |
Process Control Systems & Solutions | 469 |
| | 509 |
| | 9 | % |
Total | $ | 1,967 |
| | 2,572 |
| | 31 | % |
Automation SolutionsIntelligent Devices sales were $2.6$2.8 billion in the first quarter of 2024, an increase of $605 million,$283, or 3111 percent. Underlying sales increased 11 percent on 9 percent higher volume and 2 percent higher price. Underlying sales increased 6 percent in the Americas, Europe increased 14 percent and Asia, Middle East & Africa was up 18 percent (China up 10 percent). Final Control sales increased $78, or 9 percent, ($176 million) on higher volume. Acquisitions added 19 percent ($373 million) reflecting strength in energy and foreign currency translation had a 3 percent ($56 million) favorable impact.power end markets. Sales for Measurement & Analytical Instrumentation increased 13$198, or 26 percent, reflecting robust growth in all geographies and Processstrong backlog conversion. Discrete Automation sales decreased $5, or 1 percent, reflecting softness in the Americas and Asia, Middle East & Africa. Safety & Productivity sales increased $12, or 4 percent, reflecting solid demand in the Americas and Europe. Earnings for Intelligent Devices were $594, an increase of $77, or 15 percent, and margin increased 0.6 percentage points to 21.0 percent. Adjusted EBITA margin was 23.8 percent, an increase of 1.6 percentage points, reflecting leverage on higher sales and favorable price less net material inflation, partially offset by higher headcount and other costs.
SOFTWARE AND CONTROL
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| 2022 | | 2023 | | Change | | FX | | Acq/Div | | U/L |
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Sales: | | | | | | | | | | | |
Control Systems & Software | $ | 606 | | | 675 | | | 11 | % | | (1) | % | | 1 | % | | 11 | % |
Test & Measurement | — | | | 382 | | | — | % | | | | | | |
AspenTech | 243 | | | 257 | | | 6 | % | | — | % | | — | % | | 6 | % |
Total | $ | 849 | | | 1,314 | | | 55 | % | | (1) | % | | (45) | % | | 9 | % |
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Earnings: | | | | | | | | | | | |
Control Systems & Software | $ | 107 | | | 149 | | | 40 | % | | | | | | |
Test & Measurement | — | | | (78) | | | #DIV/0! | | | | | | |
AspenTech | (33) | | | (35) | | | (7) | % | | | | | | |
Total | $ | 74 | | | 36 | | | (51) | % | | | | | | |
Margin | 8.7 | % | | 2.8 | % | | (5.9) pts | | | | | | |
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Amortization of intangibles: | | | | | | | | | | | |
Control Systems & Software | $ | 6 | | | 5 | | | | | | | | | |
Test & Measurement | — | | | 139 | | | | | | | | | |
AspenTech | 121 | | | 122 | | | | | | | | | |
Total | $ | 127 | | | 266 | | | | | | | | | |
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Restructuring and related costs: | | | | | | | | | | | |
Control Systems & Software | $ | 1 | | | 1 | | | | | | | | | |
Test & Measurement | — | | | 40 | | | | | | | | | |
AspenTech | — | | | — | | | | | | | | | |
Total | $ | 1 | | | 41 | | | | | | | | | |
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Adjusted EBITA | $ | 202 | | | 343 | | | 70 | % | | | | | | |
Adjusted EBITA Margin | 23.8 | % | | 26.1 | % | | 2.3 pts | | | | | | |
Software and Control sales were $1,314 in the first quarter of 2024, an increase of $465, or 55 percent compared to the prior year, reflecting the impact of the Test & Measurement acquisition and strong growth in Control Systems & Solutions increasedSoftware. Underlying sales were up 9 percent on increased spending by global oil7 percent higher volume and gas customers, strong MRO demand and growth of small and mid-sized projects focused on facility expansion and optimization. Valves, Actuators & Regulators increased $418 million, or 932 percent led by the valves & controls acquisition ($349 million) and broad-based demand across end markets, including energy, chemical and life sciences. Industrial Solutions sales increased $57 million, or 15 percent, driven by favorable global trends in general industrial end markets.higher price. Underlying sales increased 14 percent in the U.S. and decreased 1Americas, 2 percent in Europe. Sales increased 13Europe and 9 percent in Asia, Middle East & Africa (China up 224 percent) supported by. Control Systems & Software sales increased $69, or 11 percent, reflecting robust global demand in process end markets and strong demand in process automationpower end markets in the Americas and discrete markets, while Canada was up 18 percent and Latin America was up 6 percent. Sales decreased 7 percent inAsia, Middle East/East & Africa. Earnings were $386 million, an increase of $60 million, or 18 percent. The increase was driven by higher volume, leverage and cost reduction savings, partially offset by unfavorable foreign currency transactions of $26 million compared with the prior year. Margin declined 1.6 percentage points to 15.0 percent. Margin improved 1.2 percentage points to 17.8 percent, excluding dilution of 2.8 percentage points from the valvesTest & controls acquisition, which includes intangibles amortization of $18 million.
COMMERCIAL & RESIDENTIAL SOLUTIONS
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Three Months Ended Dec 31 | 2016 | | 2017 | | Change |
(dollars in millions) | | | | | |
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Sales: | | | | | |
Climate Technologies | $ | 859 |
| | 922 |
| | 7 | % |
Tools & Home Products | 393 |
| | 330 |
| | (16 | )% |
Total | $ | 1,252 |
| | 1,252 |
| | — | % |
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Earnings: | | | | | |
Climate Technologies | $ | 161 |
| | 165 |
| | 2 | % |
Tools & Home Products | 88 |
| | 87 |
| | (1 | )% |
Total | $ | 249 |
| | 252 |
| | 1 | % |
Margin | 19.9 | % | | 20.1 | % | | |
Commercial & Residential SolutionsMeasurement sales were $1.3 billion$382 in the first quarter, flat compared to the prior year. Underlying sales were up 5 percent ($58 million) on higher volume and slightly higher price. Foreign currency translation added 2 percent ($19 million), while the divestiture of the residential storage business deducted 7 percent ($77 million). Climate Technologies sales were $922 million in the first quarter, an increase of $63 million, or 7 percent. Global HVAC sales were solid, reflecting robust growth in China on strength in commercial air conditioning and heating, partially offset by a modest decline in U.S. residential air conditioning. Global refrigeration sales were solid led by robust growth in China, while the U.S. was flat. Sensors had solid growth and temperature controls was up slightly. Tools & Home Products sales were $330 million in the first quarter, a decrease of $63 million, or 16 percent, reflecting the impact of the residential storage divestiture. Sales for professional tools were strong on favorable demand in oil and gas and construction-related markets. Wet/dry vacuums had solid sales growth and food waste disposers were up slightly. Overall, underlyingacquisition. AspenTech sales increased 1$14, or 6 percent, in the U.S., 1primarily due to higher maintenance and services revenue. Earnings for Software and Control decreased $38, down 51 percent, in Europe and 17 percent in Asia (China up 24 percent). Sales increased 5 percent in Canada, 4 percent in Middle East/Africa and 1 percent in Latin America. Earnings were $252 million, an increase of $3 million and margin improved 0.2decreased 5.9 percentage points due to the Test & Measurement loss which reflected significant intangibles amortization and restructuring. Adjusted EBITA margin increased 2.3 percentage points, reflecting leverage on higher volumesales, higher price and favorable price, partially offset by higher materials costs. In addition, the residential storage divestiture reduced earnings by $6 million, but benefited margin comparisons 0.8 percentage points, while higher warranty costs of $10 million associated with a specific product issue in Climate Technologies offset this benefit.mix.
FINANCIAL CONDITION
Key elements of the Company's financial condition for the three months ended December 31, 20172023 as compared to the year ended September 30, 20172023 and the three months ended December 31, 2022 follow. | | | | | | | | Dec 31, 2022 | | Sept 30, 2023 | | Dec 31, 2023 |
| Sept 30, 2017 |
| | Dec 31, 2017 |
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Working capital (in millions) | $ | 3,207 |
| | 1,960 |
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Operating working capital | |
Current ratio | 1.6 |
| | 1.3 |
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Total debt-to-total capital | 34.8 | % | | 39.6 | % | Total debt-to-total capital | 48.1 | % | | 28.3 | % | | 34.4 | % |
Net debt-to-net capital | 15.4 | % | | 22.1 | % | Net debt-to-net capital | 41.7 | % | | 0.5 | % | | 29.8 | % |
Interest coverage ratio | 12.6 | X | | 11.2X |
| Interest coverage ratio | 7.3 | X | | 11.5 | X | | 2.6 | X |
Operating working capital increased due to the acquisition of NI, changes in accrued expenses and higher inventory levels to support sales growth. As of December 31, 2023, Emerson's cash and equivalents totaled $2,076, which included approximately $180 attributable to AspenTech. The cash held by AspenTech is intended to be used for its own purposes and is not available to return to Emerson shareholders.
The Company's debt-to-capital increased primarily duecurrent ratio decreased compared to higherSeptember 30, 2023, reflecting the decrease in cash and increase in short-term borrowings used to support acquisitions and share repurchases.the NI acquisition. The interest coverage ratio (earnings before income taxes plus interest expense, divided by interest expense) of 11.2X2.6X for the first three months of 2018fiscal 2024 compares to 9.9X7.3X for the first three months of 2017. The increase reflects higherended December 31, 2022, reflecting lower GAAP pretax earnings largely due to the NI acquisition. Excluding the impact from acquisition-related inventory step-up amortization of $231, higher intangibles amortization of $156, acquisition/divestiture fees and lowerrelated costs of $134, higher restructuring and related costs of $72, and the loss of $36 on the Copeland equity method investment, the interest expense in the current year.coverage ratio was 10.1X.
Operating cash flow from continuing operations for the first three months of 2018fiscal 2024 was $447 million,$444, an increase of $37 million$142 compared with $410 million$302 in the prior year, reflecting higher earnings partially offset by an investment in working capital(excluding the impact of items related to support higher levels of sales activity. Operatingthe NI acquisition). Acquisition-related costs and integration activities negatively impacted operating cash flow from continuing operations funded dividends of $311 million and capital expenditures of $96 million.in the current year by approximately $100. AspenTech generated approximately $30 compared to $50 in the prior year. Free cashcash flow from continuing operations of $351 million$367 in the first three months of fiscal 2024 (operating cash flow of $447 million$444 less capital expenditures of $96 million)$77) increased $41 million$124 compared to free cash flow of $243 in 2018. Free2023 (operating cash flow of $302 less capital expenditures of $59), reflecting the increase in operating cash flow. Cash used in investing activities from continuing operations was $310 million$8,453, reflecting the acquisition of NI. Cash provided by financing activities from continuing operations was $2,055, reflecting an increase in 2017 (operating cash flow of $410 million less capital expenditures of $100 million). Divestiture proceeds of $235 million and increased short-term borrowings were used to fund acquisitions of $513 million$2,647, partially offset by share repurchases and common stock purchasesdividends.
Total cash provided by operating activities was $415 including the impact of $500 million.discontinued operations, and decreased $3 compared with $418 in the prior year.
Emerson'sEmerson maintains a conservative financial structure providesto provide the strength and flexibility necessary to achieve itsour strategic objectives. The Companyobjectives and has been successful in efficiently deploying cash where needed worldwide to fund operations, complete acquisitions and sustain long-term growth. The Company believes that sufficient funds will beEmerson is in a strong financial position, with total assets of $47 billion and common stockholders' equity of $21 billion, and has the resources available to meet the Company’s needsfor reinvestment in the foreseeable future through operating cash flow, existing resources,businesses, strategic acquisitions and managing its capital structure on a short- and long-term debt capacity or backup credit lines.
basis.
FISCAL 20182024 OUTLOOK
The Company’s first quarter results reflected continued favorable global economic conditions and solidFor the full year, consolidated net sales growth in both Automation Solutions and Commercial & Residential Solutions. These favorable trends along with the positive effects of U.S. tax reform support the Company’s outlook for full-year fiscal 2018. Consolidated net salesfrom continuing operations are expected to be up 1114.5 percent to 1317 percent, with underlying sales up 54.5 percent to 76.5 percent excluding an approximate 4a 10 to 10.5 percent impact from acquisitions and divestitures and 2 percentthe NI acquisition. Earnings per share from currency translation. Automation Solutions net salescontinuing operations are expected to be up 18$2.80 to 20 percent, with underlying sales up 6 to 8 percent excluding an approximate 9 percent impact$2.95, while adjusted earnings per share from acquisitions and 3 percent from currency translation. Commercial & Residential Solutions net salescontinuing operations are expected to be up 1$5.30 to 3 percent, with underlying sales up 4 to 6 percent, excluding an approximate 5 percent negative impact$5.45 (see the following reconciliation).
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Outlook for Fiscal 2024 Earnings Per Share | | 2024 |
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Diluted earnings from continuing operations per share | | $2.80 - $2.95 |
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Amortization of intangibles | | ~ 1.42 |
Restructuring and related costs | | ~ 0.34 |
Loss on Copeland equity method investment | | ~ 0.20 |
Amortization of acquisition-related inventory step-up | | ~ 0.38 |
Acquisition/divestiture fees and related costs | | ~ 0.26 |
Discrete tax benefits | | ~ (0.10) |
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Adjusted diluted earnings from continuing operations per share | | $5.30- $5.45 |
Operating cash flow from acquisitions and divestitures and 2 percent from favorable currency translation. Earnings per share arecontinuing operations is expected to be $3.05$3.0 to $3.15, including a $0.15 per share benefit from the lower U.S. corporate income tax rate on full-year earnings. The outlook also includes the $0.07 per share net benefit of the tax law change, offset by the $0.04 per share loss on the residential storage divestiture$3.1 billion and $0.03 per share from first year acquisition accounting charges. The Company expects operatingfree cash flow of $2.9 billion andfrom continuing operations, which excludes projected capital spending of approximately $575 million. For the second quarter of 2018, consolidated net sales are$0.4 billion, is expected to be up$2.6 to $2.7 billion. The fiscal 2024 outlook assumes approximately 18 percent, with underlying sales up$500 million returned to shareholders through share repurchases and approximately 7 percent, excluding an approximate 8 percent impact from acquisitions and divestitures and 3 percent from currency.
$1.2 billion of dividend payments.
Statements in this report that are not strictly historical may be "forward-looking" statements, which involve risks and uncertainties, and Emerson undertakes no obligation to update any such statements to reflect later developments. These risks and uncertainties include the scope, duration and ultimate impacts of the Russia-Ukraine and other global conflicts, as well as economic and currency conditions, market demand, pricing, protection of intellectual property, andcybersecurity, tariffs, competitive and technological factors, inflation, among others, which are set forth in the “Risk Factors” of Part I, Item 1A, and the "Safe Harbor Statement" of Part II, Item 7, to the Company's Annual Report on Form 10-K for the year ended September 30, 20172023 and in subsequent reports filed with the SEC, which are hereby incorporated by reference, as well as the impact of U.S. tax reform as discussed in Note 1 of Notes to Consolidated Financial Statements set forth in Part I, Item 1, of this Quarterly Report on Form 10-Q.reference.
Item 4. Controls and Procedures
The Company maintains a system of disclosure controls and procedures designed to ensure that information required to be disclosed in its reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported in a timely manner. This system also is designed to ensure information is accumulated and communicated to management, including the Company's certifying officers, to allow timely decisions regarding required disclosure. Based on an evaluation performed, the certifying officers have concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report.
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 reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
Item
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Issuer Purchases of Equity Securities (shares in 000s). |
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Period | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
October 2017 | — | | $0.00 | | — | | 56,930 |
November 2017 | 5,007 | | $61.65 | | 5,007 | | 51,923 |
December 2017 | 2,855 | | $67.01 | | 2,855 | | 49,068 |
Total | 7,862 | | $63.60 | | 7,862 | | 49,068 |
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Period | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
October 2023 | | 1,869 | | | | $93.63 | | | 1,869 | | | | 31,415 |
November 2023 | | — | | | | $0.00 | | | — | | | | 31,415 |
December 2023 | | — | | | | $0.00 | | | — | | | | 31,415 |
Total | | 1,869 | | | | $93.63 | | | 1,869 | | | | 31,415 |
In November 2015,March 2020, the Board of Directors authorized the purchase of up to 7060 million shares and 49.1 milliona total of approximately 31.4 shares remain available.available for purchase under the authorization.
Item 5. Other Information
During the three-month period ended December 31, 2023, none of our directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement.
Item 6. Exhibits
(a) Exhibits (Listed by numbers corresponding to the Exhibit Table of Item 601 in Regulation S-K).
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101 | |
Attached as Exhibit 101 to this report are the following documents formatted in XBRL (ExtensibleiXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Statements of Earnings for the three months ended December 31, 20172023 and 2016,2022, (ii) Consolidated Statements of Comprehensive Income for the three months ended December 31, 20172023 and 2016,2022, (iii) Consolidated Balance Sheets as of September 30, 20172023 and December 31, 2017,2023, (iv) Consolidated Statements of Equity for the three months ended December 31, 2023 and 2022, (v) Consolidated Statements of Cash Flows for the three months ended December 31, 20172023 and 2016,2022, and (v)(vi) Notes to Consolidated Financial Statements for the three months ended December 31, 2017. 2023 and 2022.
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104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
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SIGNATURE
Pursuant to the requirements 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.
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| | EMERSON ELECTRIC CO. | |
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| | By | /s/ M. J. Baughman | | |
| | | ByM. J. Baughman | /s/ Frank J. Dellaquila | |
| | | | Frank J. Dellaquila | |
| | | Senior Executive Vice President, and Chief Financial Officer | |
| | | and Chief Accounting Officer | |
| | | (on behalf of the registrant and as Chief Financial Officer) | |
| | | February 7, 20182024 | |