UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30,~~December 31, 2019

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

EXCHANGE ACT OF 1934

For the transition period from ____________________ to __________________

Commission file number 1-278

EMERSON ELECTRIC CO.

(Exact name of registrant as specified in its charter)



Missouri		43-0259330
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

8000 W. Florissant Ave.
P.O. Box 4100
St. Louis,	Missouri	63136
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code: (314) 553-2000

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock of $0.50 par value per share	EMR	New York Stock Exchange
		Chicago Stock Exchange
0.375% Notes due 2024	EMR 24	New York Stock Exchange
1.250% Notes due 2025	EMR 25A	New York Stock Exchange
2.000% Notes due 2029	EMR 29	New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

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



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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common stock of $0.50 par value per share outstanding at ~~July~~January 31, ~~2019:~~2020: ~~615,101,462~~611,841,054 shares.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Statements of Earnings

EMERSON ELECTRIC CO. & SUBSIDIARIES

Three ~~and nine~~ months ended ~~June 30,~~December 31, 2018 and 2019

(Dollars in millions, except per share amounts; unaudited)


	Three Months Ended June 30,			Nine Months Ended June 30,		Three Months Ended December 31,
	2018		2019	2018	2019	2018		2019
Net sales	$	4,456	4,684	12,520	13,401	$	4,147	4,151

Costs and expenses:
Cost of sales	2,514		2,683	7,147	7,714	2,386		2,392
Selling, general and administrative expenses	1,058		1,126	3,088	3,348	1,077		1,123
Other deductions, net	77		65	243	172	50		178
Interest expense (net of interest income of $10, $7, $35 and $19, respectively)	39		43	113	134
Interest expense (net of interest income of $5 and $6, respectively)						43		35

Earnings before income taxes	768		767	1,929	2,033	591		423

Income taxes	49		155	327	429	124		94

Net earnings	719		612	1,602	1,604	467		329

Less: Noncontrolling interests in earnings of subsidiaries	7		8	16	15	2		3

Net earnings common stockholders	$	712	604	1,586	1,589	$	465	326

Basic earnings per share common stockholders	$	1.13	0.98	2.50	2.57	$	0.74	0.53

Diluted earnings per share common stockholders	$	1.12	0.97	2.49	2.55	$	0.74	0.53

Cash dividends per common share	$	0.485	0.49	1.455	1.47	$	0.49	0.50

See accompanying Notes to Consolidated Financial Statements.

Consolidated Statements of Comprehensive Income

EMERSON ELECTRIC CO. & SUBSIDIARIES

Three ~~and nine~~ months ended ~~June 30,~~December 31, 2018 and 2019

(Dollars in millions; unaudited)


	Three Months Ended June 30,						Nine Months Ended June 30,					Three Months Ended December 31,
		2018			2019			2018		2019			2018			2019
Net earnings		$	719		612			1,602		1,604			$	467		329

Other comprehensive income (loss), net of tax:
Foreign currency translation		(273		)	(93	)		(118	)	(40	)		(35		)	99
Pension and postretirement		22			13			67		38			13			28
Cash flow hedges		(14		)	(8	)		(22	)	2			(15		)	19
Total other comprehensive income (loss)		(265		)	(88	)		(73	)	—			(37		)	146

Comprehensive income		454			524			1,529		1,604			430			475

Less: Noncontrolling interests in comprehensive income of subsidiaries		7			8			16		16			2			3
Comprehensive income common stockholders		$	447		516			1,513		1,588			$	428		472

See accompanying Notes to Consolidated Financial Statements.

Consolidated Balance Sheets

EMERSON ELECTRIC CO. & SUBSIDIARIES

(Dollars and shares in millions, except per share amounts; unaudited)


	Sept 30, 2018			June 30, 2019		Sept 30, 2019			Dec 31, 2019
ASSETS
Current assets
Cash and equivalents	$	1,093		1,603		$	1,494		1,635
Receivables, less allowances of $113 and $100, respectively	3,023			2,901
Receivables, less allowances of $112 and $115, respectively						2,985			2,726
Inventories	1,813			2,061		1,880			2,064
Other current assets	690			785		780			771
Total current assets	6,619			7,350		7,139			7,196

Property, plant and equipment, net	3,562			3,614		3,642			3,633
Other assets
Goodwill	6,455			6,544		6,536			6,578
Other intangible assets	2,751			2,691		2,615			2,567
Other	1,003			1,118		565			1,127
Total other assets	10,209			10,353		9,716			10,272
Total assets	$	20,390		21,317		$	20,497		21,101

LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings and current maturities of long-term debt	$	1,623		1,877		$	1,444		1,984
Accounts payable	1,943			1,785		1,874			1,649
Accrued expenses	2,534			2,453		2,658			2,707
Income taxes	64			103
Total current liabilities	6,164			6,218		5,976			6,340

Long-term debt	3,137			4,336		4,277			4,018

Other liabilities	2,099			1,959		1,971			2,284

Equity
Common stock, $0.50 par value; authorized, 1,200.0 shares; issued, 953.4 shares; outstanding, 629.2 shares and 615.1 shares, respectively	477			477
Common stock, $0.50 par value; authorized, 1,200.0 shares; issued, 953.4 shares; outstanding, 611.0 shares and 611.6 shares, respectively						477			477
Additional paid-in-capital	348			387		393			447
Retained earnings	23,072			23,777		24,199			24,220
Accumulated other comprehensive income (loss)	(1,015		)	(1,016	)	(1,722		)	(1,576	)
Cost of common stock in treasury, 324.2 shares and 338.3 shares, respectively	(13,935		)	(14,870	)
Cost of common stock in treasury, 342.4 shares and 341.8 shares, respectively						(15,114		)	(15,147	)
Common stockholders’ equity	8,947			8,755		8,233			8,421
Noncontrolling interests in subsidiaries	43			49		40			38
Total equity	8,990			8,804		8,273			8,459
Total liabilities and equity	$	20,390		21,317		$	20,497		21,101

See accompanying Notes to Consolidated Financial Statements.

Consolidated Statements of ~~Cash Flows~~Equity

EMERSON ELECTRIC CO. & SUBSIDIARIES

~~Nine Months Ended June 30,~~Three months ended December 31, 2018 and 2019

(Dollars in millions; unaudited)

Nine Months Ended
June 30,
2018
2019
Operating activities
Net earnings $ 1,602
1,604
Adjustments to reconcile net earnings to net cash provided by operating activities:
        Depreciation and amortization 557
609
        Changes in operating working capital (286 ) (352 )
        Other, net (5 ) (59 )
            Cash provided by operating activities 1,868
1,802

Investing activities
Capital expenditures (314 ) (395 )
Purchases of businesses, net of cash and equivalents acquired (770 ) (385 )
Divestitures of businesses 223
10
Other, net (71 ) (91 )
    Cash used in investing activities (932 ) (861 )

Financing activities
Net increase in short-term borrowings 1,581
427
Proceeds from long-term debt —
1,691
Payments of long-term debt (251 ) (655 )
Dividends paid (924 ) (909 )
Purchases of common stock (1,000 ) (1,000 )
Other, net 34
21
    Cash used in financing activities (560 ) (425 )

Effect of exchange rate changes on cash and equivalents (27 ) (6 )
Increase in cash and equivalents 349
510
Beginning cash and equivalents 3,062
1,093
Ending cash and equivalents $ 3,411
1,603

Changes in operating working capital
Receivables $ 27
178
Inventories (133 ) (217 )
Other current assets (15 ) (74 )
Accounts payable (97 ) (156 )
Accrued expenses (83 ) (116 )
Income taxes 15
33
Total changes in operating working capital $ (286 ) (352 )



	Three Months Ended December 31,
	2018			2019

Common stock	$	477		477

Additional paid-in-capital
Beginning balance	348			393
Stock plans	27			54
Ending balance	375			447

Retained earnings
Beginning balance	23,072			24,199
Net earnings common stockholders	465			326
Dividends paid	(305		)	(305	)
Adoption of accounting standard updates	20			—
Ending balance	23,252			24,220

Accumulated other comprehensive income (loss)
Beginning balance	(1,015		)	(1,722	)
Foreign currency translation	(35		)	99
Pension and postretirement	13			28
Cash flow hedges	(15		)	19
Ending balance	(1,052		)	(1,576	)

Treasury stock
Beginning balance	(13,935		)	(15,114	)
Purchases	(925		)	(129	)
Issued under stock plans	44			96
Ending balance	(14,816		)	(15,147	)

Common stockholders' equity	8,236			8,421

Noncontrolling interests in subsidiaries
Beginning balance	43			40
Net earnings	2			3
Dividends paid	(5		)	(5	)
Ending balance	40			38

Total equity	$	8,276		8,459

See accompanying Notes to Consolidated Financial Statements.

Consolidated Statements of Cash Flows

EMERSON ELECTRIC CO. & SUBSIDIARIES

Three Months Ended December 31, 2018 and 2019

(Dollars in millions; unaudited)



	Three Months Ended
	December 31,
	2018			2019
Operating activities
Net earnings	$	467		329
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	202			211
Stock compensation	(7		)	56
Pension expense	—			17
Changes in operating working capital	(310		)	(180	)
Other, net	(29		)	(9	)
Cash provided by operating activities	323			424

Investing activities
Capital expenditures	(155		)	(114	)
Purchases of businesses, net of cash and equivalents acquired	(73		)	—
Other, net	(31		)	(17	)
Cash used in investing activities	(259		)	(131	)

Financing activities
Net increase in short-term borrowings	1,601			754
Payments of long-term debt	(403		)	(502	)
Dividends paid	(305		)	(305	)
Purchases of common stock	(786		)	(129	)
Other, net	(9		)	20
Cash provided by (used in) financing activities	98			(162	)

Effect of exchange rate changes on cash and equivalents	(7		)	10
Increase in cash and equivalents	155			141
Beginning cash and equivalents	1,093			1,494
Ending cash and equivalents	$	1,248		1,635

Changes in operating working capital
Receivables	$	292		281
Inventories	(170		)	(167	)
Other current assets	(9		)	32
Accounts payable	(247		)	(225	)
Accrued expenses	(176		)	(101	)
Total changes in operating working capital	$	(310	)	(180	)

See accompanying Notes to Consolidated Financial Statements.

Notes to Consolidated Financial Statements

EMERSON ELECTRIC CO. & SUBSIDIARIES

(Dollars ~~euros~~ and shares in millions, except per share amounts or where noted)

(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. 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, ~~2018.~~2019. Certain prior year amounts have been reclassified to conform to current year presentation.

On October 1, ~~2018,~~2019, the Company adopted ASC ~~606,~~ ~~Revenue from Contracts with Customers~~, which updated and consolidated revenue recognition guidance from multiple sources into a single, comprehensive standard to be applied for all contracts with customers. The fundamental principle of the revised standard is to recognize revenue based on the transfer of goods and services to customers at the amount the Company expects to be entitled to in exchange for those goods and services. The Company adopted the new standard using the modified retrospective approach and applied the guidance to open contracts which were not completed at the date of adoption. The cumulative effect of adoption resulted in a $25 increase to beginning retained earnings as of October 1, 2018. This increase primarily related to contracts where a portion of revenue for delivered goods or services was previously deferred due to contingent payment terms. The adoption of ASC 606 did not materially impact the Company's consolidated financial statements as of and for the three and nine months ended~~June 30, 2019.~~

~~In the first quarter of fiscal 2019, the Company adopted updates to ASC 715,~~ ~~Compensation - Retirement Benefits~~, which permit only the service cost component of net periodic pension and postretirement expense to be reported with compensation costs, while all other components are required to be reported separately in other deductions. These updates were adopted retrospectively and resulted in the reclassification of income for the three and nine months ended June 30, 2018 of $11 and $32, respectively, from cost of sales and SG&A to other deductions, net. Segment earnings were not impacted by the updates to ASC 715.

~~In February 2016, the FASB issued ASC~~ 842, Leases,, which requires rights and obligations related to lease arrangements to be recognized on the balance sheet. Also required are additional disclosures regarding the amount, timing and uncertainty of cash flows resulting from lease arrangements. Currently, obligations classified as operating leases are not recorded on the balance sheet, ~~but must be disclosed. The Company is required to adopt the new standard on October 1, 2019 and expects to use~~using the optional transition method under which prior periods ~~will~~were not be adjusted. ~~As previously disclosed,~~The Company elected the package of practical expedients for leases that commenced prior to the adoption date, which included carrying forward the historical lease classification as operating or finance. The adoption of ASC 842 ~~is expected to impact the Company’s balance sheet due to~~resulted in the recognition of operating lease right-of-use assets and related lease liabilities of approximately $500 as of October 1, 2019, but isdid not ~~expected to~~ materially impact ~~its~~the Company's earnings or cash ~~flows. The Company is in~~flows for the ~~process of implementing changes to its business processes, systems, controls and accounting policies to support recognition and disclosure under the new guidance.~~three months ended December 31, 2019.

On October 1, 2019, the Company adopted updates to ASC 815, Derivatives and Hedging, which permit hedging certain contractually specified risk components. Additionally, the updates eliminate the requirement to separately measure and report hedge ineffectiveness and simplify hedge documentation and effectiveness assessment requirements. These updates were adopted using a modified retrospective approach and were immaterial to the Company's financial statements for the three months ended December 31, 2019.

(2) REVENUE RECOGNITION

Emerson is a global manufacturer that combines technology and engineering to provide innovative solutions to its customers, largely in the form of tangible products. The Company evaluates its contracts with customers to identify the promised goods or services and recognizes revenue for the identified performance obligations at the amount the Company expects to be entitled to in exchange for those goods or services. A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. Revenue is recognized when, or as, performance obligations are satisfied and control has transferred to the customer, typically when products are shipped or delivered, title and risk of loss pass to the customer, and the Company has a present right to payment. The vast majority of the Company's revenues relate to a broad offering of manufactured products which are recognized at the point in time when control transfers, ~~generally in accordance with shipping terms. A~~while a smaller portion of the Company's revenues relate to the sale of software and post-contract customer support, parts and labor for repairs, and engineering services. In limited circumstances, contracts include multiple performance obligations, where

~~revenue is recognized separately for each good or service, as well as contracts where revenue~~ is recognized over time ~~as control transfers to the customer.~~

Revenue is recognized over time for approximately 5 percent of the Company's revenues. These contracts largely relate to projects in the Process Control Systems & Solutions product offering within the Automation Solutions segment where revenue is recognized using the percentage-of-completion method to reflect the transfer of control over time, while a small amount is attributable to long-term maintenance and service contracts where revenue is typically recognized on a straight-line basis as the services are provided. Approximately 5 percent of revenues relateor relates to sales arrangements with multiple performance ~~obligations, principally in~~obligations. See Note 13 for additional information about the Automation Solutions segment. Tangible products represent a large majority of the delivered items in contracts with multiple performance obligations or where revenue is recognized over time, while a smaller portion is attributable to installation, service and maintenance.

For revenues recognized over time, the Company typically uses an input method to determine progress and recognize revenue, based on costs incurred. The Company believes costs incurred closely correspond with its performance under the contract and the transfer of control to the customer.

In sales arrangements that involve multiple performance obligations, revenue is allocated based on the relative standalone selling price for each performance obligation. Observable selling prices from actual transactions are used whenever possible. In other instances, the Company determines the standalone selling price based on third-party pricing or management's best estimate. Generally, contract duration is short-term, and cancellation, termination or refund provisions apply only in the event of contract breach and are rarely invoked.

~~Payment terms vary but are generally short-term in nature. The~~ Company's long-term contracts, where revenue is generally recognized over time, are typically billed as work progresses in accordance with the contract terms and conditions, either at periodic intervals or upon achievement of certain milestones. The timing of revenue recognition and billings under these contracts results in either unbilled receivables (contract assets) when revenue recognized exceeds billings, or customer advances (contract liabilities) when billings exceed revenue recognized. Unbilled receivables are reclassified to accounts receivable when an unconditional right to consideration exists, typically when a milestone in the contract is achieved. The Company does not evaluate whether the transaction price includes a significant financing component for contracts where the time between cash collection and performance is less than one year.

Certain arrangements with customers include variable consideration, typically in the form of rebates, cash discounts or penalties. In limited circumstances, the Company sells products with a general right of return. In most instances, returns are limited to product quality issues. The Company records a reduction to revenue at the time of sale to reflect the ultimate amount of consideration it expects to receive. The Company's estimates are updated quarterly based on historical experience, trend analysis, and expected market conditions. Variable consideration is typically not constrained at the time revenue is recognized.

The Company offers warranties, which vary by product line and are competitive for the markets in which the Company operates. Warranties are largely offered to provide assurance that the product will function as intended and generally extend for a period of one to two years from the date of sale or installation. Provisions for warranty expense are estimated at the time of sale based on historical experience and adjusted quarterly for any known issues that may arise. Product warranty expense is less than one percent of sales.

~~Capitalized amounts related to incremental costs to obtain customer contracts and costs to fulfill contracts are immaterial.~~

revenues.

The following table summarizes the balances of the Company's unbilled receivables (contract assets), which are reported in Other current assets, and its customer advances (contract liabilities), which are reported in Accrued expenses.


	Sept 30, 2018				June 30, 2019			Sept 30, 2019				Dec 31, 2019
Unbilled receivables (contract assets)		$	321			438			$	456			422
Customer advances (contract liabilities)		(510		)		(539	)		(519		)		(569	)
Net contract liabilities		$	(189	)		(101	)		$	(63	)		(147	)

The majority of the Company's contract balances relate to arrangements where revenue is recognized over time and payments from customers are made according to a contractual billing schedule. The ~~decrease~~increase in net contract liabilities was due to customer billings which exceeded revenue recognized for performance completed during the ~~period which exceeded customer billings.~~period. Revenue recognized for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2019 included approximately ~~$45 and $370, respectively,~~$270 that was included in the beginning contract liability balance. Other factors that impacted the change in net contract liabilities were immaterial. Revenue recognized for the ~~nine~~three months ended ~~June 30, 2018~~December 31, 2019 for performance obligations that were ~~fully~~ satisfied in previous periods, including cumulative catchup adjustments on the Company's long-term contracts, was not material.

As of ~~June 30,~~December 31, 2019, the Company's backlog relating to unsatisfied (or partially unsatisfied) performance obligations in contracts with its customers was approximately $5.5 billion. The Company expects to recognize

approximately 85 percent of its remaining performance obligations as revenue over the next 12 months, with the remainder substantially over the subsequent two years thereafter.

~~See Note 12 for additional information about the Company's revenues.~~

(3) WEIGHTED-AVERAGE 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 June 30,		Nine Months Ended June 30,		Three Months Ended December 31,
	2018	2019	2018	2019	2018	2019

Basic shares outstanding	629.4	614.3	633.4	617.4	623.9	610.0
Dilutive shares	3.5	4.7	3.1	4.2	3.9	4.1
Diluted shares outstanding	632.9	619.0	636.5	621.6	627.8	614.1

(4) ~~OTHER FINANCIAL INFORMATION~~

Sept 30, 2018 June 30, 2019
Inventories
Finished products $ 592
636
Raw materials and work in process 1,221
1,425
Total $ 1,813
2,061
ACQUISITIONS AND DIVESTITURES

Property, plant and equipment, net
Property, plant and equipment, at cost $ 8,370
8,687
Less: Accumulated depreciation 4,808
5,073
Total $ 3,562
3,614

The Company acquired 8 businesses in 2019, all in the Automation Solutions segment, for $469, net of cash acquired. These eight businesses had combined annual sales of approximately $300. The Company recognized goodwill of $204 ($168 of which is expected to be tax deductible) and other identifiable intangible assets of $155, primarily customer relationships and intellectual property with a weighted-average life of approximately nine years. Valuations of certain acquired assets and liabilities are in-process and subject to refinement.

(5) PENSION & POSTRETIREMENT PLANS

Total periodic pension and postretirement (income) expense is summarized below:



	Three Months Ended December 31,
		2018			2019
Service cost		$	18		22
Interest cost		50			40
Expected return on plan assets		(88		)	(84	)
Net amortization		17			37
Total		$	(3	)	15

(6) OTHER DEDUCTIONS, NET

Other deductions, net are summarized below:



	Three Months Ended December 31,
	2018				2019

Amortization of intangibles (intellectual property and customer relationships)		$	57		59
Restructuring costs		10			97
Special advisory fees		—			13
Other		(17		)	9
Total		$	50		178

In the first quarter of fiscal 2020, Other included an unfavorable impact on comparisons from pensions of $14 and foreign currency transactions of $15.

(7) 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 costs incurred in the first quarter of fiscal 2020 largely relate to workforce reductions of approximately 1,100 employees. The Company expects fiscal 2020 restructuring expense to be approximately $215, which includes costs to complete actions initiated in the first quarter.

Restructuring expense by business segment follows:



	Three Months Ended December 31,
	2018			2019

Automation Solutions		$	5		83

Climate Technologies		3			7
Tools & Home Products		2			3
Commercial & Residential Solutions		5			10

Corporate		—			4

Total		$	10		97

Details of the change in the liability for restructuring costs during the three months ended December 31, 2019 follow:



	Sept 30, 2019			Expense		Utilized/Paid		Dec 31, 2019

Severance and benefits		$	62		80		20		122
Other		7			17		19		5
Total		$	69		97		39		127

(8) INCOME TAXES

Income taxes were $94 in the first quarter of fiscal 2020 and $124 in 2019, resulting in effective tax rates of 22 percent and 21 percent, respectively. The current year and prior year rates included favorable discrete items, which reduced the rates 1 percentage point and 3 percentage points, respectively.

(9) LEASES

The Company leases offices; manufacturing facilities and equipment; and transportation, information technology and office equipment under operating lease arrangements. Finance lease arrangements are immaterial. The Company determines whether an arrangement is, or contains, a lease at contract inception. An arrangement contains a lease if the Company has the right to direct the use of and obtain substantially all of the economic benefits of an identified asset. Right-of-use assets and lease liabilities are recognized at lease commencement based on the present value of lease payments over the lease term. Leases with an initial term of 12 months or less are not recognized on the balance sheet and are recorded as short-term lease expense. The discount rate used to calculate present value is the Company's incremental borrowing rate based on the lease term and the economic environment of the applicable country or region.

Certain leases contain renewal options or options to terminate prior to lease expiration, which are included in the measurement of right-of-use assets and lease liabilities when it is reasonably certain they will be exercised. The Company has elected to account for lease and non-lease components as a single lease component for its offices and manufacturing facilities. Some lease arrangements include payments that are adjusted periodically based on actual charges incurred for common area maintenance, utilities, taxes and insurance, or changes in an index or rate referenced in the lease. The fixed portion of these payments is included in the measurement of right-of-use assets and lease liabilities at lease commencement, while the variable portion is recorded as variable lease expense. The Company's leases typically do not contain material residual value guarantees or restrictive covenants.

The components of lease expense for the three months ended December 31, 2019 were as follows:



	Three Months Ended December 31,
	2019

Operating lease expense		$	53
Variable lease expense		$	5

Short-term lease expense and sublease income were immaterial for the three months ended December 31, 2019. Cash paid for operating leases is classified within operating cash flows and was $50 for the three months ended December 31, 2019. Operating lease right-of-use asset additions were $64 for the three months ended December 31, 2019.

The following table summarizes the balances of the Company's operating lease right-of-use assets and operating lease liabilities as of December 31, 2019, the vast majority of which relates to offices and manufacturing facilities:



	Dec 31, 2019
Right-of-use assets (Other assets)		$	505
Current lease liabilities (Accrued expenses)		$	155
Noncurrent lease liabilities (Other liabilities)		$	361

The weighted-average remaining lease term for operating leases was 5.1 years and the weighted-average discount rate was 2.7% as of December 31, 2019.

Future maturities of operating lease liabilities as of December 31, 2019 are summarized below:



	Dec 31, 2019
Remainder of 2020		$	129
2021		129
2022		97
2023		69
2024		48
Thereafter		79
Total lease payments		551
Less: Interest		35
Total lease liabilities		$	516

Lease commitments that have not yet commenced were immaterial as of December 31, 2019.

The future minimum annual rentals under noncancelable long-term leases as of September 30, 2019 were as follows: $159 in 2020, $112 in 2021, $82 in 2022, $57 in 2023, $38 in 2024 and $63 thereafter.

(10) OTHER FINANCIAL INFORMATION

Sept 30, 2018 June 30, 2019
Goodwill by business segment
Automation Solutions $ 5,355
5,462

Climate Technologies 670
670
Tools & Home Products 430
412
Commercial & Residential Solutions 1,100
1,082

Total $ 6,455
6,544



	Sept 30, 2019			Dec 31, 2019
Inventories
Finished products		$	578		662
Raw materials and work in process		1,302			1,402
Total		$	1,880		2,064

Other intangible assets
Gross carrying amount $ 4,667
4,854
Less: Accumulated amortization 1,916
2,163
Net carrying amount $ 2,751
2,691



Property, plant and equipment, net
Property, plant and equipment, at cost	$	8,671	8,845
Less: Accumulated depreciation	5,029		5,212
Total	$	3,642	3,633



Goodwill by business segment
Automation Solutions	$	5,467	5,501

Climate Technologies	668		669
Tools & Home Products	401		408
Commercial & Residential Solutions	1,069		1,077

Total	$	6,536	6,578



Other intangible assets
Gross carrying amount	$	4,872	4,917
Less: Accumulated amortization	2,257		2,350
Net carrying amount	$	2,615	2,567

Other intangible assets include customer relationships of ~~$1,423~~$1,370 and ~~$1,517~~$1,391 as of ~~June 30,~~December 31, 2019 and September 30, ~~2018,~~2019, respectively.


Other assets include the following:
Operating lease right-of-use assets				$	—	505
Pension assets	$	591	701	164		205
Asbestos-related insurance receivables	$	124	117	115		114
Deferred income taxes	$	74	87	97		105


Accrued expenses include the following:
Customer advances (contract liabilities)				$	519	569
Employee compensation	$	629	598	606		503
Customer advances (contract liabilities)	$	510	539
Operating lease liabilities (current)				—		155
Product warranty	$	124	127	140		138


Other liabilities
Other liabilities include the following:
Pension and postretirement liabilities	$	625	627	$	775	774
Operating lease liabilities (noncurrent)				—		361
Deferred income taxes	484		435	327		329
Asbestos litigation	334		324	313		310
Other	656		573
Total	$	2,099	1,959

~~(5)~~

(11) FINANCIAL INSTRUMENTS

Following is a discussion regarding the Company’s use of financial instruments:

Hedging Activities – As of ~~June 30,~~December 31, 2019, the notional amount of foreign currency hedge positions was approximately $2.2 billion, and commodity hedge contracts totaled approximately ~~$117~~$105 (primarily 4543 million pounds of copper and aluminum). All derivatives receiving hedge accounting are cash flow hedges. The majority of hedging gains and losses deferred as of ~~June 30,~~December 31, 2019 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 Other deductions, net reflect hedges of balance sheet exposures that do not receive hedge 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 ~~and nine~~ months ended ~~June 30,~~December 31, 2019 and 2018:


		Into Earnings									Into OCI										Into Earnings					Into OCI
		3rd Quarter					Nine Months				3rd Quarter				Nine Months						1st Quarter					1st Quarter
Gains (Losses)	Location	2018			2019		2018		2019		2018		2019		2018		2019			Location	2018			2019		2018		2019
Commodity	Cost of sales	$	2		(2	)	13		(8	)	(3	)	(8	)	1		(5	)		Cost of sales	$	(3	)	(3	)	(7	)	7
Foreign currency	Sales, cost of sales	(1		)	4		(1	)	10		(15	)	—		(19	)	10			Sales	(2		)	(2	)	(1	)	3
Foreign currency	Other deductions, net	28			3		16		43											Cost of sales	4			7		(11	)	17
Foreign currency																				Other deductions, net	11			8

Net Investment Hedges																			Net Investment Hedges
Euro denominated debt																										—		(26	)
Total		$	29		5		28		45		(18	)	(8	)	(18	)	5				$	10		10		(19	)	1

Regardless of whether derivatives and non-derivative financial instruments receive hedge 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 hedge accounting are highly effective and no amounts were excluded from the assessment of hedge ~~effectiveness, including for the net investment hedge described below. Hedge ineffectiveness was immaterial for the three and nine months ended June 30, 2019and 2018.~~effectiveness.

~~Net Investment Hedge~~ – In January 2019, the Company issued €500 of 1.25% notes due October 2025 and €500 of 2.0% notes due October 2029. In May 2019, the Company issued €500 of 0.375% notes due May 2024. The net proceeds from the sale of the notes were used to repay commercial paper borrowings and for general corporate purposes. 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. Pretax gains of $6 ($4 after-tax) and $12 ($9 after-tax) were recognized in other comprehensive income (loss) related to the net investment hedge for the three and nine months ended June 30, 2019, respectively. Amounts deferred in accumulated other comprehensive income (loss) will remain until the hedged investment is sold or substantially liquidated.

Fair Value Measurement – Valuations for all derivatives and the Company's long-term debt fall within Level 2 of the GAAP valuation hierarchy. As of ~~June 30,~~December 31, 2019, the fair value of long-term debt was ~~$5.3~~$4.7 billion, which exceeded the carrying value by ~~$411.~~

$420. The fair values of commodity and foreign currency contracts were reported in ~~other~~Other current assets and ~~accrued~~Accrued expenses ~~as summarized below:~~

September 30, 2018 June 30, 2019
Assets Liabilities Assets Liabilities
Commodity $ 1
10
1
7
Foreign Currency $ 35
11
35
9

and did not materially change since September 30, 2019.

Counterparties to derivatives arrangements 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 $6. The~~ Company also can demand full collateralization of derivatives in net asset positions should any counterparty credit ratings fall below certain thresholds. NoNaN collateral was posted with counterparties and ~~none~~NaN was held by the Company as of ~~June 30,~~December 31, 2019.

~~(6) EQUITY~~

~~The change in equity for the three and nine months ended June 30, 2018 and 2019 is shown below:~~

Three Months Ended June 30, Nine Months Ended June 30,
2018
2019
2018
2019

Common stock $ 477
477
477
477

Additional paid-in-capital
     Beginning balance 323
380
297
348
     Stock plans 9
7
35
39
        Ending balance 332
387
332
387

Retained earnings
     Beginning balance 22,254
23,475
21,995
23,072
     Net earnings common stockholders 712
604
1,586
1,589
     Dividends paid (306 ) (302 ) (924 ) (909 )
     Adoption of accounting standard updates —
—
3
25
        Ending balance 22,660
23,777
22,660
23,777

Accumulated other comprehensive income (loss)
     Beginning balance (827 ) (928 ) (1,019 ) (1,015 )
     Foreign currency translation (273 ) (93 ) (118 ) (41 )
     Pension and postretirement 22
13
67
38
     Cash flow hedges (14 ) (8 ) (22 ) 2
        Ending balance (1,092 ) (1,016 ) (1,092 ) (1,016 )

Treasury stock
     Beginning balance (13,735 ) (14,878 ) (13,032 ) (13,935 )
     Purchases (250 ) —
(1,000 ) (1,000 )
     Issued under stock plans 21
8
68
65
        Ending balance (13,964 ) (14,870 ) (13,964 ) (14,870 )

Common stockholders' equity 8,413
8,755
8,413
8,755

Noncontrolling interests in subsidiaries
     Beginning balance 45
46
52
43
     Net earnings 7
8
16
15
     Other comprehensive income —
—
—
1
     Dividends paid (5 ) (5 ) (21 ) (10 )
        Ending balance 47
49
47
49

Total equity $ 8,460
8,804
8,460
8,804

~~(7)~~(12) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Activity in Accumulated other comprehensive income (loss) for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2019 and 2018 ~~and 2019~~ is shown below:


	Three Months Ended June 30,						Nine Months Ended June 30,					Three Months Ended December 31,
		2018			2019			2018		2019			2018			2019
Foreign currency translation
Beginning balance		$	(214	)	(548	)		(369	)	(600	)		$	(600	)	(794	)
Other comprehensive income (loss) before reclassifications		(273		)	(93	)		(101	)	(41	)		(35		)	99
Reclassified to gain/loss on sale of business		—			—			(17	)	—
Ending balance		(487		)	(641	)		(487	)	(641	)		(635		)	(695	)

Pension and postretirement
Beginning balance		(617		)	(395	)		(662	)	(420	)		(420		)	(928	)
Amortization of deferred actuarial losses into earnings		22			13			67		38			13			28
Ending balance		(595		)	(382	)		(595	)	(382	)		(407		)	(900	)

Cash flow hedges
Beginning balance		4			15			12		5			5			—
Deferral of gains (losses) arising during the period		(13		)	(6	)		(13	)	4			(14		)	21
Reclassification of realized (gains) losses to sales and cost of sales		(1		)	(2	)		(9	)	(2	)		(1		)	(2	)
Ending balance		(10		)	7			(10	)	7			(10		)	19

Accumulated other comprehensive income (loss)		$	(1,092	)	(1,016	)		(1,092	)	(1,016	)		$	(1,052	)	(1,576	)

Activity above is shown net of income taxes for the three and nine months ended June 30, 2019 and 2018, respectively, as follows: foreign currency translation: $(2), $-, $(3), and $-; amortization of pension and postretirement deferred actuarial losses: $(4), $(8), $(12), and $(24); deferral of cash flow hedging gains (losses): $2, $5, $(1), and $5; reclassification of realized cash flow hedging (gains) losses: $-, $-, $-, and $3.

Activity above is shown net of income taxes for the three months ended December 31, 2019 and 2018, respectively, as follows: foreign currency translation: $6 and $0; amortization of pension and postretirement deferred actuarial losses: $(9) and $(4); deferral of cash flow hedging gains (losses): $(6) and $5; reclassification of realized cash flow hedging (gains) losses: $0 and $0.

~~(8) PENSION & POSTRETIREMENT PLANS~~

~~Total periodic pension and postretirement (income) expense is summarized below:~~

Three Months Ended June 30, Nine Months Ended June 30,
2018 2019 2018
2019
Service cost $ 19
18
57
54
Interest cost 46
49
139
149
Expected return on plan assets (87 ) (88 ) (262 ) (264 )
Net amortization 30
17
91
50
Total $ 8
(4 ) 25
(11 )

~~(9) OTHER DEDUCTIONS, NET~~

~~Other deductions, net are summarized below:~~

Three Months Ended
June 30, Nine Months Ended
June 30,
2018 2019
2018
2019

Amortization of intangibles $ 47
60
154
177
Restructuring costs 14
20
38
40
Other 16
(15 ) 51
(45 )
Total $ 77
65
243
172

The increase in amortization for the nine months ended June 30, 2019 is due to higher intangibles amortization of $42, which largely relates to acquisitions completed in 2018, partially offset by backlog amortization of $19 incurred in the prior year related to the valves & controls acquisition. In the third quarter of 2019, Other included lower acquisition/divestiture-related costs of $7 and a favorable impact on comparisons from pensions of $11. On a year-to-date basis, Other reflects lower acquisition/divestiture-related costs of $42, pension expenses of $33 and foreign currency transactions of $9.

~~(10) 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. Costs for the three and nine months ended~~June 30, 2019 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
June 30, Nine Months Ended
June 30,
2018 2019 2018 2019

Automation Solutions $ 9
15
26
26

Climate Technologies 4
4
11
8
Tools & Home Products —
1
—
5
Commercial & Residential Solutions 4
5
11
13

Corporate 1
—
1
1

Total $ 14
20
38
40

~~Details of the change in the liability for restructuring costs during the nine months ended June 30, 2019 follow:~~

Sept 30, 2018 Expense Utilized/Paid June 30, 2019

Severance and benefits $ 46
25
35
36
Lease and other contract terminations 3
—
1
2
Asset write-downs —
2
2
—
Vacant facility and other shutdown costs 3
6
8
1
Start-up and moving costs —
7
7
—
Total $ 52
40
53
39

~~(11) INCOME TAXES~~

On December 22, 2017, the U.S. government enacted tax reform, the Tax Cuts and Jobs Act (the "Act"), which made comprehensive changes to U.S. 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 in calendar year 2018 along with the elimination of certain deductions and credits, and a one-time "deemed repatriation" of accumulated foreign earnings. The Company recognized a net tax benefit of $43 ($0.07 per share) in the first quarter of fiscal 2018, and in the third quarter recognized a benefit of $150 ($0.24 per share) due to additional guidance issued by the U.S. Treasury Department and the Internal Revenue Service and as a result of actions taken by the Company. The Company completed its accounting for the Act in the first quarter of fiscal 2019.

Effective in fiscal 2019, the Act also subjects the Company to U.S. tax on global intangible low-taxed income earned by certain of its foreign subsidiaries. The Company elected to recognize this tax as a period expense when it is incurred.

In the second quarter of fiscal 2019, the Company recorded a $13 tax benefit due to the issuance of final regulations related to the one-time tax on deemed repatriation. In the third quarter of fiscal 2019, final regulations related to the calculation of global intangible low-taxed income were issued, which resulted in the Company reversing a $100 benefit and related reserve associated with the one-time tax on deemed repatriation, originally recorded in the first quarter of fiscal 2019. This change had no impact on the Company's results of operations for the three and nine months ended June 30, 2019.

~~The Company will include the effects of any final regulations, as well as any additional guidance or legislative changes, in the period they are issued.~~

Income taxes were $155 in the third quarter of 2019 and $49 in 2018, resulting in effective tax rates of 20 percent and 6 percent, respectively. The effective tax rates in both years reflect the lower U.S. corporate income tax rate as a result of the Act. The current year rate also included a tax benefit of $21 ($0.03 per share) from restructuring a foreign subsidiary, while the prior year rate included the $150 ($0.24 per share) tax benefit related to the Act discussed above.

Income taxes were $429 for the first nine months of 2019 and $327 for 2018, resulting in effective tax rates of 21 percent and 17 percent, respectively. The effective tax rates in both years reflect the lower U.S. corporate income tax rate as a result of the Act. The current year rate also included favorable discrete items which reduced the rate approximately 3 percentage points, while the prior year rate included a net tax benefit of $193 due to impacts of the Act.

~~(12)~~(13) BUSINESS SEGMENTS

Summarized information about the Company's results of operations by business segment follows:


	Three Months Ended June 30,									Nine Months Ended June 30,							Three Months Ended December 31,
	Sales					Earnings				Sales			Earnings				Sales				Earnings
	2018			2019		2018		2019		2018		2019	2018		2019		2018		2019		2018		2019

Automation Solutions	$	2,870		3,025		494		477		8,213		8,834	1,316		1,328		$	2,799	2,852		407		310

Climate Technologies	1,236			1,199		294		278		3,286		3,171	712		650		880		873		146		151
Tools & Home Products	356			463		93		93		1,041		1,390	276		286		458		430		91		86
Commercial & Residential Solutions	1,592			1,662		387		371		4,327		4,561	988		936		1,338		1,303		237		237

Differences in accounting methods						57		64					163		188
Stock compensation																					7		(56	)
Unallocated pension and postretirement costs																					27		13
Corporate and other						(131	)	(102	)				(425	)	(285	)					(44	)	(46	)
Eliminations/Interest	(6		)	(3	)	(39	)	(43	)	(20	)	6	(113	)	(134	)	10		(4	)	(43	)	(35	)
Total	$	4,456		4,684		768		767		12,520		13,401	1,929		2,033		$	4,147	4,151		591		423

The ~~decrease~~increase in ~~Corporate and other expense for the three and nine months ended June 30, 2019 was primarily due to lower acquisition/divestiture-related costs of $7 and $42, respectively, and lower incentive~~ stock compensation ~~of $12 and $61, respectively, reflecting a decreasing~~expense reflects an increasing stock price in the current year compared to ~~an increasing stock~~a decreasing price in the prior year. ~~On a year-to-date basis, the prior year also included valves & controls first year acquisition accounting charges of $10 related to inventory and $19 for backlog amortization.~~

Automation Solutions sales by major product offering are summarized below:


	Three Months Ended June 30,				Nine Months Ended June 30,			Three Months Ended December 31,
		2018		2019		2018	2019		2018		2019

Measurement & Analytical Instrumentation		$	932	945		2,564	2,730		$	858	830
Valves, Actuators & Regulators		948		941		2,732	2,752		874		913
Industrial Solutions		470		548		1,382	1,664		542		507
Process Control Systems & Solutions		520		591		1,535	1,688		525		602
Automation Solutions		$	2,870	3,025		8,213	8,834		$	2,799	2,852

Depreciation and amortization (includes intellectual property, customer relationships and capitalized software) by business segment are summarized below:



	Three Months Ended December 31,
		2018		2019
Automation Solutions		$	129	139

Climate Technologies		45		44
Tools & Home Products		19		19
Commercial & Residential Solutions		64		63

Corporate and other		9		9
Total		$	202	211

~~Segment sales~~Sales by geographic destination are summarized below:

Three Months Ended June 30,
2018 2019
Automation Solutions
Commercial & Residential Solutions
Total
Automation Solutions
Commercial & Residential Solutions
Total

Americas $ 1,401
1,099
2,500
1,448
1,164
2,612
Asia, Middle East & Africa 917
339
1,256
970
313
1,283
Europe 552
154
706
607
185
792
Total $ 2,870
1,592
4,462
3,025
1,662
4,687

Nine Months Ended June 30,
2018 2019
Automation Solutions
Commercial & Residential Solutions
Total
Automation Solutions
Commercial & Residential Solutions
Total

Americas $ 4,059
2,860
6,919
4,376
3,153
7,529
Asia, Middle East & Africa 2,575
1,027
3,602
2,721
863
3,584
Europe 1,579
440
2,019
1,737
545
2,282
Total $ 8,213
4,327
12,540
8,834
4,561
13,395

~~(13) ACQUISITIONS AND DIVESTITURES~~

During the first nine months of 2019, the Company acquired seven businesses in the Automation Solutions segment for $385, net of cash acquired, which included the acquisition of Machine Automation Solutions (General Electric's former Intelligent Platforms business). These seven businesses had combined annual sales of approximately $280.

~~On July 17, 2018, the Company completed the acquisition of Aventics, a global provider of smart pneumatics technologies that power machine and factory automation applications, for $622, net of cash acquired. This business, which has annual sales of approximately $425, is reported in the Industrial Solutions product offering in the Automation Solutions segment. T~~he Company recognized goodwill of $354 ($20 of which is expected to be tax deductible), and identifiable intangible assets of $278, primarily intellectual property and customer relationships with a weighted-average useful life of approximately 12 years.

On July 2, 2018, the Company completed the acquisition of Textron's tools and test equipment business for $810, net of cash acquired. This business, with annual sales of approximately $470, is a manufacturer of electrical and utility tools, diagnostics, and test and measurement instruments, and is reported in the Tools & Home products

~~segment.~~ The Company recognized goodwill of $365 ($17 of which is expected to be tax deductible), and identifiable intangible assets of $358, primarily intellectual property and customer relationships with a weighted-average useful life of approximately 14 years.

~~Valuations of acquired assets and liabilities are in process and subject to refinement for transactions completed after June 30, 2018.~~

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 $309 ($170 of which is expected to be tax deductible), and identifiable intangible assets of $238, primarily intellectual property and customer relationships with a weighted-average useful life of approximately 11 years.

~~During 2018, the Company also acquired four smaller businesses, two in the Automation Solutions segment and two in the Climate Technologies segment.~~

On October 2, 2017, the Company sold its residential storage business for $200 in cash, 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 realized $150 in after-tax cash proceeds from the sale.

~~Pro Forma Financial Information~~

The following unaudited pro forma consolidated condensed financial results of operations are presented as if the 2018 acquisitions occurred on October 1, 2016 and 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 acquisitions occurred as of that time.

Three Months Ended Nine Months Ended
June 30, 2018

Net sales $ 4,693
$ 13,281
Net earnings common stockholders $ 716
$ 1,619
Diluted earnings per share $ 1.13
$ 2.54



	Three Months Ended December 31,
	2018				2019
	Automation Solutions		Commercial & Residential Solutions	Total	Automation Solutions	Commercial & Residential Solutions	Total

Americas	$	1,405	907	2,312	1,410	863	2,273
Asia, Middle East & Africa	841		265	1,106	896	277	1,173
Europe	553		166	719	546	163	709
Total	$	2,799	1,338	4,137	2,852	1,303	4,155

1713

Items 2 and 3.

Management's Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

Net sales for the ~~third~~first quarter of ~~2019~~fiscal 2020 were ~~$4.7~~$4.2 billion, ~~up 5 percent,~~flat compared with the prior year, supported by acquisitions which added 51 percent, and adversely affected by foreign currency translation which deducted 21 percent. Underlying sales, which exclude foreign currency translation, acquisitions and divestitures, ~~increased 2 percent, reflecting strong project activity and maintenance and repair spending in Automation Solutions, partially offset by lower demand in air conditioning markets in Asia.~~were flat.

Net earnings common stockholders were ~~$604~~$326 million, down 1530 percent, and diluted earnings per share were ~~$0.97,~~$0.53, down 1328 percent, primarily due to restructuring costs and special advisory fees of $0.14 per share and higher stock compensation (due to an ~~income tax benefit~~increasing stock price) and pension expense of ~~$150 million ($0.24~~$0.10 per ~~share) from the impacts of U.S. tax reform in the prior year.~~share.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED ~~JUNE 30~~DECEMBER 31

Following is an analysis of the Company’s operating results for the ~~third~~first quarter ended ~~June 30,~~December 31, 2019, compared with the ~~third~~first quarter ended ~~June 30,~~December 31, 2018.


	2018			2019		Change		2018			2019		Change
(dollars in millions, except per share amounts)

Net sales	$	4,456		4,684		5	%	$	4,147		4,151		—	%
Gross profit	$	1,942		2,001		3	%	$	1,761		1,759		—	%
Percent of sales	43.6		%	42.7	%			42.5		%	42.4	%

SG&A	$	1,058		1,126		6	%	$	1,077		1,123		4	%
Percent of sales	23.8		%	24.0	%			26.0		%	27.1	%
Other deductions, net	$	77		65				$	50		178
Interest expense, net	$	39		43				$	43		35

Earnings before income taxes	$	768		767		—	%	$	591		423		(28	)%
Percent of sales	17.2		%	16.4	%			14.2		%	10.2	%
Net earnings common stockholders	$	712		604		(15	)%	$	465		326		(30	)%
Percent of sales	16.0		%	12.9	%			11.2		%	7.9	%

Diluted earnings per share	$	1.12		0.97		(13	)%	$	0.74		0.53		(28	)%

Net sales for the ~~third~~first quarter of ~~2019~~fiscal 2020 were ~~$4.7~~$4.2 billion, ~~an increase of $228 million, or 5 percent~~flat (up $4 million) compared with ~~$4.5 billion in 2018.~~2019. Underlying sales ~~increased 2 percent ($72~~were flat (up $11 million) on higher price ~~and slightly higher~~offset by lower volume. Acquisitions net of divestitures added 51 percent ($~~243~~20 million) and foreign currency translation subtracted 21 percent ($8727 million). Underlying sales were ~~flat~~down 3 percent in the U.S. and increased 3 percent internationally. The Americas was ~~up 1~~down 2 percent, Europe was ~~up 1 percent~~flat and Asia, Middle East & Africa was up 3 percent (China up 3 percent, versus up 15 percent in 2018). Sales increased $155 million in Automation Solutions, supported by acquisitions, strong project activity, and maintenance and repair spending. Commercial & Residential Solutions sales increased $70 million due to acquisitions, partially offset by lower demand in Asia, Middle East & Africa.6 percent.

Cost of sales for the ~~third~~first quarter of ~~2019~~fiscal 2020 were ~~$2.7~~$2.4 billion, an increase of ~~$169~~$6 million compared with ~~$2.5 billion in 2018, primarily due to acquisitions.~~2019. Gross margin of ~~42.7~~42.4 percent decreased ~~0.9~~0.1 percentage points, reflecting ~~a negative impact from acquisitions of 0.4 percentage points and~~ unfavorable ~~mix.~~mix primarily within Automation Solutions, largely offset by favorable price-cost.

Selling, general and administrative (SG&A) expenses of $1.1 billion increased ~~$68~~$46 million compared with the prior year, primarily due to ~~acquisitions.~~higher stock compensation expense of $63 million, reflecting an increasing stock price in the current year compared to a decreasing price in the prior year. SG&A as a percent of sales increased ~~0.2~~1.1 percentage points to ~~24.0~~27.1 percent ~~primarily~~ due to ~~acquisitions, which negatively impacted~~a negative impact on comparisons ~~by 0.5~~from the higher stock compensation expense of 1.5 percentage points, partially offset by ~~lower incentive stock compensation of $12 million.~~

savings from cost reduction actions.

Other deductions, net were ~~$65~~$178 million in ~~2019, a decrease~~2020, an increase of ~~$12~~$128 million compared with the prior year, reflecting ~~lower acquisition/divestiture-related~~increased restructuring costs of $7$87 million, and ~~a favorable~~an unfavorable impact on comparisons from pensions of ~~$11~~$14 million, ~~partially offset by higher intangibles amortization~~foreign currency transactions of $15 million, and special advisory fees of $13 million. See Note 9.6.

Pretax earnings of ~~$767~~$423 million decreased $1$168 million, ~~flat~~or 28 percent compared towith the prior year. Earnings decreased ~~$17~~$97 million in Automation Solutions and ~~decreased $16 million~~were flat in Commercial & Residential Solutions, while ~~Corporate and other expense decreased $29~~costs reported at corporate increased $79 million. See the Business discussion that follows and Note ~~12 and the following Business Segments discussion.~~13.

Income taxes were ~~$155~~$94 million for ~~2019~~2020 and ~~$49~~$124 million for ~~2018,~~2019, resulting in effective tax rates of 2022 percent and 621 percent, respectively. The ~~effective tax rates in both years reflect the lower U.S. corporate income tax rate as a result of the Tax Cuts and Jobs Act (the "Act"). The~~ current year ~~rate also included a tax benefit of $21 million ($0.03 per share) from restructuring a foreign subsidiary, while the~~and prior year ~~rate~~rates included ~~a tax benefit of $150 million ($0.24 per share), reflecting updates to~~favorable discrete items, which reduced the ~~Company's initial estimates related to the impact of the Act due to additional guidance issued by the U.S. Treasury Department~~rates 1 percentage point and ~~the Internal Revenue Service and as a result of actions taken by the Company. The effective tax rate for full year 2019 is currently expected to be approximately 21 percent.~~3 percentage points, respectively. See Note ~~11.~~8.

Net earnings common stockholders in the ~~third~~first quarter of ~~2019~~fiscal 2020 were ~~$604~~$326 million, down 1530 percent, compared with ~~$712~~$465 million in the prior year, and earnings per share were ~~$0.97,~~$0.53, down 1328 percent, compared with ~~$1.12~~$0.74 in ~~2018.~~2019. Earnings per share were negatively impacted by restructuring costs and special advisory fees of $0.14 per share and higher stock compensation (due to an increasing stock price) and pension expense of $0.10 per share.

Business Segments

Following is an analysis of operating results for the Company’s business segments for the ~~third~~first quarter ended ~~June 30,~~December 31, 2019, compared with the ~~third~~first quarter ended ~~June 30,~~December 31, 2018. The Company defines segment earnings as earnings before interest and taxes. See Note 1213 for a discussion of the Company's business segments.

AUTOMATION SOLUTIONS


Three Months Ended June 30	2018			2019		Change
Three Months Ended Dec 31								2018			2019		Change
(dollars in millions)

Sales	$	2,870		3,025		5	%	$	2,799		2,852		2	%
Earnings	$	494		477		(4	)%	$	407		310		(24	)%
Margin	17.2		%	15.7	%			14.5		%	10.9	%


Sales by Major Product Offering
Measurement & Analytical Instrumentation	$	932	945	1	%	$	858	830	(3	)%
Valves, Actuators & Regulators	948		941	(1	)%	874		913	5	%
Industrial Solutions	470		548	16	%	542		507	(7	)%
Process Control Systems & Solutions	520		591	14	%	525		602	15	%
Total	$	2,870	3,025	5	%	$	2,799	2,852	2	%

Automation Solutions sales were ~~$3.0~~$2.9 billion in the ~~third~~first quarter, an increase of ~~$155~~$53 million, or 52 percent. Underlying sales increased 31 percent ($8027 million) on slightly higher volume and ~~slightly higher~~ price. Acquisitions added 52 percent ($~~141~~47 million) and foreign currency translation had a 31 percent ($6621 million) unfavorable impact. Sales for Measurement & Analytical Instrumentation ~~increased $13~~decreased $28 million, or 13 percent, ~~supported by favorable trends in most key end markets in Asia, Middle East & Africa, partially offset by a slowdown~~due to weakness in upstream oil and gas ~~spending~~end markets, primarily in ~~the Americas.~~North America. Valves, Actuators & Regulators ~~decreased $7~~increased $39 million, or ~~less than 1~~5 percent, ~~due to currency translation.~~reflecting steady trends in process and hybrid end markets. Industrial Solutions sales ~~increased $78~~decreased $35 million, or 167 percent, ~~due to the Aventics acquisition ($95 million), partially offset by slow~~as global discrete ~~manufacturing~~ end markets ~~in the U.S. and Europe, reflecting softer short-cycle demand and some rebalancing of channel inventory.~~remained soft. Process Control Systems & Solutions increased ~~$71~~$77 million, or 1415 percent, due to ~~strong project activity and maintenance and repair spending, as well as~~ the Machine Automation Solutions acquisition which added ~~$46 million.~~$47 million, and favorable maintenance and repair demand and brownfield investment activity. Underlying sales ~~increased~~decreased 1 percent in the Americas (U.S. down 1 percent), 1 percent in Europe and 7 percent in Asia, Middle East & Africa (China up 5 percent). Earnings were $477 million, a decrease of $17 million, or 4 percent, due to acquisitions, unfavorable mix and increased restructuring expense of $6 million. Margin decreased 1.5 percentage points to 15.7 percent, reflecting a dilutive impact from acquisitions of 1.4 percentage points.

~~COMMERCIAL & RESIDENTIAL SOLUTIONS~~

Three Months Ended June 30 2018 2019 Change
(dollars in millions)

Sales:
  Climate Technologies $ 1,236
1,199
(3 )%
  Tools & Home Products 356
463
30 %
     Total $ 1,592
1,662
4 %

Earnings:
  Climate Technologies $ 294
278
(5 )%
  Tools & Home Products 93
93
— %
     Total $ 387
371
(4 )%
     Margin 24.3 % 22.4 %

Commercial & Residential Solutions sales were $1.7 billion in the third quarter, up $70 million, or 4 percent compared to the prior year. Acquisitions added 6 percent ($100 million) and foreign currency translation subtracted 1 percent ($21 million). Underlying sales decreased 1 percent ($9 million) primarily due to lower volume partially offset by higher price. Climate Technologies sales were $1.2 billion in the third quarter, a decrease of $37 million, or 3 percent. HVAC sales were down in Asia, Middle East & Africa due to lower demand, particularly outside of China, while the U.S. was up slightly, reflecting an unfavorable impact from cooler, wet weather conditions. Cold chain sales were down slightly, reflecting stable global demand. Tools & Home Products sales were $463 million in the third quarter, an increase of $107 million, or 30 percent, due to the tools and test acquisition. Sales were robust for wet/dry vacuums and up slightly for professional tools, while food waste disposers were flat. Overall, underlying sales increased 1 percent in the Americas (U.S. up 12 percent) and 1 percent in Europe while Asia, Middle East & Africa ~~decreased~~increased 6 percent, ~~(China down 2 percent).~~supported by continued infrastructure investment, led by China, and strong growth in Middle East & Africa. Earnings were ~~$371~~$310 million, a decrease of ~~$16~~$97 million, ~~and margin declined 1.9 percentage points,~~or 24 percent, primarily due to ~~a dilutive~~higher restructuring expense of $78 million and an unfavorable impact from ~~the tools and test acquisition of 1.2 percentage points and deleverage on lower volume in the Climate Technologies segment.~~

~~RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30~~

~~Following is an analysis of the Company’s operating results for the nine months ended June 30, 2019, compared with the nine months ended June 30, 2018.~~

2018 2019 Change
(dollars in millions, except per share amounts)

Net sales $ 12,520
13,401
7 %
Gross profit $ 5,373
5,687
6 %
Percent of sales 42.9 % 42.4 %

SG&A $ 3,088
3,348
8 %
Percent of sales 24.6 % 24.9 %
Other deductions, net $ 243
172

Interest expense, net $ 113
134

Earnings before income taxes $ 1,929
2,033
5 %
Percent of sales 15.4 % 15.2 %
Net earnings common stockholders $ 1,586
1,589
— %
Percent of sales 12.7 % 11.9 %

Diluted earnings per share $ 2.49

2.55

2 %

Net sales for the first nine months of 2019 were $13.4 billion, an increase of $881 million, or 7 percent compared with $12.5 billion in 2018. Underlying sales were up 3 percent ($403 million) on higher volume and slightly higher price. Acquisitions added 6 percent ($731 million) and foreign currency translation subtracted 2 percent ($253 million). Underlying sales increased 4 percent in the U.S. and 3 percent internationally. The Americas was up 5 percent, Europe was up 2 percent and Asia, Middle East & Africa was up 1 percent (China up 1 percent). Sales increased $621 million in Automation Solutions, supported by acquisitions and broad-based demand across energy-related and general industrial markets. Commercial & Residential Solutions sales increased $234 million due to acquisitions, partially offset by slower demand in Asia, Middle East & Africa, particularly in China air conditioning and heating markets.

Cost of sales for 2019 were $7.7 billion, an increase of $567 million versus $7.1 billion in 2018, primarily due to acquisitions and higher volume, partially offset by the impact of foreign currency translation. Gross margin decreased 0.5 percentage points to 42.4 percent, reflecting unfavorable mix and the impact of acquisitions.

SG&A expenses of $3.3 billion increased $260 million primarily due to acquisitions and higher volume. SG&A as a percent of sales increased to 24.9 percent due to the impact of acquisitions, which negatively impacted comparisons by 0.5 percentage points. Leverage on higher volume and lower incentive stock compensation of $61 million, reflecting a decreasing stock price in the current year compared to an increasing stock price in the prior year, were partially offset by higher investment spending.

Other deductions, net were $172 million in 2019, a decrease of $71 million compared with the prior year, reflecting lower acquisition/divestiture-related costs of $42 million, pension expenses of $33 million and foreign currency transactions of ~~$9 million, partially offset by higher intangibles amortization of $23~~$15 million. ~~See Note 9.~~

~~Pretax earnings of $2.0 billion increased $104 million, or 5 percent. Earnings increased $12 million in Automation Solutions and~~Margin decreased ~~$52 million in Commercial & Residential Solutions, while Corporate and other expense decreased $140 million. See Note 12 and the following Business Segments discussion.~~

Income taxes were $429 million for 2019 and $327 million for 2018, resulting in effective tax rates of 21 percent and 17 percent, respectively. The effective tax rates in both years reflect the lower U.S. corporate income tax rate as a result of the Tax Cuts and Jobs Act (the "Act"). The current year rate also included favorable discrete items which reduced the rate 33.6 percentage points ~~while the prior year rate included a net tax benefit of $193 million ($0.30 per share) due~~ to ~~impacts of the Act.~~

~~Net earnings common stockholders in 2019 were $1.6 billion, flat compared with the prior year, and earnings per share were $2.55, up 2 percent compared with $2.49 in 2018.~~

~~Business Segments~~

Following is an analysis of operating results for the Company’s business segments for the nine months ended June 30, 2019, compared with the nine months ended June 30, 2018. The Company defines segment earnings as earnings before interest and taxes.

~~AUTOMATION SOLUTIONS~~

Nine Months Ended June 30 2018 2019 Change
(dollars in millions)
Sales $ 8,213
8,834
8 %
Earnings $ 1,316
1,328
1 %
Margin 16.0 % 15.0 %

Sales by Major Product Offering
Measurement & Analytical Instrumentation $ 2,564
2,730
6 %
Valves, Actuators & Regulators 2,732
2,752
1 %
Industrial Solutions 1,382
1,664
20 %
Process Control Systems & Solutions 1,535
1,688
10 %
Total $ 8,213
8,834
8 %

Automation Solutions sales were $8.8 billion in the first nine months of 2019, an increase of $621 million, or 8 percent. Underlying sales increased 5 percent ($432 million) on higher volume and slightly higher price. Acquisitions added 5 percent ($382 million) and foreign currency translation had a 2 percent ($193 million) unfavorable impact. Sales for Measurement & Analytical Instrumentation increased $166 million, or 6 percent, on broad-based demand in global industrial markets. Valves, Actuators & Regulators increased $20 million, or 1 percent, on favorable global oil and gas demand. Industrial Solutions sales increased $282 million, or 20 percent, due to the Aventics acquisition ($292 million), while discrete manufacturing end markets were slow in the U.S. and Europe. Process Control Systems & Solutions increased $153 million, or 10 percent, due to the Machine Automation Solutions acquisition ($90 million), favorable demand for small and mid-sized projects focused on expansion and optimization of existing assets, and strong maintenance and repair demand. Underlying sales increased 6 percent in the Americas (U.S. up 4 percent), 2 percent in Europe and 7 percent in Asia, Middle East & Africa (China up 10 percent). Earnings were $1.3 billion, an increase of $12 million, or 1 percent, driven by higher volume and price. Margin decreased to 15.010.9 percent, reflecting a ~~dilutive~~negative impact from ~~acquisitions~~restructuring of ~~1.0~~2.7 percentage points, unfavorable mix of 0.6 percentage points which included a decline in the more profitable North American upstream and discrete end markets, and unfavorable foreign currency transactions of 0.5 percentage points.

2215

COMMERCIAL & RESIDENTIAL SOLUTIONS


Nine Months Ended June 30	2018			2019		Change
Three Months Ended Dec 31								2018			2019		Change
(dollars in millions)

Sales:
Climate Technologies	$	3,286		3,171		(3	)%	$	880		873		(1	)%
Tools & Home Products	1,041			1,390		33	%	458			430		(6	)%
Total	$	4,327		4,561		5	%	$	1,338		1,303		(3	)%

Earnings:
Climate Technologies	$	712		650		(9	)%	$	146		151		4	%
Tools & Home Products	276			286		4	%	91			86		(6	)%
Total	$	988		936		(5	)%	$	237		237		—	%
Margin	22.8		%	20.5	%			17.7		%	18.2	%

Commercial & Residential Solutions sales were ~~$4.6~~$1.3 billion in the first ~~nine months of 2019, an increase of $234~~quarter, down $35 million, or 53 percent compared to the prior year. ~~Underlying sales were down~~The divestiture of two small non-core businesses subtracted 1 percent ($~~31 million) on lower volume partially offset by higher price. Acquisitions added 8 percent ($325~~14 million) and foreign currency translation subtracted 21 percent ($606 million). Underlying sales decreased 1 percent ($15 million) primarily due to lower volume partially offset by slightly higher price. Climate Technologies sales were ~~$3.2 billion~~$873 million in the first ~~nine months of 2019,~~quarter, a decrease of ~~$115~~$7 million, or 31 percent. ~~HVAC~~Air conditioning and heating sales were ~~down sharply~~up slightly due to improving conditions in Asia, Middle East & Africa ~~particularly~~and continued strength in ~~China air conditioning and heating~~Europe, while North American markets ~~while growth in the U.S. was moderate. Global cold~~softened. Cold chain sales were ~~up slightly on modest growth in the U.S., partially offset by~~down moderately, as slower ~~demand in Asia.~~global conditions persisted. Tools & Home Products sales were ~~$1.4 billion~~$430 million in the first ~~nine months~~quarter, a decrease of ~~2019, up $349~~$28 million, or ~~33 percent compared to the prior year, reflecting the tools and test acquisition and favorable trends in global~~6 percent. Global professional tools ~~markets. Sales for wet/dry vacuums were up moderately~~end markets remained soft, while food waste disposers were flat and wet/dry vacuums were up slightly. Overall, underlying sales ~~increased 4~~decreased 3 percent in the Americas (U.S. ~~up 3~~down 5 percent), while Europe increased 1 percent and ~~2 percent in Europe, while~~ Asia, Middle East & Africa ~~decreased 14 percent (China down 17 percent).~~increased 5 percent. Earnings were ~~$936~~$237 million, ~~down 5 percent~~flat compared towith the prior year, and margin ~~declined 2.3~~increased 0.5 percentage points, primarily due to ~~a dilutive impact~~favorable price-cost and savings from ~~the tools and test acquisition~~cost reduction actions, partially offset by higher restructuring expense of 1.1 percentage points and deleverage on lower volume in the Climate Technologies segment. Unfavorable mix also reduced margin, while comparisons benefited from higher warranty costs of $10 million in the prior year associated with a specific product issue.$5 million.

FINANCIAL CONDITION

Key elements of the Company's financial condition for the ~~nine~~three months ended ~~June 30,~~December 31, 2019 as compared to the year ended September 30, ~~2018~~2019 follow.


	Sept 30, 2018			June 30, 2019		Sept 30, 2019			Dec 31, 2019
Working capital (in millions)	$	455		1,132		$	1,163		856
Current ratio	1.1			1.2		1.2			1.1
Total debt-to-total capital	34.7		%	41.5	%	41.0		%	41.6	%
Net debt-to-net capital	29.1		%	34.5	%	33.9		%	34.1	%
Interest coverage ratio	14.2		X	14.3X		15.2		X	11.2X

The Company's ~~debt-to-capital ratios increased~~working capital decreased primarily due to increased short-term borrowings, ~~to support accelerated~~which supported repayments of long-term debt and share repurchases ~~completed~~ in the ~~second~~first quarter of ~~2019.~~2020. The interest coverage ratio (earnings before income taxes plus interest expense, divided by interest expense) of ~~14.3X~~11.2X for the first ~~nine~~three months of ~~2019~~fiscal 2020 compares to ~~14.0X~~13.0X for the ~~nine~~three months ended ~~June 30,~~December 31, 2018. The ~~increase~~decrease primarily reflects ~~higher~~lower pretax earnings in the current year.

In January 2019, the Company issued €500 million of 1.25% notes due October 2025 and €500 million of 2.0% notes due October 2029. In May 2019, the Company issued €500 million of 0.375% notes due May 2024. The net proceeds from the sale of the notes were used to reduce commercial paper borrowings and for general corporate purposes.

Operating cash flow for the first ~~nine~~three months of ~~2019~~fiscal 2020 was ~~$1.8 billion, a decrease~~$424 million, an increase of ~~$66~~$101 million compared with ~~$1.9 billion~~$323 million in the prior year, due to ~~higher~~lower operating working ~~capital. Other, net in 2019 primarily consists of non-cash~~

~~items included in net earnings including deferred taxes, stock compensation and pension expense.~~capital investment. Free cash flow of ~~$1.4 billion~~$310 million in ~~2019~~the first quarter of fiscal 2020 (operating cash flow of ~~$1.8 billion~~$424 million less capital expenditures of ~~$395~~$114 million) ~~decreased $147~~increased $142 million compared to free cash flow of ~~$1.6 billion~~$168 million in ~~2018~~2019 (operating cash flow of ~~$1.9 billion~~$323 million less capital expenditures of ~~$314~~$155 million), reflecting the ~~decrease~~increase in operating cash flow and ~~an increase in~~lower capital investment. Free cash flow along with increased short- and long-term borrowings were used to fund dividends of $909 million, common stock purchases of $1.0 billion, repayments of long-term debt of $655 million, and acquisitions of $385 million.

Emerson's financial structure provides the flexibility necessary to achieve its strategic objectives. The Company 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 be available to meet the Company’s

needs in the foreseeable future through operating cash flow, existing resources, short- and long-term debt capacity or backup credit lines.

FISCAL ~~2019~~2020 OUTLOOK

Results for the first nine months of 2019 reflected solid trends in process and hybrid end markets and consistent demand for long-cycle projects, partially offset by slower global discrete manufacturing end markets, recent upstream oil and gas softness in North America, and lower demand in air conditioning markets in Asia. The Company anticipates lower global growth in the near-term due to trade tensions and business investment uncertainty. Softness in North America upstream oil and gas markets and global discrete end marketseconomic environment is expected to ~~continue, while~~remain challenging for the rest of fiscal 2020. The outlook ~~for residential~~discussed herein excludes any potential impact from the coronavirus. Consolidated net and ~~commercial air conditioning markets is favorable in North America and~~underlying sales are expected to ~~improve in Asia. For the full year,~~range between down 2 percent to up 2 percent. Automation Solutions net and underlying sales are expected to be down 1 percent to up ~~approximately 7 percent, with underlying sales up approximately 5 percent excluding a positive impact from acquisitions of 4 percent and unfavorable currency translation of 2~~3 percent. Commercial & Residential Solutions net sales are expected to be ~~up approximately~~down 4 percent to flat, with underlying sales ~~flat~~down 3 percent to up 1 percent excluding ~~a positive~~an impact from ~~acquisitions of 5 percent and unfavorable currency translation~~divestitures of 1 percent. Consolidated net sales are expected to be up approximately 6 percent, with underlying sales up approximately 3 percent excluding a positive impact from acquisitions of 5 percent and unfavorable currency translation of 2 percent. Segment EBIT margin is expected to be approximately 16 percent for Automation Solutions and approximately 21 percent for Commercial & Residential Solutions, including higher restructuring investments in the fourth quarter. Reported earningsEarnings per share are expected to be ~~$3.60~~$3.27 to ~~$3.70,~~$3.52, while adjusted earnings per share, which ~~includes an~~exclude a $0.28 per share impact from restructuring actions and related costs for the year, are expected ~~discrete tax benefit in the fourth quarter of approximately $0.05 per share.~~to be $3.55 to $3.80. Operating cash flow is expected to be approximately ~~$3.1~~$3.15 billion and free cash flow, which excludes targeted capital spending of ~~$600~~$650 million, is expected to be approximately $2.5 billion.

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 economic and currency conditions, market demand, pricing, protection of intellectual property, cybersecurity, tariffs, competitive and technological factors, 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, ~~2018~~2019 and in subsequent reports filed with the SEC, which are hereby incorporated by reference.

The United ~~Kingdom~~Kingdom's (UK) ~~continues to negotiate its~~ withdrawal from the European Union (EU), commonly known as ~~"Brexit."~~"Brexit", was completed on January 31, 2020. The ~~EU agreed to postpone~~UK has now entered a transition period, during which it will begin negotiating a trade agreement and other laws and regulations with the ~~withdrawal deadline to October 31, 2019.~~EU. The Company's net sales in the UK are principally in the Automation Solutions segment and represent less than two percent of consolidated sales. Sales of products manufactured in the UK and sold within the EU are immaterial. The Company is evaluating several potential ~~Brexit scenarios~~outcomes of the UK's negotiations with the EU and believes the direct cost of incremental tariffs, logistics and other items would be immaterial.

2417

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.

In the first quarter of fiscal 2020, the Company implemented certain internal controls related to the adoption of ASC 842, Leases.

PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds



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 2019		1,956	$66.09		1,956	19,984
November 2019		—	$0.00		—	19,984
December 2019		—	$0.00		—	19,984
Total		1,956	$66.09		1,956	19,984

In November 2015, the Board of Directors authorized the purchase of up to 70 million shares, and approximately ~~26.1~~20.0 million shares remain available. ~~No shares were purchased in the third quarter of 2019.~~

Item 6. Exhibits

(a) Exhibits (Listed by numbers corresponding to the Exhibit Table of Item 601 in Regulation S-K).



4		Emerson agrees to furnish to the Securities and Exchange Commission, upon request, copies of any long-term debt instruments that authorize an amount of securities constituting 10 percent or less of the total assets of Emerson and its subsidiaries on a consolidated basis.

31		Certifications pursuant to Exchange Act Rule 13a-14(a).

32		Certifications pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350.

101		Attached as Exhibit 101 to this report are the following documents formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Statements of Earnings for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2019 and 2018, (ii) Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2019 and 2018, (iii) Consolidated Balance Sheets as of September 30, ~~2018~~2019 and ~~June 30,~~December 31, 2019, (iv) Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~June 30,~~December 31, 2019 and 2018, and (v) Notes to Consolidated Financial Statements for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2019.

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

2519

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.



		EMERSON ELECTRIC CO.


		By	/s/ Frank J. Dellaquila
			Frank J. Dellaquila
			Senior Executive Vice President and Chief Financial Officer
			(on behalf of the registrant and as Chief Financial Officer)
			~~August 7, 2019~~February 5, 2020

2620



	Nine Months Ended
	June 30,
	2018			2019
Operating activities
Net earnings	$	1,602		1,604
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	557			609
Changes in operating working capital	(286		)	(352	)
Other, net	(5		)	(59	)
Cash provided by operating activities	1,868			1,802

Investing activities
Capital expenditures	(314		)	(395	)
Purchases of businesses, net of cash and equivalents acquired	(770		)	(385	)
Divestitures of businesses	223			10
Other, net	(71		)	(91	)
Cash used in investing activities	(932		)	(861	)

Financing activities
Net increase in short-term borrowings	1,581			427
Proceeds from long-term debt	—			1,691
Payments of long-term debt	(251		)	(655	)
Dividends paid	(924		)	(909	)
Purchases of common stock	(1,000		)	(1,000	)
Other, net	34			21
Cash used in financing activities	(560		)	(425	)

Effect of exchange rate changes on cash and equivalents	(27		)	(6	)
Increase in cash and equivalents	349			510
Beginning cash and equivalents	3,062			1,093
Ending cash and equivalents	$	3,411		1,603

Changes in operating working capital
Receivables	$	27		178
Inventories	(133		)	(217	)
Other current assets	(15		)	(74	)
Accounts payable	(97		)	(156	)
Accrued expenses	(83		)	(116	)
Income taxes	15			33
Total changes in operating working capital	$	(286	)	(352	)



Property, plant and equipment, net
Property, plant and equipment, at cost	$	8,370	8,687
Less: Accumulated depreciation	4,808		5,073
Total	$	3,562	3,614



Other intangible assets
Gross carrying amount	$	4,667	4,854
Less: Accumulated amortization	1,916		2,163
Net carrying amount	$	2,751	2,691



	September 30, 2018				June 30, 2019
	Assets			Liabilities	Assets	Liabilities
Commodity		$	1	10	1	7
Foreign Currency		$	35	11	35	9



	Three Months Ended			Nine Months Ended
	June 30, 2018

Net sales		$	4,693		$	13,281
Net earnings common stockholders		$	716		$	1,619
Diluted earnings per share		$	1.13		$	2.54