Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the Company's consolidated financial statements and accompanying notes and the report thereon of KPMG LLP (PCAOB ID 185) that follow.

Consolidated Statements of Earnings

EMERSON ELECTRIC CO. & SUBSIDIARIES

Years ended September 30

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

			2020						2021						2022
Net sales			$	16,785					18,236						19,629
Cost of sales			9,776						10,673						11,441
Selling, general and administrative expenses			3,986						4,179						4,248
Gain on subordinated interest			—						—						(453)
Gain on sale of business			—						—						(486)
Other deductions, net			532						318						601
Interest expense, net of interest income of: 2020, $19; 2021, $12; 2022, $35			156						154						193
Earnings before income taxes			2,335						2,912						4,085
Income taxes			345						585						855
Net earnings			1,990						2,327						3,230
Less: Noncontrolling interests in earnings of subsidiaries			25						24						(1)
Net earnings common stockholders			$	1,965					2,303						3,231
Earnings per share:
Basic			$	3.26					3.85						5.44
Diluted			$	3.24					3.82						5.41
Weighted average outstanding shares:
Basic			602.9						598.1						592.9
Diluted			606.6						601.8						596.3

See accompanying Notes to Consolidated Financial Statements.

Consolidated Statements of Comprehensive Income

EMERSON ELECTRIC CO. & SUBSIDIARIES

Years ended September 30

(Dollars in millions)

						2020						2021						2022
Net earnings						$	1,990					2,327						3,230
Other comprehensive income (loss), net of tax:
Foreign currency translation						85						81						(644)
Pension and postretirement						64						605						37
Cash flow hedges						(2)						18						(14)
Total other comprehensive income (loss)						147						704						(621)
Comprehensive income						2,137						3,031						2,609
Less: Noncontrolling interests in comprehensive income of subsidiaries						27						23						(9)
Comprehensive income common stockholders						$	2,110					3,008						2,618

See accompanying Notes to Consolidated Financial Statements.

Consolidated Balance Sheets

EMERSON ELECTRIC CO. & SUBSIDIARIES

September 30 (Dollars and shares in millions, except per share amounts)

			2021						2022
ASSETS
Current assets
Cash and equivalents			$	2,354					1,804
Receivables, less allowances of $116 in 2021 and $108 in 2022			2,971						3,008
Inventories			2,050						2,191
Other current assets			1,057						1,503
Total current assets			8,432						8,506
Property, plant and equipment, net			3,738						3,361
Other assets
Goodwill			7,723						14,662
Other intangible assets			2,877						6,724
Other			1,945						2,419
Total other assets			12,545						23,805
Total assets			$	24,715					35,672
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings and current maturities of long-term debt			$	872					2,115
Accounts payable			2,108						2,028
Accrued expenses			3,266						3,634
Total current liabilities			6,246						7,777
Long-term debt			5,793						8,259
Other liabilities			2,753						3,320
Equity
Common stock, $0.50 par value; authorized, 1,200.0 shares; issued, 953.4 shares; outstanding, 595.8 shares in 2021; 591.4 shares in 2022			477						477
Additional paid-in-capital			522						57
Retained earnings			26,047						28,053
Accumulated other comprehensive income (loss)			(872)						(1,485)
			26,174						27,102
Less: Cost of common stock in treasury, 357.6 shares in 2021; 362.0 shares in 2022			16,291						16,738
Common stockholders’ equity			9,883						10,364
Noncontrolling interests in subsidiaries			40						5,952
Total equity			9,923						16,316
Total liabilities and equity			$	24,715					35,672
See accompanying Notes to Consolidated Financial Statements.

Consolidated Statements of Equity

EMERSON ELECTRIC CO. & SUBSIDIARIES

Years ended September 30

(Dollars in millions, except per share amounts)

			2020						2021						2022
Common stock			$	477					477						477
Additional paid-in-capital
Beginning balance			393						470						522
Stock plans			77						52						85
Heritage AspenTech acquisition			—						—						(550)
Ending balance			470						522						57
Retained earnings
Beginning balance			24,199						24,955						26,047
Net earnings common stockholders			1,965						2,303						3,231
Dividends paid (per share: 2020, $2.00; 2021, $2.02; 2022, $2.06)			(1,209)						(1,210)						(1,225)
Adoption of accounting standard updates			—						(1)						—
Ending balance			24,955						26,047						28,053
Accumulated other comprehensive income (loss)
Beginning balance			(1,722)						(1,577)						(872)
Foreign currency translation			83						82						(636)
Pension and postretirement			64						605						37
Cash flow hedges			(2)						18						(14)
Ending balance			(1,577)						(872)						(1,485)
Treasury stock
Beginning balance			(15,114)						(15,920)						(16,291)
Purchases			(942)						(500)						(500)
Issued under Emerson stock plans			136						129						53
Ending balance			(15,920)						(16,291)						(16,738)
Common stockholders' equity			8,405						9,883						10,364
Noncontrolling interests in subsidiaries
Beginning balance			40						42						40
Net earnings			25						24						(1)
AspenTech Stock plans			—						—						35
Other comprehensive income			2						(1)						(8)
Dividends paid			(25)						(25)						(4)
Heritage AspenTech acquisition			—						—						5,890
Ending balance			42						40						5,952
Total equity			$	8,447					9,923						16,316

See accompanying Notes to Consolidated Financial Statements.

Consolidated Statements of Cash Flows

EMERSON ELECTRIC CO. & SUBSIDIARIES

Years ended September 30 (Dollars in millions)

			2020						2021						2022
Operating activities
Net earnings			$	1,990					2,327						3,230
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			854						969						1,039
Stock compensation expense			110						224						144
Pension expense			67						28						2
Pension funding			(66)						(41)						(43)
Changes in operating working capital			148						203						(515)
Gain on subordinated interest			—						—						(453)
Gain on sale of business			—						—						(486)
Other, net			(20)						(135)						4
Cash provided by operating activities			3,083						3,575						2,922
Investing activities
Capital expenditures			(538)						(581)						(531)
Purchases of businesses, net of cash and equivalents acquired			(126)						(1,611)						(5,702)
Divestitures of businesses			—						34						601
Proceeds from subordinated interest			—						—						438
Other, net			(76)						38						(140)
Cash used in investing activities			(740)						(2,120)						(5,334)
Financing activities
Net decrease in short-term borrowings			(90)						(504)						1,241
Proceeds from short-term borrowings greater than three months			1,043						71						1,162
Payments of short-term borrowings greater than three months			(1,043)						(71)						(1,165)
Proceeds from long-term debt			2,233						—						2,975
Payments of long-term debt			(503)						(308)						(522)
Dividends paid			(1,209)						(1,210)						(1,223)
Purchases of common stock			(942)						(500)						(500)
Other, net			2						100						80
Cash used in financing activities			(509)						(2,422)						2,048
Effect of exchange rate changes on cash and equivalents			(13)						6						(186)
Increase (Decrease) in cash and equivalents			1,821						(961)						(550)
Beginning cash and equivalents			1,494						3,315						2,354
Ending cash and equivalents			$	3,315					2,354						1,804
Changes in operating working capital
Receivables			$	207					(165)						(214)
Inventories			(6)						(126)						(469)
Other current assets			33						(99)						(65)
Accounts payable			(196)						370						122
Accrued expenses			110						223						111
Total changes in operating working capital			$	148					203						(515)

See accompanying Notes to Consolidated Financial Statements.

Notes to Consolidated Financial Statements

EMERSON ELECTRIC CO. & SUBSIDIARIES

Years ended September 30

(Dollars in millions, except per share amounts or where noted)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial Statement Presentation

The preparation of the financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from these estimates. Certain prior year amounts have been reclassified to conform with current year presentation to reflect the business combination with AspenTech (see Note 4), which is reported as a new segment and includes the historical results of Open Systems International, Inc. and the Geological Simulation Software business. These businesses were previously reported in the Automation Solutions segment (see Note 18).

Effective October 1, 2021, the Company adopted three accounting standard updates which had an immaterial or no impact on the Company's financial statements for the year ended September 30, 2022. These included:

• Updates to Accounting Standards Codification ("ASC") 805, Business Combinations, which clarify the accounting for contract assets and liabilities assumed in a business combination. In general, this will result in contract liabilities being recognized at their historical amounts under ASC 606, rather than at fair value in accordance with the general requirements of ASC 805.

• Updates to ASC 740, Income Taxes, which require the recognition of a franchise tax that is partially based on income as an income-based tax with any incremental amount as a non-income based tax. These updates also make certain changes to intra-period tax allocation principles and interim tax calculations.

• Updates to ASC 321, Equity Securities, ASC 323 Investments - Equity Method and Joint Ventures, and ASC 815, Derivatives and Hedging, which clarify how to account for the transition into and out of the equity method of accounting when evaluating observable transactions.

In fiscal 2021, the Company adopted two accounting standard updates and one new accounting standard, and in fiscal 2020 adopted updates to ASC 815, all of which had an immaterial impact on the Company's financial statements. These included:

• Updates to ASC 350, Intangibles - Goodwill and Other, which eliminate the requirement to measure impairment based on the implied fair value of goodwill compared to the carrying amount of a reporting unit’s goodwill. Instead, goodwill impairment will be measured as the excess of a reporting unit’s carrying amount over its estimated fair value.

• Updates to ASC 350, Intangibles - Goodwill and Other, which align the requirements for capitalizing implementation costs incurred in a software hosting arrangement with the requirements for costs incurred to develop or obtain internal-use software.

• Adoption of ASC 326, Financial Instruments - Credit Losses, which amends the impairment model by requiring entities to use a forward-looking approach to estimate lifetime expected credit losses on certain types of financial instruments, including trade receivables.

• Updates to ASC 815, Derivatives and Hedging, which permit hedging certain contractually specified risk components. The updates also eliminate the requirement to separately measure and report hedge ineffectiveness and simplify hedge documentation and effectiveness assessment requirements.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its controlled affiliates. Intercompany transactions, profits and balances are eliminated in consolidation. Investments of 20 percent to 50 percent of the voting shares of other entities are accounted for by the equity method. Investments in publicly traded

companies of less than 20 percent are carried at fair value, with changes in fair value reflected in accumulated other comprehensive income. Investments in nonpublicly traded companies of less than 20 percent are carried at cost, minus impairment, and adjusted for observable price changes in orderly transactions.

Foreign Currency Translation

The functional currency for most of the Company's non-U.S. subsidiaries is the local currency. Adjustments resulting from translating local currency financial statements into U.S. dollars are reflected in accumulated other comprehensive income.

Cash Equivalents

Cash equivalents consist of highly liquid investments with original maturities of three months or less.

Inventories

Inventories are stated at the lower of cost and net realizable value. The majority of inventory is valued based on standard costs, which are revised at the beginning of each year and approximate average costs, while the remainder is principally valued on a first-in, first-out basis. Following are the components of inventory as of September 30:

						2021						2022
Finished products						$	616					628
Raw materials and work in process						1,434						1,563
Total inventories						$	2,050					2,191

Fair Value Measurement

ASC 820, Fair Value Measurement, establishes a formal hierarchy and framework for measuring certain financial statement items at fair value, and requires disclosures about fair value measurements and the reliability of valuation inputs. Under ASC 820, measurement assumes the transaction to sell an asset or transfer a liability occurs in the principal or at least the most advantageous market for that asset or liability. Within the hierarchy, Level 1 instruments use observable market prices for an identical item in active markets and have the most reliable valuations. Level 2 instruments are valued through broker/dealer quotation or other approaches using market-observable inputs for similar items in active markets, including forward and spot prices, interest rates and volatilities. Level 3 instruments are valued using inputs not observable in an active market, such as company-developed future cash flow estimates, and are considered the least reliable. Valuations for all of the Company's financial instruments fall within Level 2. The fair value of the Company's long-term debt is Level 2, estimated using current interest rates and pricing from financial institutions and other market sources for debt with similar maturities and characteristics.

Property, Plant and Equipment

The Company records investments in land, buildings, and machinery and equipment at cost. Depreciation is computed principally using the straight-line method over estimated service lives, which for principal assets are 30 to 40 years for buildings and 8 to 12 years for machinery and equipment. Long-lived tangible assets are reviewed for impairment whenever events or changes in business circumstances indicate the carrying value of the assets may not be recoverable. Impairment losses are recognized based on estimated fair values if the sum of estimated future undiscounted cash flows of the related assets is less than the carrying values.

The components of property, plant and equipment as of September 30 follow:

						2021						2022
Land						$	359					317
Buildings						2,493						2,364
Machinery and equipment						6,097						5,678
Construction in progress						478						459
Property, plant and equipment, at cost						9,427						8,818
Less: Accumulated depreciation						5,689						5,457
Property, plant and equipment, net						$	3,738					3,361

Goodwill and Other Intangible Assets

Assets and liabilities acquired in business combinations are accounted for using the acquisition method and recorded at their respective fair values. Substantially all goodwill is assigned to the reporting unit that acquires a

business. A reporting unit is an operating segment as defined in ASC 280, Segment Reporting, or a business one level below an operating segment if discrete financial information for that business unit is prepared and regularly reviewed by the segment manager. The Company conducts annual impairment tests of goodwill in the fourth quarter. If an initial assessment indicates it is more likely than not goodwill might be impaired, it is evaluated by comparing the reporting unit's estimated fair value to its carrying value. An impairment charge would be recorded for the amount by which the carrying value of the reporting unit exceeds the estimated fair value. Goodwill is also tested for impairment between annual tests if events or circumstances indicate the fair value of a unit may be less than its carrying value. Estimated fair values of reporting units are Level 3 measures and are developed generally under an income approach that discounts estimated future cash flows using risk-adjusted interest rates, as well as earnings multiples or other techniques as warranted. Fair values are subject to changes in underlying economic conditions.

All of the Company's identifiable intangible assets are subject to amortization on a straight-line basis over their estimated useful lives. Identifiable intangibles consist of intellectual property such as technology, patents and trademarks, customer relationships and capitalized software. Identifiable intangibles are also subject to evaluation for potential impairment if events or circumstances indicate the carrying amount may not be recoverable. See Note 8.

Leases

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

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

Product Warranty

Warranties vary by product line and are competitive for the markets in which the Company operates. Warranties are largely offered to provide assurance that the product will function as intended and generally extend for a period of one to two years from the date of sale or installation. Provisions for warranty expense are 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-half of one percent of sales.

Revenue Recognition

Emerson is a global manufacturer that designs and manufactures products and delivers services that bring technology and engineering together to provide innovative solutions for its customers, 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 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 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 some 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 10 percent of the Company's revenues. The majority of these revenues relate to projects in the Systems & Software 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 smaller 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 relate to sales arrangements with multiple performance obligations, principally in the Automation Solutions and AspenTech segments. 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 projects where revenue is recognized over time, the Company typically uses an input method to determine progress and recognize revenue, based on costs incurred. The Company believes costs incurred closely correspond with its performance under the contract and the transfer of control to the customer.

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. See Notes 2 and 18 for additional information about the Company's revenues.

Derivatives and Hedging

In the normal course of business, the Company is exposed to changes in interest rates, foreign currency exchange rates and commodity prices due to its worldwide presence and diverse business profile. The Company's foreign currency exposures relate to transactions denominated in currencies that differ from the functional currencies of its business units, primarily in euros, Mexican pesos, and Singapore dollars. Primary commodity exposures are price fluctuations on forecasted purchases of copper and aluminum and related products. As part of the Company's risk management strategy, derivative instruments are selectively used in an effort to minimize the impact of these exposures. Foreign exchange forwards and options are utilized to hedge foreign currency exposures impacting sales or cost of sales transactions, firm commitments and the fair value of assets and liabilities, while swap and option contracts may be used to minimize the effect of commodity price fluctuations on the cost of sales. Non-U.S. dollar obligations are utilized to reduce foreign currency risk associated with the Company's net investments in foreign operations. All derivatives are associated with specific underlying exposures and the Company does not hold derivatives for trading or speculative purposes. The duration of hedge positions is generally two years or less, except for the Company's net investment hedges.

All derivatives are accounted for under ASC 815, Derivatives and Hedging, and recognized at fair value. For derivatives hedging variability in future cash flows, any gain or loss is deferred in stockholders' equity and recognized when the underlying hedged transaction impacts earnings. The majority of the Company's derivatives

that are designated as hedges and qualify for hedge accounting are cash flow hedges. For derivatives hedging the fair value of existing assets or liabilities, both the gain or loss on the derivative and the offsetting loss or gain on the hedged item are recognized in earnings each period. Currency fluctuations on non-U.S. dollar obligations that have been designated as hedges of net investments in foreign operations are recognized in accumulated other comprehensive income (loss) and reclassified to income in the same period when a foreign operation is sold or substantially liquidated and the gain or loss related to the sale is included in income. To the extent that any hedge is not fully effective at offsetting changes in the underlying hedged item, there could be a net earnings impact.

The Company also uses derivatives to hedge economic exposures that do not receive hedge accounting under ASC 815. The underlying exposures for these hedges relate primarily to purchases of commodity-based components used in the Company's manufacturing processes, and the revaluation of certain foreign-currency-denominated assets and liabilities. In addition, in fiscal 2022 AspenTech entered into foreign currency forward contracts to mitigate the impact of foreign currency exchange associated with the Micromine purchase price. Gains or losses on derivative instruments not designated as hedges are recognized in the income statement immediately.

Counterparties to derivative 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 on all derivatives in net liability positions. The maximum amount that could potentially have been required was immaterial. The Company also can demand full collateralization of derivatives in net asset positions should any counterparty credit ratings fall below certain thresholds. No collateral was posted with counterparties and none was held by the Company at year end. Risk from credit loss when derivatives are in asset positions is not considered material. The Company has master netting arrangements in place with its counterparties that allow the offsetting of certain derivative-related amounts receivable and payable when settlement occurs in the same period. Accordingly, counterparty balances are netted in the consolidated balance sheet and are reported in other current assets or accrued expenses as appropriate, depending on positions with counterparties as of the balance sheet date. See Note 9.

Income Taxes

The provision for income taxes is based on pretax income reported in the consolidated statements of earnings and tax rates currently enacted in each jurisdiction. Certain income and expense items are recognized in different time periods for financial reporting and income tax filing purposes, and deferred income taxes are provided for the effect of temporary differences. The Tax Cuts and Jobs Act subjects the Company to U.S. tax on global intangible low-taxed income earned by certain of its non-U.S. subsidiaries. The Company has elected to recognize this tax as a period expense when it is incurred. The Company also provides for withholding taxes and any applicable U.S. income taxes on earnings intended to be repatriated from non-U.S. locations. No provision has been made for these taxes on approximately $6.0 billion of undistributed earnings of non-U.S. subsidiaries as of September 30, 2022, as these earnings are considered indefinitely invested or otherwise retained for continuing international operations. Recognition of withholding taxes and any applicable U.S. income taxes on undistributed non-U.S. earnings would be triggered by a management decision to repatriate those earnings. Determination of the amount of taxes that might be paid on these undistributed earnings if eventually remitted is not practicable. See Note 14.

(2) REVENUE RECOGNITION

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

						2021						2022
Unbilled receivables (contract assets)						$	528					1,399
Customer advances (contract liabilities)						(730)						(879)
Net contract liabilities						$	(202)					520

The majority of the Company's contract balances relate to (1) arrangements where revenue is recognized over time and payments from customers are made according to a contractual billing schedule, and (2) revenue from term software license arrangements sold by Heritage AspenTech where the license revenue is recognized upfront upon delivery. The change in the net contract balance was due to the Heritage AspenTech acquisition, which added net contract assets of approximately $700, partially offset by an increase in net contract liabilities for the Company's existing businesses due to customer billings exceeding revenue recognized for performance completed during the period. Revenue recognized for 2022 included approximately $552 that was included in the beginning contract liability balance. Other factors that impacted the change in net contract liabilities were immaterial.

Revenue recognized for 2022 for performance obligations that were satisfied in previous periods, including cumulative catchup adjustments on the Company's long-term contracts, was not material. Capitalized amounts related to incremental costs to obtain customer contracts and costs to fulfill contracts are immaterial.

As of September 30, 2022, the Company's backlog relating to unsatisfied (or partially unsatisfied) performance obligations in contracts with its customers was approximately $8.1 billion, which includes approximately $700 related to the Heritage AspenTech acquisition. Heritage AspenTech's remaining performance obligations primarily relate to software maintenance in long-term contracts for unspecified future software updates provided on a when-and-if available basis. The Company expects to recognize approximately 80 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 18 for additional information about the Company's revenues.

(3) WEIGHTED-AVERAGE COMMON SHARES

Basic earnings per common share consider only the weighted-average of common shares outstanding while diluted earnings per common share also consider the dilutive effects of stock options and incentive shares. An inconsequential number of shares of common stock were excluded from the computation of dilutive earnings per share in 2022, 2021 and 2020 as the effect would have been antidilutive. Earnings allocated to participating securities were inconsequential for all years presented.

Reconciliations of weighted-average shares for basic and diluted earnings per common share follow (shares in millions):

			2020						2021						2022
Basic shares outstanding			602.9						598.1						592.9
Dilutive shares			3.7						3.7						3.4
Diluted shares outstanding			606.6						601.8						596.3

(4) ACQUISITIONS AND DIVESTITURES

Aspen Technology

On May 16, 2022, the Company completed the transactions contemplated by its definitive agreement with Aspen Technology, Inc. ("Heritage AspenTech") to contribute two of Emerson's stand-alone industrial software businesses, Open Systems International, Inc. and the Geological Simulation Software business (collectively, the “Emerson Industrial Software Business”), along with approximately $6.0 billion in cash to Heritage AspenTech stockholders, to create "New AspenTech", a diversified, high-performance industrial software leader with greater scale, capabilities and technologies (hereinafter referred to as "AspenTech"). Upon closing of the transaction, Emerson beneficially owned 55 percent of the outstanding shares of AspenTech common stock (on a fully diluted basis) and former Heritage AspenTech stockholders owned the remaining outstanding shares of AspenTech common stock. AspenTech and its subsidiaries now operate under Heritage AspenTech’s previous name “Aspen Technology, Inc.” and AspenTech common stock is traded on NASDAQ under AspenTech’s previous stock ticker symbol “AZPN.”

The business combination has been accounted for using the acquisition method of accounting with Emerson considered the accounting acquirer of Heritage AspenTech. The net assets of Heritage AspenTech were recorded at their estimated fair value and the Emerson Industrial Software Business continues at its historical basis. The Company recorded a noncontrolling interest of $5.9 billion for the 45 percent ownership interest of former Heritage AspenTech stockholders in AspenTech. The noncontrolling interest associated with the Heritage AspenTech acquired net assets was recorded at fair value determined using the closing market price per share of Heritage AspenTech as of May 16, 2022, while the portion attributable to the Emerson Industrial Software business was recorded at its historical carrying amount. The impact of recognizing the noncontrolling interest in the Emerson Industrial Software Business resulted in a decrease to additional paid-in-capital of $550.

The following table summarizes the components of the purchase consideration reflected in the acquisition accounting using Heritage AspenTech's shares outstanding and closing market price per share as of May 16, 2022 (in millions except share and per share data):

Heritage AspenTech shares outstanding						66,662,482
Heritage AspenTech share price						$	166.30
Purchase price						$	11,086
Value of stock-based compensation awards attributable to pre-combination service						102
Total purchase consideration						$	11,188

The total purchase consideration for Heritage AspenTech was preliminarily allocated to assets and liabilities as follows. Valuations of acquired assets and liabilities are in-process and subject to refinement.

Cash and equivalents						$	274
Receivables						61
Other current assets						262
Property, plant equipment						4
Goodwill ($34 expected to be tax-deductible)						7,225
Other intangible assets						4,390
Other assets						511
Total assets						12,727
Short-term borrowings						27
Accounts payable						8
Accrued expenses						113
Long-term debt						255
Deferred taxes and other liabilities						1,136
Total purchase consideration						$	11,188

Emerson's cash contribution of approximately $6.0 billion was paid out at approximately $87.69 per share (on a fully diluted basis) to holders of issued and outstanding shares of Heritage AspenTech common stock as of the closing of the transactions, with $168 of cash remaining on AspenTech's balance sheet as of the closing which is not included in the allocation of purchase consideration above.

The estimated intangible assets attributable to the transaction are comprised of the following (in millions):

						Amount						Estimated Useful Life (Years)
Developed technology						$	1,350					10
Customer relationships						2,300						15
Trade names						430						Indefinite-lived
Backlog						310						3
Total						$	4,390

Results of operations for 2022 attributable to the Heritage AspenTech acquisition include sales of $356 while the impact to GAAP net earnings was not material.

Pro Forma Financial Information

The following unaudited proforma consolidated condensed financial results of operations are presented as if the acquisition of Heritage AspenTech occurred on October 1, 2020. 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).

									2021									2022
Net Sales									$	18,966								20,042
Net earnings common stockholders									$	2,106								3,262
Diluted earnings per share									$	3.50								5.46

The pro forma results for 2021 include $159 of transaction costs which were assumed to be incurred in the first fiscal quarter of 2021. Of these transaction costs, $91 were included in the Company's reported results for 2022, but have been excluded from the fiscal 2022 pro forma results above. In addition, Heritage AspenTech incurred $68 of transaction costs prior to the completion of the acquisition that were not included in Emerson's reported results. The pro forma results for 2021 include estimated interest expense of $147, respectively, related to the issuance of $3.0 billion of term debt and increased commercial paper borrowings to fund the acquisition, while results for 2022 include additional interest expense of $56 to reflect the increased borrowings as if they were outstanding for the entire fiscal year.

Other Transactions

On July 27, 2022, AspenTech entered into an agreement to acquire Micromine, a global leader in design and operational solutions for the mining industry, for AU $900 (approximately $623 USD based on exchange rates when the transaction was announced). The transaction is expected to close by the end of calendar 2022, subject to various regulatory approvals.

On May 31, 2022 the Company completed the divestiture of its Therm-O-Disc sensing and protection technologies business, which was reported in the Climate Technologies segment, to an affiliate of One Rock Capital Partners, LLC. The Company recognized a pretax gain of $486 ($429 after-tax, $0.72 per share).

On May 4, 2022, Emerson announced its intention to exit business operations in Russia and divest Metran, its Russia-based manufacturing subsidiary, and on September 27, 2022, announced an agreement to sell the business to the local management group. Emerson's historical net sales in Russia were principally in the Automation Solutions segment and in total, represented approximately 1.5 percent of consolidated annual sales. The Company recognized a pretax loss of $181 ($190 after-tax, in total $0.32 per share) related to its exit of business operations in Russia. This charge, which included a loss of $36 in operations and $145 reported in Other deductions ($10 of

which is reported in restructuring costs), is primarily non-cash. The transaction will be subject to regulatory and government approvals, and other customary closing conditions. Emerson will work closely with the local Russia management group to help ensure a smooth transition for employees through the sale process.

In 2022, the Company acquired three other businesses, two in the Automation Solutions segment and one in the AspenTech segment, for $130, net of cash acquired. The three businesses had combined annual sales of approximately $40.

On October 1, 2020, the Company completed the acquisition of Open Systems International, Inc. (OSI), a leading operations technology software provider in the global power industry, for approximately $1.6 billion, net of cash acquired. This business, which had net sales of $191 in fiscal 2021 and is reported in the AspenTech segment, expands the Company's offerings in the power industry to include the digitization and modernization of the electric grid. The Company recognized goodwill of $967 (none of which is expected to be tax deductible), identifiable intangible assets of $783, primarily intellectual property and customer relationships with a weighted-average useful life of approximately 11 years, and deferred tax liabilities of $193. Results of operations for the year ended September 30, 2021 included first year pretax acquisition accounting charges related to backlog amortization and deferred revenue of $30 and $14, respectively, and fees of $6.

As previously disclosed, the Company sold its network power systems business (rebranded as Vertiv, now a publicly traded company, symbol VRT) in 2017 and retained a subordinated interest contingent upon the equity holders first receiving a threshold cash return on their initial investment. In the first quarter of fiscal 2022, the equity holders' cumulative cash return exceeded the threshold and as a result, the Company received a distribution of $438 in November 2021 (in total, a pretax gain of $453 was recognized in the first quarter, $358 after-tax, $0.60 per share). Based on the terms of the agreement and the current calculation, the Company could receive additional distributions of approximately $75 which are expected to be received over the next two-to-three years. However, the distributions are contingent on the timing and price at which Vertiv shares are sold by the equity holders and therefore, there can be no assurance as to the amount or timing of the remaining distributions to the Company.

In 2020, the Company acquired three businesses, two in the Automation Solutions segment and one in the Climate Technologies segment, for $126, net of cash acquired. These three businesses had combined annual sales of approximately $50.

(5) OTHER DEDUCTIONS, NET

Other deductions, net are summarized below:
			2020						2021						2022
Amortization of intangibles (intellectual property and customer relationships)			$	239					300						357
Restructuring costs			284						150						86
Acquisition/divestiture costs			—						—						110
Foreign currency transaction (gains) losses			21						4						7
Investment-related gains & gains from sales of capital assets			—						(69)						(30)
Russia business exit			—						—						135
Other			(12)						(67)						(64)
Total			$	532					318						601

In fiscal 2022, intangibles amortization included $97 related to the Heritage AspenTech acquisition, while the prior year included backlog amortization related to the OSI acquisition of $30. Foreign currency transaction losses included a $50 mark-to-market loss in fiscal 2022 related to foreign currency forward contracts entered into by AspenTech to mitigate the impact of foreign currency exchange associated with the Micromine purchase price. Other is composed of several items, including pension expense, litigation costs, provision for bad debt and other items, none of which is individually significant.

(6) RESTRUCTURING COSTS

Each year the Company incurs costs to size its businesses to levels appropriate for current economic conditions and to continually improve its cost structure and operational efficiency, deploy assets globally, and remain competitive on a worldwide basis. Costs result from numerous individual actions implemented across the Company's various operating units on an ongoing basis and can include costs for moving facilities to best-cost locations, restarting plants after relocation or geographic expansion to better serve local markets, reducing forcecount or the number of facilities, exiting certain product lines, and other costs resulting from asset deployment decisions (such as contract termination costs, asset write-downs and vacant facility costs).

Restructuring expenses were $86, $150 and $284 for 2022, 2021 and 2020, respectively. The Company expects fiscal year 2023 restructuring expense to be approximately $100.

Restructuring costs by business segment follows:

			2020						2021						2022
Automation Solutions			$	225					121						52
AspenTech			7						2						—
Climate Technologies			23						15						10
Tools & Home Products			21						7						11
Commercial & Residential Solutions			44						22						21
Corporate			8						5						13
Total			$	284					150						86

Actions taken in 2022 included workforce reductions of approximately 2,200 positions and the exit of eight production facilities worldwide. Costs incurred in 2021 and 2020 primarily relate to the Company's initiatives to improve operating margins that began in the third quarter of fiscal 2019 and were expanded in the third quarter of fiscal 2020 in response to the effects of COVID-19 on demand for the Company's products. Expenses incurred in 2021 and 2020 included actions to exit eight and six facilities, and eliminate approximately 3,600 and 5,400 positions, respectively.

The change in the liability for restructuring costs during the years ended September 30 follows:

			2021						Expense												Utilized/Paid												2022
Severance and benefits			$	172								46												79									139
Other			4									40												38									6
Total			$	176								86												117									145

			2020						Expense												Utilized/Paid												2021
Severance and benefits			$	176								112												116									172
Other			5									38												39									4
Total			$	181								150												155									176

The tables above do not include $43 and $38 of costs related to restructuring actions incurred for the year ended September 30, 2022 and 2021, respectively, that are required to be reported in cost of sales and selling, general and administrative expenses.

(7) LEASES

The components of lease expense for the years ended September 30 were as follows:

			2021						2022
Operating lease expense			$	195					185
Variable lease expense			$	17					20

Short-term lease expense and sublease income were immaterial for the years ended September 30, 2022 and September 30, 2021. Cash paid for operating leases is classified within operating cash flows and was $188 and $192 for the years ended September 30, 2022 and 2021, respectively. Operating lease right-of-use asset additions was $97 and $194 for the years ended September 30, 2022 and 2021, respectively.

The following table summarizes the balances of the Company's operating lease right-of-use assets and operating lease liabilities as of September 30, 2021 and 2022, the vast majority of which relates to offices and manufacturing facilities:

						2021									2022
Right-of-use assets (Other assets)						$	558								489
Current lease liabilities (Accrued expenses)						$	155								144
Noncurrent lease liabilities (Other liabilities)						$	413								348

The weighted-average remaining lease term for operating leases was 5.7 years and 5.8 years, and the weighted-average discount rate was 3.0 percent and 2.6 percent as of September 30, 2022 and September 30, 2021, respectively.

Future maturities of operating lease liabilities as of September 30, 2022 are summarized below:

															2022
2023															$	152
2024															115
2025															80
2026															51
2027															37
Thereafter															104
Total lease payments															539
Less: Interest															47
Total lease liabilities															$	492

Lease commitments that have not yet commenced were immaterial as of September 30, 2022.

(8) GOODWILL AND OTHER INTANGIBLES

The change in the carrying value of goodwill by business segment follows:

			Automation Solutions						AspenTech						Climate Technologies						Tools & Home Products						Commercial & Residential Solutions
																		Total
Balance, September 30, 2020			$	5,506					77						730						421						1,151						6,734
Acquisitions			—						967						23						—						23						990
Foreign currency translation and other			2						—						—						(3)						(3)						(1)
Balance, September 30, 2021			5,508						1,044						753						418						1,171						7,723
Acquisitions			40						7,289						—						—						—						7,329
Foreign currency translation and other			(292)						(7)						(38)						(53)						(91)						(390)
Balance, September 30, 2022			$	5,256					8,326						715						365						1,080						14,662

The gross carrying amount and accumulated amortization of identifiable intangible assets by major class follow:

			Customer Relationships												Intellectual Property												Capitalized Software												Total
			2021						2022						2021						2022						2021						2022						2021						2022
Gross carrying amount			$	2,391					4,563						2,062						4,121						1,458						1,457						5,911						10,141
Less: Accumulated amortization			896						1,056						923						1,123						1,215						1,238						3,034						3,417
Net carrying amount			$	1,495					3,507						1,139						2,998						243						219						2,877						6,724

Intangible asset amortization expense for the major classes included above for 2022, 2021 and 2020 was $563, $470 and $369, respectively. Based on intangible asset balances as of September 30, 2022, amortization expense is expected to approximate $778 in 2023, $745 in 2024, $672 in 2025, $565 in 2026 and $546 in 2027. The increase in goodwill and intangible assets in fiscal 2022 and 2021 reflect the Heritage AspenTech and OSI acquisitions, respectively.

(9) FINANCIAL INSTRUMENTS

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

Hedging Activities

As of September 30, 2022, the notional amount of foreign currency hedge positions was approximately $2.7 billion, and commodity hedge contracts totaled approximately $138 (primarily 38 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 September 30, 2022 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):

									Gain (Loss) to Earnings																		Gain (Loss) to OCI
									2020						2021						2022						2020						2021						2022
			Location
Commodity			Cost of sales						$	(8)					33						12						10						29						(20)
Foreign currency			Sales						(5)						3						(2)						4						3						(9)
Foreign currency			Cost of sales						4						8						31						(25)						34						53
Foreign currency			Other deductions, net						(40)						53						48
Net Investment Hedge
Euro denominated debt																											(123)						21						266
Total									$	(49)					97						89						(134)						87						290

Regardless of whether derivatives and non-derivative financial instruments receive hedge accounting, the Company expects hedging gains or losses to be 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.

Fair Value Measurement

Valuations for all derivatives and the Company's long-term debt fall within Level 2 of the GAAP valuation hierarchy. The fair value of long-term debt was $7.6 billion and $6.8 billion, respectively, as of September 30, 2022 and 2021, which was lower than the carrying value by $1,207 and exceeded the carrying value by $485, respectively. The fair values of commodity and foreign currency contracts were reported in Other current assets and Accrued expenses as summarized below:

						2021															2022
						Assets									Liabilities						Assets						Liabilities
Commodity									$	12					6						—						25
Foreign currency									$	36					6						51						80

(10) SHORT-TERM BORROWINGS AND LINES OF CREDIT

Short-term borrowings and current maturities of long-term debt are as follows:

						2021						2022
Current maturities of long-term debt						$	538					516
Commercial paper and other short-term borrowings						334						1,599
Total						$	872					2,115
Interest rate for weighted-average short-term borrowings at year end						0.1%						2.8%

In May 2018, the Company entered into a $3.5 billion five-year revolving backup credit facility with various banks, which replaced the April 2014 $3.5 billion facility. The credit facility is maintained to support general corporate purposes, including commercial paper borrowings. The Company has not incurred any borrowings under this or previous facilities. The credit facility contains no financial covenants and is not subject to termination based on a change of credit rating or material adverse changes. The facility is unsecured and may be accessed under various interest rate alternatives at the Company’s option. Fees to maintain the facility are immaterial.

(11) LONG-TERM DEBT

The details of long-term debt follow:

			2021						2022
2.625% notes due December 2021			$	500					—
2.625% notes due February 2023			500						500
0.375% euro notes due May 2024			579						490
3.15% notes due June 2025			500						500
1.25% euro notes due October 2025			579						490
0.875% notes due October 2026			750						750
1.8% notes due October 2027			500						500
2.0% notes due December 2028			—						1,000
2.0% euro notes due October 2029			579						490
1.95% notes due October 2030			500						500
2.20% notes due December 2031			—						1,000
6.0% notes due August 2032			250						250
6.125% notes due April 2039			250						250
5.25% notes due November 2039			300						300
2.75% notes due October 2050			500						500
2.80% notes due December 2051			—						1,000
Other			44						255
Long-term debt			6,331						8,775
Less: Current maturities			538						516
Total, net			$	5,793					8,259

As of September 30, 2022, other includes $240 in outstanding borrowings by AspenTech under a revolving term loan credit facility that matures on December 23, 2024. The interest rate is variable and was 4.31% as of September 30, 2022.

Long-term debt maturing during each of the four years after 2023 is $738, $527, $484 and $745, respectively. Total interest paid on long-term debt was approximately $199, $156 and $163 in 2022, 2021 and 2020, respectively. During the year, the Company repaid $500 of 2.625% notes that matured in December 2021. In 2021, the Company repaid $300 of 4.25% notes that matured in November 2020. In December 2021, the Company issued $1,000 of 2.0% notes due December 2028, $1,000 of 2.20% notes due December 2031 and $1,000 of 2.80% notes due December 2051.

The Company maintains a universal shelf registration statement on file with the SEC under which it can issue debt securities, preferred stock, common stock, warrants, share purchase contracts or share purchase units without a predetermined limit. Securities can be sold in one or more separate offerings with the size, price and terms to be determined at the time of sale.

(12) PENSION AND POSTRETIREMENT PLANS

Retirement plans expense includes the following components:

			U.S. Plans																		Non-U.S. Plans
			2020						2021						2022						2020						2021						2022
Defined benefit plans:
Service cost (benefits earned during the period)			$	57					54						49						30						29						25
Interest cost			125						94						99						30						32						33
Expected return on plan assets			(268)						(264)						(253)						(72)						(74)						(56)
Net amortization and other			148						143						102						17						14						3
Net periodic pension expense			62						27						(3)						5						1						5
Defined contribution plans			112						114						124						56						52						52
Total retirement plans expense			$	174					141						121						61						53						57

Net periodic pension expense decreased in 2022 primarily due to lower amortization of deferred losses. For defined contribution plans, the Company makes cash contributions based on plan requirements, which are expensed as incurred.

The Company's principal U.S. defined benefit plan is closed to employees hired after January 1, 2016 while shorter-tenured employees ceased accruing benefits effective October 1, 2016.

Details of the changes in the actuarial present value of the projected benefit obligation and the fair value of plan assets for defined benefit pension plans follow:

			U.S. Plans												Non-U.S. Plans
			2021						2022						2021						2022
Projected benefit obligation, beginning			$	4,525					4,338						1,633						1,562
Service cost			54						49						29						25
Interest cost			94						99						32						33
Actuarial gain			(13)						(1,170)						(101)						(404)
Benefits paid			(218)						(204)						(39)						(40)
Settlements			(105)						—						(35)						(29)
Foreign currency translation and other			1						—						43						(182)
Projected benefit obligation, ending			$	4,338					3,112						1,562						965
Fair value of plan assets, beginning			$	4,383					4,844						1,367						1,474
Actual return on plan assets			771						(1,030)						100						(337)
Employer contributions			12						15						29						28
Benefits paid			(218)						(204)						(39)						(40)
Settlements			(105)						—						(35)						(29)
Foreign currency translation and other			1						—						52						(188)
Fair value of plan assets, ending			$	4,844					3,625						1,474						908
Net amount recognized in the balance sheet			$	506					513						(88)						(57)
Location of net amount recognized in the balance sheet:
Noncurrent asset			$	732					676						283						205
Current liability			(13)						(14)						(16)						(17)
Noncurrent liability			(213)						(149)						(355)						(245)
Net amount recognized in the balance sheet			$	506					513						(88)						(57)
Pretax accumulated other comprehensive loss			$	(274)					(284)						(182)						(136)

Actuarial gains in 2022 were largely due to an increase in the discount rates used to estimate the benefit obligations for the U.S. and non-U.S. plans, which were 5.64% and 4.9% at September 30, 2022 compared to 2.92% and 2.2% at September 30, 2021, respectively. Actuarial gains in 2021 were largely due to an increase in the discount rates used to estimate the benefit obligations for the U.S. and non-U.S. plans, which was 2.92% and 2.2% at September 30, 2021 compared to 2.81% and 1.9% at September 30, 2020, respectively. As of September 30, 2022, U.S. pension plans were overfunded by $513 in total, including unfunded plans totaling $162. The non-U.S. plans were underfunded by $57, including unfunded plans totaling $236.

As of the September 30, 2022 and 2021 measurement dates, the plans' total accumulated benefit obligation was $3,910 and $5,634, respectively. The total projected benefit obligation, accumulated benefit obligation and fair value of plan assets for individual plans with projected benefit obligations in excess of plan assets were $527, $444 and $102, respectively, for 2022, and $1,142, $1,016 and $544, respectively, for 2021. The total projected benefit obligation, accumulated benefit obligation and fair value of plan assets for individual plans with accumulated benefit obligations in excess of plan assets were $477, $421 and $63, respectively, for 2022, and $711, $626 and $123, respectively, for 2021.

Future benefit payments by U.S. plans are estimated to be $215 in 2023, $220 in 2024, $225 in 2025, $229 in 2026, $232 in 2027 and $1,174 in total over the five years 2028 through 2032. Based on foreign currency exchange rates as of September 30, 2022, future benefit payments by non-U.S. plans are estimated to be $60 in 2023, $58 in 2024, $59 in 2025, $62 in 2026, $65 in 2027 and $366 in total over the five years 2028 through 2032. The Company expects to contribute approximately $40 to its retirement plans in 2023.

The weighted-average assumptions used in the valuation of pension benefits follow:

			U.S. Plans																		Non-U.S. Plans
			2020						2021						2022						2020						2021						2022
Net pension expense
Discount rate used to determine service cost			3.40		%				3.16		%				3.16		%				1.9		%				1.9		%				2.2		%
Discount rate used to determine interest cost			2.87		%				2.10		%				2.31		%				1.9		%				1.9		%				2.2		%
Expected return on plan assets			6.75		%				6.50		%				6.00		%				5.8		%				5.6		%				4.4		%
Rate of compensation increase			3.25		%				3.25		%				4.00		%				3.7		%				3.6		%				3.7		%
Benefit obligations
Discount rate			2.81		%				2.92		%				5.64		%				1.9		%				2.2		%				4.9		%
Rate of compensation increase			3.25		%				3.25		%				4.00		%				3.6		%				3.7		%				4.0		%

The discount rate for the U.S. retirement plans was 5.64 percent as of September 30, 2022. An actuarially developed, company-specific yield curve is used to determine the discount rate. To determine the service and interest cost components of pension expense for its U.S. retirement plans, the Company applies the specific spot rates along the yield curve, rather than the single weighted-average rate, to the projected cash flows to provide more precise measurement of these costs. The expected return on plan assets assumption is determined by reviewing the investment returns of the plans for the past 10 years plus longer-term historical returns of an asset mix approximating the Company's asset allocation targets, and periodically comparing these returns to expectations of investment advisors and actuaries to determine whether long-term future returns are expected to differ significantly from the past.

The Company's asset allocations at September 30, 2022 and 2021, and weighted-average target allocations follow:

			U.S. Plans																		Non-U.S. Plans
			2021						2022						Target						2021						2022						Target
Equity securities			39		%				39		%				35-45%						35		%				11		%				10-20%
Debt securities			55						54						50-60						55						73						70-80
Other			6						7						0-10						10						16						10-20
Total			100		%				100		%				100%						100		%				100		%				100%

The primary objective for the investment of pension assets is to secure participant retirement benefits by earning a reasonable rate of return. Plan assets are invested consistent with the provisions of the prudence and diversification rules of ERISA and with a long-term investment horizon. The Company continuously monitors the value of assets by class and routinely rebalances to remain within target allocations. The equity strategy is to minimize concentrations of risk by investing primarily in a mix of companies that are diversified across geographies, market capitalization, style, sectors and industries worldwide. The approach for bonds emphasizes investment-grade corporate and government debt with maturities matching a portion of the longer duration pension liabilities. The bonds strategy also includes a high-yield element which is generally shorter in duration. For diversification, a small portion of U.S. plan assets is allocated to private equity partnerships and real asset fund investments, providing opportunities for above market returns. Leveraging techniques are not used and the use of derivatives in any fund is limited and inconsequential.

The fair values of defined benefit pension assets as of September 30, organized by asset class and by the fair value hierarchy of ASC 820, Fair Value Measurement, follow. Investments valued based on the net asset value (NAV) of fund units held, as derived from the fair value of the underlying assets, are excluded from the fair value hierarchy.

			Level 1						Level 2						Level 3						Measured at NAV						Total						%
2022
U.S. equities			$	405					6						—						633						1,044						23		%
International equities			225						10						—						123						358						8		%
Emerging market equities			—						1						—						124						125						3		%
Corporate bonds			—						1,143						—						859						2,002						44		%
Government bonds			—						468						—						152						620						14		%
Other			(9)						7						130						256						384						8		%
Total			$	621					1,635						130						2,147						4,533						100		%
2021
U.S. equities			$	591					9						—						670						1,270						20		%
International equities			356						17						—						563						936						15		%
Emerging market equities			—						1						—						212						213						3		%
Corporate bonds			—						1,516						—						565						2,081						33		%
Government bonds			—						642						—						730						1,372						22		%
Other			46						8						135						257						446						7		%
Total			$	993					2,193						135						2,997						6,318						100		%

Asset Classes

U.S. equities reflect companies domiciled in the U.S., including multinational companies. International equities are comprised of companies domiciled in developed nations outside the U.S. Emerging market equities are comprised of companies domiciled in portions of Asia, Eastern Europe and Latin America. Corporate bonds represent investment-grade debt of issuers primarily from the U.S. Government bonds include investment-grade instruments issued by federal, state and local governments, primarily in the U.S. Other includes cash, interests in mixed asset funds investing in commodities, natural resources, agriculture, real estate and infrastructure funds, life insurance contracts (U.S.), and shares in certain general investment funds of financial institutions or insurance arrangements (non-U.S.) that typically ensure no market losses or provide for a small minimum return guarantee.

Fair Value Hierarchy Categories

Valuations of Level 1 assets for all classes are based on quoted closing market prices from the principal exchanges where the individual securities are traded. Cash is valued at cost, which approximates fair value. Debt securities categorized as Level 2 assets are generally valued based on independent broker/dealer bids or by comparison to other debt securities having similar durations, yields and credit ratings. Valuation techniques and inputs for these assets include discounted cash flow analysis, earnings multiple approaches, recent transactions, transfer restrictions, prevailing discount rates, volatilities, credit ratings and other factors. In the Other class, interests in mixed asset funds are Level 2, and U.S. life insurance contracts and non-U.S. general fund investments and insurance arrangements are Level 3. Investments measured at NAV are primarily nonexchange-traded commingled or collective funds where the underlying securities have observable prices available from active markets and typically provide liquidity daily or within a few days. The NAV category also includes fund investments in private equities, real estate and infrastructure where the fair value of the underlying assets is determined by the investment manager. Total unfunded commitments for the private equity funds were approximately $190 at September 30, 2022. These investments cannot be redeemed, but instead the funds will make distributions through liquidation of the underlying assets, which is expected to occur over approximately the next 10 years. The real estate and infrastructure funds typically offer quarterly redemption.

Postretirement Plans

The Company also sponsors unfunded postretirement benefit plans (primarily health care) for certain U.S. retirees and their dependents. The Company’s principal U.S. postretirement plan has been frozen to new employees since 1993. The postretirement benefit liability for all plans was $83 and $119 as of September 30, 2022 and 2021, respectively, and included deferred actuarial gains in accumulated other comprehensive income of $112 and $98, respectively. Service and interest costs are negligible and more than offset by the amortization of deferred actuarial gains, which resulted in net postretirement income of $12 for 2022 and $15 for 2021 and $12 for 2020. Benefits paid

were $10 and $9 for 2022 and 2021, respectively, and the Company estimates that future health care benefit payments will be approximately $10 per year for 2023 through 2027, and $33 in total over the five years 2028 through 2032.

(13) CONTINGENT LIABILITIES AND COMMITMENTS

The Company is a party to a number of pending legal proceedings and claims, including those involving general and product liability (including asbestos) and other matters, several of which claim substantial amounts of damages. The Company accrues for such liabilities when it is probable that future costs (including legal fees and expenses) will be incurred and such costs can be reasonably estimated. Accruals are based on developments to date; management's estimates of the outcomes of these matters; and the Company's experience in contesting, litigating and settling similar matters. The Company engages an outside expert to develop an actuarial estimate of its expected costs to resolve all pending and future asbestos claims, including defense costs, as well as its related insurance receivables. The reserve for asbestos litigation, which is recorded on an undiscounted basis, is based on projected claims through 2065. See Note 19 for additional information about the Company's asbestos liabilities and related insurance receivables.

Although it is not possible to predict the ultimate outcome of these matters, the Company historically has been largely successful in defending itself against claims and suits that have been brought against it, and will continue to defend itself vigorously in all such matters. While the Company believes a material adverse impact is unlikely, given the inherent uncertainty of litigation, a remote possibility exists that a future development could have a material adverse impact on the Company. The Company enters into certain indemnification agreements in the ordinary course of business in which the indemnified party is held harmless and is reimbursed for losses incurred from claims by third parties, usually up to a prespecified limit. In connection with divestitures of certain assets or businesses, the Company often provides indemnities to the buyer with respect to certain matters including, for example, environmental or unidentified tax liabilities related to periods prior to the disposition. Because of the uncertain nature of the indemnities, the maximum liability cannot be quantified. As such, contingent liabilities are recorded when they are both probable and reasonably estimable. Historically, payments under indemnity arrangements have been inconsequential.

At September 30, 2022, there were no known contingent liabilities (including guarantees, pending litigation, taxes and other claims) that management believes will be material in relation to the Company's financial statements, nor were there any material commitments outside the normal course of business.

(14) INCOME TAXES

Pretax earnings consist of the following:

			2020						2021						2022
United States			$	1,360					1,491						2,684
Non-U.S.			975						1,421						1,401
Total pretax earnings			$	2,335					2,912						4,085

The principal components of income tax expense follow:

			2020						2021						2022
Current:
U.S. federal			$	123					152						511
State and local			15						26						60
Non-U.S.			288						355						400
Deferred:
U.S. federal			(44)						81						(101)
State and local			1						(2)						(13)
Non-U.S.			(38)						(27)						(2)
Income tax expense			$	345					585						855

Reconciliations of the U.S. federal statutory income tax rate to the Company's effective tax rate follow.

			2020						2021						2022
U.S. federal statutory rate			21.0		%				21.0		%				21.0		%
State and local taxes, net of U.S. federal tax benefit			0.6						0.7						0.8
Non-U.S. rate differential			1.7						2.0						1.6
Non-U.S. tax holidays			(1.1)						(0.8)						(0.9)
Research and development credits			(1.8)						(0.6)						(0.3)
Foreign derived intangible income			(1.2)						(1.4)						(1.4)
Gain on divestiture			—						—						(1.1)
Russia business exit			—						—						1.2
Subsidiary restructuring			(4.4)						(0.5)						(0.3)
Other			—						(0.3)						0.3
Effective income tax rate			14.8		%				20.1		%				20.9		%

The tax rates for 2022, 2021 and 2020 include benefits from restructuring subsidiaries of $11, $13 and $103, respectively. The impact on the 2022 tax rate from the gain on divestiture of the Therm-O-Disc business and the Russia business exit in 2022 essentially offset. The lower rate in 2020 included the impact of a research and development tax credit study.

The Company has elected to recognize the tax on global intangible low-taxed income earned by certain of its non-U.S. subsidiaries as a period expense when it is incurred.

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic, and among other things, provides tax relief to businesses. Tax provisions of the CARES Act include the deferral of certain payroll taxes, relief for retaining employees, and other provisions. The Company deferred $73 of certain payroll taxes through the end of calendar year 2020, of which approximately $37 was paid in December 2021 with the remaining amount due in December 2022.

Non-U.S. tax holidays reduce tax rates in certain jurisdictions. Approximately half of the tax holidays expired by September 2022, with the remaining expiring over the next 8 years.

Following are changes in unrecognized tax benefits before considering recoverability of any cross-jurisdictional tax credits (U.S. federal, state and non-U.S.) and temporary differences. The amount of unrecognized tax benefits is not expected to change significantly in the next 12 months.

			2021						2022
Unrecognized tax benefits, beginning			$	195					219
Additions for current year tax positions			27						25
Additions for prior year tax positions			17						9
Reductions for prior year tax positions			(6)						(65)
Acquisitions and divestitures			1						1
Reductions for settlements with tax authorities			(5)						—
Reductions for expiration of statutes of limitations			(10)						(11)
Unrecognized tax benefits, ending			$	219					178

If none of the unrecognized tax benefits shown is ultimately paid, the tax provision and the calculation of the effective tax rate would be favorably impacted by $151, which is net of cross-jurisdictional tax credits and temporary differences. The Company accrues interest and penalties related to income taxes in income tax expense. Total expense (income) recognized was $(6), $(4) and $1 in 2022, 2021 and 2020, respectively. As of September 30, 2022 and 2021, total accrued interest and penalties were $24 and $24, respectively.

The U.S. is the major jurisdiction for which the Company files income tax returns. Examinations for U.S. federal are complete through 2017, except for 2014. The status of state and non-U.S. tax examinations varies due to the numerous legal entities and jurisdictions in which the Company operates.

The principal items that gave rise to deferred income tax assets and liabilities follow:

			2021						2022
Deferred tax assets:
Net operating losses, capital losses and tax credits			$	316					212
Accrued liabilities			216						217
Postretirement and postemployment benefits			29						21
Employee compensation and benefits			149						125
Other			128						135
Total			$	838					710
Valuation allowances			$	(236)					(174)
Deferred tax liabilities:
Intangibles			$	(787)					(1,633)
Pensions			(107)						(119)
Property, plant and equipment			(212)						(208)
Undistributed non-U.S. earnings			(38)						(37)
Other			(54)						(160)
Total			$	(1,198)					(2,157)
Net deferred income tax liability			$	(596)					(1,621)

Total income taxes paid were approximately $720, $680 and $400 in 2022, 2021 and 2020, respectively. Approximately two-thirds of the $212 of net operating losses can be carried forward indefinitely, while most of the remainder expire over the next 10 years.

(15) STOCK-BASED COMPENSATION

The Company's stock-based compensation plans include performance shares, restricted stock, restricted stock units, and stock options. Although the Company has discretion, shares distributed under these plans are issued from treasury stock.

In fiscal 2022, the Company changed the terms of its annual performance share awards that were issued in the first quarter. The new terms meet the criteria for equity classification in accordance with ASC 718, Compensation - Stock Compensation, and therefore expense will be recognized on a fixed basis over the three-year performance period. The terms of the performance share awards issued in fiscal 2020 and 2021 are unchanged and therefore continue to be accounted for as liability awards and marked-to-market each period based on changes in the stock price.

AspenTech also has stock-based compensation plans that are settled in its own stock. These plans consist of restricted stock units and stock options.

Total compensation expense and income tax benefits for Emerson and AspenTech stock options and incentive shares follows.

			2020						2021						2022
Performance shares			$	98					203						89
Restricted stock and restricted stock units			11						21						23
Stock options			1						—						—
AspenTech stock-based compensation plans			—						—						32
Total stock compensation expense			$	110					224						144
Income tax benefits recognized			$	18					27						19

As of September 30, 2022, total unrecognized compensation expense related to unvested shares awarded under Emerson plans was $153, which is expected to be recognized over a weighted-average period of 1.3 years, while the total future unrecognized compensation cost related to AspenTech stock options and RSUs was $41 and $97, respectively, which is expected to be recorded over a weighted average period of 2.1 years and 1.8 years, respectively.

Emerson Performance Shares, Restricted Stock and Restricted Stock Units

The Company's incentive shares plans include performance shares awards which distribute the value of common stock to key management employees at the conclusion of a three-year period subject to certain operating performance conditions and other terms and restrictions. The form of distribution is primarily shares of common stock, with a portion in cash in the first quarter following the end of the applicable three-year performance period. Dividend equivalents are only paid on earned awards after the performance period has concluded. Compensation expense for performance shares is recognized over the service period based on the number of shares ultimately expected to be earned.

Information related to performance share payouts for the years ended September 30, 2021 and 2022 follows (shares in thousands):

			2021						2022
Performance period			2018 - 2020						2019 - 2021
Percent payout			100		%				101		%
Total shares earned			1,535						1,341
Shares distributed in cash, primarily for tax withholding			672						586

As of September 30, 2022, approximately 1,469,000 shares awarded primarily in 2020 were outstanding, contingent on the Company achieving its performance objectives through 2022. The objectives for these shares were met at the 106 percent level and the shares will be distributed in early fiscal 2023.

Additionally, the rights to receive approximately 1,057,000 and 1,481,000 common shares awarded in 2022 and 2021, respectively, are outstanding and contingent upon the Company achieving its performance objectives through 2024 and 2023, respectively.

Incentive shares plans also include restricted stock awards and restricted stock units. Restricted stock awards involve distribution of common stock to key management employees subject to cliff vesting at the end of service periods ranging from three to ten years while restricted stock units granted to employees cliff vest at the end of a three-year period. The fair value of restricted stock awards and restricted stock units is determined based on the average of the high and low market prices of the Company's common stock on the date of grant, with compensation expense recognized ratably over the applicable vesting period. In 2022, approximately 116,000 shares of restricted stock vested as a result of participants fulfilling the applicable service requirements. Consequently, approximately 76,000 shares were issued while 40,000 shares were withheld for income taxes in accordance with minimum withholding requirements. As of September 30, 2022, there were approximately 1,272,000 shares of unvested restricted stock and restricted stock units outstanding.

In addition to the employee stock option and incentive shares plans, in 2022 the Company awarded approximately 19,000 shares of restricted stock under the restricted stock plan for non-management directors. As of September 30, 2022, approximately 79,000 shares were available for issuance under this plan.

As of September 30, 2022, 3.8 million shares remained available for award under incentive shares plans.

Changes in shares outstanding but not yet earned under incentive shares plans during the year ended September 30, 2022 follow (shares in thousands; assumes 100 percent payout of unvested awards):

			Shares						Average Grant Date Fair Value Per Share
Beginning of year			5,641									$	70.22
Granted			1,451									$	95.54
Earned/vested			(1,614)									$	67.65
Canceled			(198)									$	79.08
End of year			5,280									$	77.58

Information related to Emerson incentive shares plans follows:

			2020						2021						2022
Total fair value of shares earned/vested			$	164					131						158
Share awards distributed in cash, primarily for tax withholding			$	81					58						69

Emerson Stock Options

There were no stock option grants in 2022, 2021 and 2020. The Company's stock option plans expired in fiscal year 2021. Previously awarded stock options allow key officers and employees to purchase common stock at specified prices, which are equal to 100 percent of the closing market price of the Company's stock on the date of grant. Options generally vest one-third in each of the three years subsequent to grant and expire 10 years from the date of grant. Compensation expense is recognized ratably over the vesting period based on the number of options expected to vest.

Changes in shares subject to options during the year ended September 30, 2022 follow (shares in thousands):

			Weighted- Average Exercise Price Per Share												Shares						Total Intrinsic Value of Shares												Average Remaining Life (Years)
Beginning of year						$	57.96								2,017
Options granted						$	—								—
Options exercised						$	57.21								(315)
Options canceled						$	57.98								(10)
End of year						$	58.10								1,692									$	27											2.2
Exercisable at end of year						$	58.10								1,692									$	27											2.2

Information related to Emerson stock options follows:

			2020						2021						2022
Cash received for option exercises			$	126					114						15
Intrinsic value of options exercised			$	47					53						11
Tax benefits related to option exercises			$	8					6						7

AspenTech Stock-Based Compensation

As discussed in Note 4, Emerson completed the acquisition of Heritage AspenTech in the third quarter of fiscal 2022. AspenTech, as defined in Note 4, operates as a separate publicly traded company and has various stock-based compensation plans, including stock options and restricted stock units, which are settled in their own common stock and are accounted for as equity awards. Restricted stock units generally vest over four years. Option awards have been granted with an exercise price equal to the market closing price of AspenTech's stock on the trading day prior to the grant date. These options generally vest over 4 years and expire within 7 years or 10 years of grant. AspenTech's policy is to issue new shares upon the exercise of vested stock awards.

Pursuant to the terms of the transaction agreement between Emerson and Heritage AspenTech, each outstanding option to purchase shares of Heritage AspenTech common stock, whether vested or unvested, that was unexercised as of immediately prior to the closing date was converted into an option to acquire shares of AspenTech. Each converted option is subject to the same terms and conditions as applied to the original option. In addition, each outstanding award of restricted stock units with respect to shares of Heritage AspenTech common stock that were unvested as of immediately prior to the closing date was converted into an award of restricted stock units with respect to shares of AspenTech. Each converted restricted stock unit is also subject to the same terms and conditions as applied to the original restricted stock unit.

ASC 805 required the Company to determine the fair value of the AspenTech share-based payment awards related to the replacement of the Heritage AspenTech share-based payment awards, and allocate the total fair value based on the services that are attributable to the pre- and post-combination service periods, respectively. The portion that is attributable to the pre-combination service period was considered part of the consideration transferred for Heritage AspenTech and included as part of the purchase price. The portion that is attributable to the post-combination service period is recognized as stock-based compensation expense in the post-combination consolidated financial statements over the remaining requisite service period.

AspenTech Stock Options

AspenTech utilizes the Black-Scholes option valuation model for estimating the fair value of options granted. The Black-Scholes option valuation model incorporates assumptions regarding expected stock price volatility, the expected life of the option, the risk-free interest rate, dividend yield and the market value of AspenTech's common stock. The expected stock price volatility is determined based on AspenTech's stock’s historic prices over a period commensurate with the expected life of the award. The expected life of an option represents the period for which options are expected to be outstanding as determined by historic option exercises and cancellations. The risk-free interest rate is based on the U.S. Treasury yield curve for notes with terms approximating the expected life of the options granted. The expected dividend yield is zero, based on AspenTech's history and expectation of not paying dividends on common shares. Stock-based compensation expense is recognized on a straight-line basis, net of forfeitures as they occur, over the requisite service period for time-vested awards.

The weighted-average assumptions used in valuations for 2022 are: risk-free interest rate, 3.0 percent; dividend yield, none; expected volatility, 36.6 percent; and expected life, approximately 5.1 years.

A summary of AspenTech stock option activity in fiscal 2022 is as follows (shares in thousands):

			Weighted- Average Exercise Price Per Share												Shares						Total Intrinsic Value of Shares												Average Remaining Contractual Term (Years)
Beginning of year						$	—								—
Issuance of replacement awards						$	101.44								1,165
Issuance of non-replacement awards						$	204.27								238
Exercised						$	108.96								(137)
Canceled/Forfeited						$	149.16								(10)
End of year						$	131.26								1,256									$	134											7.0
Exercisable at end of year						$	101.76								727									$	99											5.6
Vested and expected to vest at September 30, 2022						$	131.20								1,252									$	134											7.0

The weighted average estimated fair value of option awards granted during fiscal 2022 was $72.26. The total intrinsic value of options exercised during fiscal 2022 was $13. Cash proceeds of $14 from issuances of shares of AspenTech common stock were received during fiscal 2022.

AspenTech Restricted Stock Units

A summary of AspenTech restricted stock unit activity in fiscal 2022 is as follows (shares in thousands):

			Weighted- Average Grant Date Fair Value												Shares
Beginning of year						$	—								—
Issuance of replacement awards						$	166.30								454
Issuance of non-replacement awards						$	202.39								288
Settled						$	190.07								(136)
Canceled/forfeited						$	188.48								(17)
End of year						$	193.82								589
Vested and expected to vest at September 30, 2022						$	177.58								556

During fiscal 2022, the total fair value of vested shares from AspenTech RSU grants amounted to $34. Withholding taxes of $5 were paid on vested RSUs during fiscal 2022.

At September 30, 2022, common stock reserved for future issuance under all AspenTech equity compensation plans was 4.1 million shares.

(16) COMMON AND PREFERRED STOCK

At September 30, 2022, 11.7 million shares of common stock were reserved for issuance under the Company's stock-based compensation plans. During 2022, 5.7 million common shares were purchased and 1.3 million treasury shares were reissued. In 2021, 5.3 million common shares were purchased and 3.1 million treasury shares were reissued.

At September 30, 2022 and 2021, the Company had 5.4 million shares of $2.50 par value preferred stock authorized, with none issued.

(17) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Activity in Accumulated other comprehensive income (loss) is shown below, net of income taxes:
Foreign currency translation			2020						2021						2022
Beginning balance			$	(794)					(711)						(629)
Other comprehensive income (loss), net of taxes of $29, $(5) and $(62), respectively			83						82						(636)
Ending balance			(711)						(629)						(1,265)
Pension and postretirement
Beginning balance			(928)						(864)						(259)
Actuarial gains (losses) deferred during the period, net of taxes of $15, $(150) and $10, respectively			(49)						499						(33)
Amortization of deferred actuarial losses into earnings, net of taxes of $(34), $(34) and $(21), respectively			113						106						70
Ending balance			(864)						(259)						(222)
Cash flow hedges
Beginning balance			—						(2)						16
Gains (Losses) deferred during the period, net of taxes of $2, $(15) and $(6), respectively			(9)						51						18
Reclassifications of realized (gains) losses to sales and cost of sales, net of taxes of $(2), $11 and $10, respectively			7						(33)						(32)
Ending balance			(2)						16						2
Accumulated other comprehensive income (loss)			$	(1,577)					(872)						(1,485)

(18) BUSINESS SEGMENTS INFORMATION

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.

As a result of the Heritage AspenTech acquisition, the Company identified one additional segment in fiscal 2022. The new segment reflects the combined results of Heritage AspenTech and the Emerson Industrial Software Business (see Note 4 for further details). The results for this new segment include the historical results of the Emerson Industrial Software Business (which were previously reported in the Automation Solutions segment), while results related to the Heritage AspenTech business only include periods subsequent to the close of the transaction on May 16, 2022. Prior year amounts for the Automation Solutions segment have been reclassified to conform to the current year presentation.

The Company now reports four segments: Automation Solutions, AspenTech; and Climate Technologies and Tools & Home Products, which together comprise the Commercial & Residential Solutions business.

The Automation Solutions segment enables process, hybrid and discrete manufacturers to maximize production, protect personnel and the environment, reduce project costs, and optimize their energy efficiency and operating costs through a broad offering of integrated solutions, software, services and products, including measurement and analytical instrumentation, industrial valves and equipment, and process control software and systems. Markets served include oil and gas, refining, chemicals, power generation, life sciences, 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 and gases, smart actuation and control technologies, pressure management products, and industrial and residential regulators that reduce the pressure of fluids and gases moving from high-pressure supply lines into lower pressure systems.

• Industrial Solutions provides fluid control and pneumatic 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.

• Systems & Software 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 AspenTech segment provides asset optimization software that enables industrial manufacturers to design, operate, and maintain their operations for maximum performance through a combination of decades of modeling, simulation, and optimization capabilities with industrial operations expertise and apply advanced analytics to improve the profitability and sustainability of production assets.

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 and sustainability, 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 mechanical, electrical, utility and do-it-yourself tools that promote safety and productivity.

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 that promote safety and productivity. Products include professional pipe-working tools, electrical and utility tools, and wet-dry vacuums.

The principal distribution method for each segment is direct sales forces, although the Company also uses independent sales representatives and distributors. Due to its global presence, certain of the Company's international operations are subject to risks including the stability of governments and business conditions in foreign countries which could result in adverse changes in exchange rates, changes in regulations or disruption of operations.

The primary income measure used for assessing segment performance and making operating decisions is earnings before interest and income taxes. Certain expenses are reported at Corporate, including stock compensation expense and a portion of pension and postretirement benefit costs. Corporate and other includes unallocated corporate expenses, acquisition/divestiture costs, first year acquisition accounting charges (which include fair value adjustments related to inventory, backlog and deferred revenue) and other items. Corporate assets are primarily comprised of cash and cash equivalents, investments and certain fixed assets. Summarized below is information about the Company's operations by business segment and by geography.

Business Segments

			Sales																		Earnings (Loss)																		Total Assets
			2020						2021						2022						2020						2021						2022						2020						2021						2022
Automation Solutions			$	11,026					11,292						11,758						$	1,539					1,955						2,356						$	13,704					13,734						13,184
AspenTech			131						319						656						(16)						(7)						12						546						2,089						14,484
Climate Technologies			3,980						4,748						5,200						801						965						1,038						3,065						3,269						3,209
Tools & Home Products			1,663						1,905						2,033						317						399						402						1,491						1,598						1,486
Commercial & Residential Solutions			5,643						6,653						7,233						1,118						1,364						1,440						4,556						4,867						4,695
Corporate items:
Stock compensation																					(110)						(224)						(144)
Unallocated pension and postretirement costs																					53						94						99
Corporate and other																					(93)						(116)						(424)						4,076						4,025						3,309
Gain on subordinated interest																					—						—						453
Gain on sale of business																					—						—						486
Eliminations/Interest			(15)						(28)						(18)						(156)						(154)						(193)
Total			$	16,785					18,236						19,629						$	2,335					2,912						4,085						$	22,882					24,715						35,672

In fiscal 2022, Corporate and other includes a loss of $181 related to the Company's exit of business operations in Russia and acquisition/divestiture costs of $110.

Automation Solutions sales by major product offering are summarized below.

						2020						2021						2022
Measurement & Analytical Instrumentation						$	3,108					3,071						3,206
Valves, Actuators & Regulators						3,589						3,483						3,604
Industrial Solutions						2,012						2,266						2,403
Systems & Software						2,317						2,472						2,545
Total						$	11,026					11,292						11,758

			Depreciation and Amortization																		Capital Expenditures
			2020						2021						2022						2020						2021						2022
Automation Solutions			$	530					537						514						$	306					319						248
AspenTech			27						95						242						2						6						4
Climate Technologies			184						191						177						158						143						206
Tools & Home Products			77						76						71						58						94						52
Commercial & Residential Solutions			261						267						248						216						237						258
Corporate and other			36						70						35						14						19						21
Total			$	854					969						1,039						$	538					581						531

Depreciation and amortization includes intellectual property, customer relationships and capitalized software.

Geographic Information

Sales by major geographic destination are summarized below:

			Automation Solutions																		AspenTech
			2020						2021						2022						2020						2021						2022
Americas			$	5,004					4,901						5,548						$	40					200						362
Asia, Middle East & Africa			3,761						3,986						4,049						42						60						140
Europe			2,261						2,405						2,161						49						59						154
Total			$	11,026					11,292						11,758						$	131					319						656

						Commercial & Residential Solutions																		Total
						2020						2021						2022						2020						2021						2022
Americas						$	3,896					4,513						5,106						$	8,940					9,614						11,016
Asia, Middle East & Africa						1,053						1,277						1,267						4,856						5,323						5,456
Europe						694						863						860						3,004						3,327						3,175
Total						$	5,643					6,653						7,233						$	16,800					18,264						19,647

Sales in the U.S. were $9,084, $7,952 and $7,420 for 2022, 2021 and 2020, respectively, while Asia, Middle East & Africa includes sales in China of $2,331, $2,252 and $1,845 in those years.

						Property, Plant and Equipment
						2020						2021						2022
Americas						$	2,345					2,375						2,255
Asia, Middle East & Africa						679						678						576
Europe						664						685						530
Total						$	3,688					3,738						3,361

Property, plant and equipment located in the U.S. was $2,006 in 2022, $2,141 in 2021 and $2,124 in 2020.

(19) OTHER FINANCIAL DATA

Items reported in earnings during the years ended September 30 included the following:

			2020						2021						2022
Research and development expense			$	439					485						526
Rent expense			$	239					228						215

The components of depreciation and amortization expense reported for the years ended September 30 included the following:

			2020						2021						2022
Depreciation expense			$	485					499						476
Amortization of intangibles (includes $17, $57 and $108 reported in Cost of Sales in 2020, 2021 and 2022, respectively) (a)			256						357						465
Amortization of capitalized software			113						113						98
Total			$	854					969						1,039

(a) Amortization of intangibles includes $148 related to the Heritage AspenTech acquisition for the year ended September 30, 2022 and backlog amortization of $30 related to the OSI acquisition for the year ended September 30, 2021. For the year ended September 30, 2022, $14 of amortization of intangibles included in the table above is reported as a restructuring related cost.

Items reported in other noncurrent assets included the following:

			2021						2022
Pension assets			$	1,015					881
Operating lease right-of-use assets			$	558					489
Unbilled receivables (contract assets)			$	—					428
Deferred income taxes			$	115					99
Asbestos-related insurance receivables			$	95					85

Items reported in accrued expenses included the following:

			2021						2022
Customer advances (contract liabilities)			$	730					853
Employee compensation			$	690					597
Operating lease liabilities (current)			$	155					144
Product warranty			$	146					122

Other liabilities are summarized as follows:

			2021						2022
Deferred income taxes			$	711					1,720
Pension and postretirement liabilities			676						467
Operating lease liabilities (noncurrent)			413						348
Asbestos litigation			256						223
Other			697						562
Total			$	2,753					3,320

(20) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

			First Quarter												Second Quarter												Third Quarter												Fourth Quarter												Full Year
			2021						2022						2021						2022						2021						2022						2021						2022						2021						2022
Net sales			$	4,161					4,473						4,431						4,791						4,697						5,005						4,947						5,360						18,236						19,629
Gross profit			$	1,723					1,822						1,862						1,952						1,982						2,097						1,996						2,317						7,563						8,188
Net earnings common stockholders			$	445					896						561						674						627						921						670						740						2,303						3,231
Net earnings per common share:
Basic			$	0.74					1.51						0.94						1.13						1.05						1.55						1.12						1.25						3.85						5.44
Diluted			$	0.74					1.50						0.93						1.13						1.04						1.54						1.11						1.24						3.82						5.41
Dividends per common share			$	0.505					0.515						0.505						0.515						0.505						0.515						0.505						0.515						2.02						2.06

Earnings per share are computed independently each period; as a result, the quarterly amounts may not sum to the calculated annual figure.

Emerson Electric Co. common stock (symbol EMR) is listed on the New York Stock Exchange and NYSE Chicago.

(21) SUBSEQUENT EVENTS

In October 2022, the Board of Directors approved and the Company announced an agreement to sell a majority stake in its Climate Technologies business (which constitutes the Climate Technologies segment, excluding Therm-O-Disc which was divested earlier in fiscal 2022) to private equity funds managed by Blackstone ("Blackstone") in a transaction valued at $14.0 billion. Emerson will receive upfront, pre-tax cash proceeds of approximately $9.5 billion and a note of $2.25 billion at close (which will accrue 5 percent interest payable in kind by capitalizing interest), while retaining a 45 percent non-controlling common equity ownership 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 transaction is expected to close in the first half of calendar year 2023, subject to regulatory approvals and customary closing conditions.

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 for fiscal 2022 and is reported in the Tools & Home Products segment. The agreement was announced in August 2022 and the assets and liabilities of InSinkErator were classified as held-for-sale as of September 30, 2022 and are included in other current assets, other assets, accrued expenses and other liabilities in the consolidated balance sheet.

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Emerson Electric Co.:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of Emerson Electric Co. and subsidiaries (the Company) as of September 30, 2022 and 2021, the related consolidated statements of earnings, comprehensive income, equity, and cash flows for each of the years in the three-year period ended September 30, 2022, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2022, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2022 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The Company acquired Aspen Technology, Inc. during 2022, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2022, Aspen Technology, Inc.’s internal control over financial reporting representing 36 percent of total assets and 2 percent of total revenues included in the consolidated financial statements of the Company as of and for the year ended September 30, 2022. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Aspen Technology, Inc.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting

includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Sufficiency of Audit Evidence over Net Sales

As discussed in Notes 1, 2 and 18 to the Company’s consolidated financial statements, and disclosed in the consolidated statement of earnings, the Company recorded $19.6 billion of net sales in 2022.

We identified the evaluation of the sufficiency of audit evidence over net sales as a critical audit matter. Net sales are recognized primarily from the sale of tangible products from hundreds of Company locations around the world. Evaluating the sufficiency of audit evidence obtained required especially subjective auditor judgment because of the geographical dispersion of the Company’s net sales generating activities. This included determining the Company locations at which procedures were performed and the supervision and review of procedures performed at those locations.

The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgment to determine the nature and extent of procedures to be performed over net sales, including the determination of the Company locations at which those procedures were to be performed. At each Company location where procedures were performed, we:

• Evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s net sales processes, including the Company’s controls over the accurate recording of amounts.

• Assessed the recorded net sales by selecting a sample of transactions and compared the amounts recognized for consistency with underlying documentation, including contracts with customers and shipping documentation.

Evaluation of the Acquisition Date Fair Value of Certain Acquired Intangible Assets

As discussed in Notes 1 and 4 to the consolidated financial statements, on May 16, 2022, the Company consummated a business combination for total consideration of $11.2 billion. In connection with the business combination, the Company recorded various intangible assets, which included customer relationship and developed technology intangible assets with an acquisition date fair value of $2.3 billion and $1.35 billion, respectively.

We identified the evaluation of the acquisition date fair value of the customer relationship and developed technology intangible assets as a critical audit matter. A high degree of subjective and complex auditor judgment was required to evaluate key assumptions used to value these acquired intangible assets. Specifically, key assumptions included projected revenue for the customer relationship intangible asset and

projected revenue and obsolescence rates for the developed technology intangible asset. Changes to these assumptions could have had a significant impact on the fair value of such assets. In addition, valuation professionals with specialized skills and knowledge were needed to assist in the evaluation of the obsolescence rates.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s business combinations process, including controls related to the development of the projected revenue and obsolescence rate assumptions used in the Company’s valuations. We evaluated the projected revenue used by the Company by (1) comparing to historical results of the acquired entity and publicly available information for peer companies and (2) inquiring of individuals outside of the accounting function about projected revenue and the process used to develop them. In addition, we compared the acquiree’s historical projected revenue to actual revenue to evaluate the Company’s ability to forecast. We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the obsolescence rates by comparing them to certain comparable companies.

			/s/			KPMG LLP

We or our predecessor firms have served as the Company’s auditor since 1938.

St. Louis, Missouri

November 14, 2022