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Item 8. Financial Statements and Supplementary Data

2022-11-14 compared with 2021-11-15 · 286 added, 111 removed, 914 unchanged (30% of the section changed)

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the Company's consolidated financial statements and accompanying notes and the report thereon of KPMG LLP that follow.

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

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Net sales $ 16,785 18,236 19,629

Costs and expenses:

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

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Stock plans 77 52 85

Heritage AspenTech acquisition — — ( 550 )

Ending balance 470 522 57

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Purchases ( 942 ) ( 500 ) ( 500 )

Issued under stock plans 71 136 129

Issued under Emerson stock plans 136 129 53

Ending balance ( 15,920 ) ( 16,291 ) ( 16,738 )

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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

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Changes in operating working capital 148 203 ( 515 )

Gain on subordinated interest — — ( 453 )

Gain on sale of business — — ( 486 )

Other, net ( 20 ) ( 135 ) 4

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Divestitures of businesses — 34 601

Proceeds from subordinated interest — — 438

Other, net ( 76 ) 38 ( 140 )

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Actual results could differ from these estimates.

Certain prior year amounts have been reclassified to conform with current year presentation.

Effective October 1, 2020, 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.

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.

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The updates also eliminate the requirement to separately measure and report hedge ineffectiveness and simplify hedge documentation and effectiveness assessment requirements.

On October 1, 2019, the Company adopted ASC 842, Leases, which requires rights and obligations related to lease arrangements to be recognized on the balance sheet, using the optional transition method under which prior periods were not adjusted.

The Company elected the package of practical expedients for leases that commenced prior to the adoption date, which included carrying forward the historical lease classification as operating or finance.

The adoption of ASC 842 resulted in the recognition of operating lease right-of-use assets and related lease liabilities of approximately $ 500 as of October 1, 2019, but did not materially impact the Company's earnings or cash flows for the year ended September 30, 2020.

The Company's financial statements for 2019 continue to be reported in accordance with the Company's historical accounting under ASC 840, Leases .

On October 1, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers , which updated and consolidated revenue recognition guidance from multiple sources into a single, comprehensive standard to be applied for all contracts with customers.

The fundamental principle of the revised standard is to recognize revenue based on the transfer of goods and services to customers at the amount the Company expects to be entitled to in exchange for those goods and services.

The Company adopted the new standard using the modified retrospective approach and applied the guidance to open contracts which were not completed at the date of adoption.

The cumulative effect of adoption resulted in a $ 30 increase to beginning retained earnings as of October 1, 2018.

This increase primarily related to contracts where a portion of revenue for delivered goods or services was previously deferred due to contingent payment terms.

The adoption of ASC 606 did not materially impact the Company's consolidated financial statements as of and for the year ended September 30, 2019.

Principles of Consolidation

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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 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.

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Inventories are stated at the lower of cost and net realizable value.

The majority of inventory is valued based on standard costs, which approximate average costs, while the remainder is principally valued on a first-in, first-out basis.

Cost standards are revised at the beginning of each year.

The annual effect of resetting standards plus any operating variances incurred during each period are allocated to inventories and recognized in cost of sales as product is sold.

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:

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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.

Substantially all goodwill is assigned to the reporting unit that acquires a

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.

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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 patents and trademarks, customer relationships and capitalized software.

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.

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Revenue is recognized when, or as, performance obligations are satisfied and control has transferred to the customer, typically when products are shipped or delivered, title and risk of loss pass to the customer, and the Company has a present right to payment.

The vast majority of the Company's revenues relate to a broad offering of manufactured products which are recognized at the point in time when control transfers, generally in accordance with shipping terms.

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 limited circumstances, contracts include multiple performance obligations, where revenue is recognized separately for each good or service, as well as contracts where revenue is recognized over time as control transfers to the customer.

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.

These contracts largely 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 small amount is attributable to long-term maintenance and service contracts where revenue is typically recognized on a straight-line basis as the services are provided.

Approximately 5 percent of revenues relate to sales arrangements with multiple performance obligations, principally in the Automation Solutions segment.

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 revenues recognized over time, the Company typically uses an input method to determine progress and recognize revenue, based on costs incurred.

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.

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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.

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.

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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.

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.

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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.

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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.

Effective in fiscal 2019, the Tax Cuts and Jobs Act subjects the Company to U.S.

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.

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(2) REVENUE RECOGNITION

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

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.

Unbilled receivables (contract assets) $ 528 1,399

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Net contract liabilities $ ( 202 ) 520

The majority of the Company's contract balances relate to arrangements where revenue is recognized over time and payments from customers are made according to a contractual billing schedule.

The increase in net contract liabilities was due to customer billings which exceeded revenue recognized for performance completed during the period.

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 lice nse 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 balanc e.

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

As of September 30, 2021, the Company's backlog relating to unsatisfied (or partially unsatisfied) performance obligations in contracts with its customers was approximately $ 6.5 billion.

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 perform ance 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.

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(4) ACQUISITIONS AND DIVESTITURES

On October 11, 2021, the Company announced that it entered into a definitive agreement with Aspen Technology, Inc.

("AspenTech") to combine two of Emerson's stand-alone industrial software businesses, Open Systems International, Inc.

("OSI") and the geological simulation software business, along with a contribution of $ 6.0 billion in cash to AspenTech shareholders, to create "new AspenTech", a diversified, high-performance industrial software leader with greater scale, capabilities and technologies.

Upon closing of the transaction, the Company will own 55 percent of new AspenTech and its results and financial position will be fully consolidated in Emerson's financial statements.

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)

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 Oct ober 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).

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 Automation Solutions segme nt, expands the Company's offerings in the power industry to include the digitization and modernization of the

electric grid .

This business, which had net sales of $ 191 i n fiscal 2021 and is reported in the AspenTech segme nt, 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 .

The Company acquired eight businesses in 2019, all in the Automation Solutions segment, for $ 469 , net of cash acquired.

These eight businesses had combined annual sales of approximately $ 300 .

The Company recognized goodwill of $ 209 ($ 155 of which is expected to be tax deductible) and other identifiable intangible assets of $ 158 , primarily customer relationships and intellectual property with a weighted-average useful life of approximately nine years .

Subsequent to September 30, 2021, the equity holders received a return on their investment in excess of the threshold.

Based on the terms of the agreement and the current calculation, the Company could receive approximately $ 600 on a pretax basis through periodic distributions over the next two years, of which $ 438 was received in November 2021.

However, the remaining 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.

As of September 30, 2021, no amounts have been recognized in the financial statements related to this gain contingency.

(5) OTHER DEDUCTIONS, NET

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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

The increase in in tangibles amortization expense for 2021 was due to the OSI acquisition, including backlog amortization of $ 30 .

Other is composed of several items, including acquisition/divestiture costs, foreign currency transaction gains and losses, litigation, pension expense and other items.

The change in 2021 was primarily due to a favorable impact from pensions and investment-related gains, including gains in the first quarter of fiscal 2021 of $ 21 from an investment sale and $ 17 from the acquisition of full ownership of an equity investment, and a gain in the second quarter of $ 31 from the sale of an equity investment.

The change in 2020 was primarily due to special advisory fees of $ 13 .

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

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Automation Solutions $ 225 121 52

AspenTech 7 2 —

Climate Technologies 23 15 10

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Total $ 284 150 86

Costs incurred in 2021 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.

A ctions taken in 2022 inc luded workforce reductions of approximately 2,200 p ositions 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 2020 and 2019 included actions to exit six and two facilities, and eliminate approximately 5,400 and 1,100 positions, respectively.

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:

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

Automation Solutions Climate Technologies Tools & Home Products Commercial & Residential Solutions

Automation Solutions AspenTech Climate Technologies Tools & Home Products Commercial & Residential Solutions

Balance, September 30, 2020 $ 5,506 77 730 421 1,151 6,734

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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 reflect the acquisition of Open Systems International, Inc.

The increase in goodwill and intangible assets in fiscal 2022 and 2021 reflect the Heritage AspenTech and OSI acquisitions, respectively.

(9) FINANCIAL INSTRUMENTS

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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 $ 6.8 billion and $ 7.3 billion, respectively, as of September 30, 2021 and 2020, which exceeded the carrying value by $ 485 and $ 629 , respectively.

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:

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Current maturities of long-term debt $ 538 516

Commercial paper 838 334

Commercial paper and other short-term borrowings 334 1,599

Total $ 872 2,115

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The details of long-term debt follow:

4.25% notes due November 2020 $ 300 —

2.625% notes due December 2021 $ 500 —

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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

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2.75% notes due October 2050 500 500

2.80% notes due December 2051 — 1,000

Long-term debt 6,331 8,775

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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 $ 300 of 4.25 % notes tha t matured in November 2020 .

In 2020, the Company repaid $ 500 of 4.875 % notes that matured in October 2019.

In April 2020, the Company issued $ 500 of 1.8 % notes due October 2027, $ 500 of 1.95 % notes due October 2030 and $ 500 of 2.75 % notes due October 2050.

In September 2020, the Company issued $ 750 of 0.875 % notes due October 2026.

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.

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Total retirement plans expense $ 174 141 121 61 53 57

Net periodic pension expense decreased in 2021 primarily due to lower interest cost.

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.

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Interest cost 94 99 32 33

Actuarial loss (gain) 260 ( 13 ) 3 ( 101 )

Actuarial gain ( 13 ) ( 1,170 ) ( 101 ) ( 404 )

Benefits paid ( 218 ) ( 204 ) ( 39 ) ( 40 )

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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 losses in 2020 were largely due to a decrease in the discount rate used to estimate the benefit obligations for the U.S.

plan, which was 2.81 % at September 30, 2020 compared to 3.22 % at September 30, 2019.

A ctuarial gains in 2021 were largely due to an increase in the discount rates used to estimate the benefit obligations for the 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.

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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 $ 15 for 2021 and $ 12 for 2020 and 2019.

Benefits paid were

$ 9 and $ 12 for 2021 and 2020, respectively, and the Company estimates that future health care benefit payments will be approximately $ 10 per year for 2022 through 2026, and $ 38 in total over the five years 2027 through 2031 .

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

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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 )

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The tax rates for 2022, 2021 and 2020 include benefits from restructuring subsidiaries of $ 11 , $ 13 and $ 103 , respectively.

The increase in research and development credits in 2020 was due to the impact of a research and development tax credit study.

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, half of which is due in December 2021 with the remainder due in December 2022.

tax holidays reduce tax rates in certain jurisdictions and are expected to expire over the next year.

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.

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 expected to be reduced by approximately $ 50 in the next 12 months.

The amount of unrecognized tax benefits is not expected to change significantly in the next 12 months.

Unrecognized tax benefits, beginning $ 195 219

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The Company accrues interest and penalties related to income taxes in income tax expense.

Total expense (income) recognized from interest and penalties was $( 4 ), $ 1 and $ 4 in 2021, 2020 and 2019, respectively.

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.

is the major jurisdiction for which the Company files income tax returns.

federal tax returns are closed by statute for years through 2013.

Examinations for U.S.

federal are complete through 2017, except for 2014.

The status of state and non-U.S.

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Employee compensation and benefits 149 125

Pensions 69 —

Other 128 135

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Total income taxes paid were approximately $ 720 , $ 680 and $ 400 in 2022, 2021 and 2020, respectively.

Approximately half of the $ 316 of net operating losses and tax credits expire over the next 10 years, while most of the remainder can be carried forward indefinitely.

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

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Although the Company has discretion, shares distributed under these plans are issued from treasury stock.

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

The Company's performance shares awards are marked-to-market each period based on changes in the stock price.

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

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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, 2021, total unrecognized compensation expense related to unvested shares awarded under these plans was $ 164 , which is expected to be recognized over a weighted-average period of 1.8 years.

Performance Shares, Restricted Stock and Restricted Stock Units

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.

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Compensation expense for performance shares is recognized over the service period based on the number of shares ultimately expected to be earned.

Performance shares awards are accounted for as liabilities in accordance with ASC 718, Compensation - Stock Compensation , with compensation expense adjusted at the end of each reporting period to reflect the change in fair value of the awards.

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

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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 101 percent level and the shares will be distributed in early 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.

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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 2021 the Company awarded approximately 19,000 shares of restricted stock and 2,000 restricted stock units under the restricted stock plan for non-management directors.

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.

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End of year 5,280 $ 77.58

Information related to incentive shares plans follows:

Information related to Emerson incentive shares plans follows:

2020 2021 2022

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Share awards distributed in cash, primarily for tax withholding $ 81 58 69

Stock Options

Emerson Stock Options

There were no stock option grants in 2022, 2021 and 2020.

The Company's stock option plan s expired in fiscal year 2021.

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.

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Exercisable at end of year $ 58.10 1,692 $ 27 2.2

Information related to stock options follows:

Information related to Emerson stock options follows:

2020 2021 2022

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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

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

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Gains (Losses) deferred during the period, net of taxes of $ 2 , $( 15 ) and $( 6 ),

( 3 ) ( 9 ) 51

Reclassifications of realized (gains) losses to sales and cost of sales, net of taxes

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The Company designs and manufactures products and delivers services that bring technology and engineering together to provide innovative solutions for customers in a wide range of industrial, commercial and consumer markets around the world.

The Company reports three segments:

Automation Solutions ;

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.

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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.

In fiscal 2021, the Company reclassified certain software product sales that were previously reported in Measurement and Analytical Instrumentation to Systems & Software (previously described as Process Control Systems & Solutions).

The segment's major product offerings are described below.

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• 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 and appliance solutions.

The Climate Technologies segment provides products, services and solutions for all areas of the climate control industry, including residential heating and cooling, commercial air conditioning, commercial and industrial refrigeration, and cold chain management.

Products include compressors, temperature sensors and controls, thermostats, flow controls, and stationary and mobile remote monitoring technologies and services that enable homeowners and businesses to better manage their heating, air conditioning and refrigeration systems for improved control and comfort, and lower energy costs.

The Tools & Home Products segment offers tools for professionals and homeowners and appliance solutions.

Products include professional pipe-working tools, electrical and utility tools, residential and commercial food waste disposers, and wet-dry vacuums.

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.

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Business Segments

Sales Earnings Total Assets

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

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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

Automation Solutions sales by major product offering are summarized below, including the reclassification of prior year amounts to reflect this change.

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

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Automation Solutions $ 530 537 514 $ 306 319 248

AspenTech 27 95 242 2 6 4

Climate Technologies 184 191 177 158 143 206

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Sales by major geographic destination are summarized below:

Automation Solutions Commercial & Residential Solutions Total

Automation Solutions AspenTech

2020 2021 2022 2020 2021 2022

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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.

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Total $ 854 969 1,039

(a) Amortization of intangibles includes backlog amortization of $ 30 related to the OSI acquisition for the year ended September 30, 2021.

(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:

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Operating lease right-of-use assets $ 558 489

Unbilled receivables (contract assets) $ — 428

Deferred income taxes $ 115 99

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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

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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.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of October 1, 2019, due to the adoption of Financial Accounting Standards Board Accounting Standard Codification Topic 842, Leases .

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

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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;

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.

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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 Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates 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 a critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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

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• 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.

We evaluated the sufficiency of audit evidence obtained by assessing the results of procedures performed.

• Ass essed 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.

We or our predecessor firms have served as the Company’s auditor since 193 8.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data