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Item 7. Management’s Discussion and Analysis

2023-11-13 compared with 2022-11-14 · 336 added, 295 removed, 262 unchanged (71% of the section changed)

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Further, the calculation of these non-GAAP financial measures may differ from the calculation of similarly titled financial measures presented by other companies and therefore may not be comparable among companies.

Underlying sales, which exclude the impact of acquisitions, divestitures and fluctuations in foreign currency exchange rates during the periods presented, are provided to facilitate relevant period-to-period comparisons of sales growth by excluding those items that impact overall comparability (U.S.

Underlying sales, which exclude the impact of significant acquisitions, divestitures and fluctuations in foreign currency exchange rates during the periods presented, are provided to facilitate relevant period-to-period comparisons of sales growth by excluding those items that impact overall comparability (U.S.

GAAP measure:

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Management closely monitors operating profit and operating profit margin of each business to evaluate past performance and actions required to improve profitability.

EBIT (defined as earnings

before deductions for interest expense, net and income taxes) and total segment EBIT, and EBIT margin (defined as EBIT divided by net sales) and total segment EBIT margin, are financial measures that exclude the impact of financing on the capital structure and income taxes .

Adjusted EBITA and adjusted segment EBITA (defined as earnings excluding interest expense, net, income taxes, intangibles amortization expense, restructuring expense, first year purchase accounting related items and transaction fees, and certain gains, losses or impairments) and adjusted EBITA margin and adjusted segment EBITA margin (defined as adjusted EBITA divided by net sales) are measures used by management to evaluate the Company's operational performance, as they exclude the impact of acquisition-related investments and non-operational items.

EBIT (defined as earnings before deductions for interest expense, net, related party interest income, and income taxes) and total segment EBIT, and EBIT margin (defined as EBIT divided by net sales) and total segment EBIT margin, are financial measures that exclude the impact of financing on the capital structure and income taxes .

Adjusted EBITA and adjusted segment EBITA (defined as earnings excluding interest expense, net, related party interest income, income taxes, intangibles amortization expense, restructuring expense, first year purchase accounting related items and transaction fees, and certain gains, losses or impairments) and adjusted EBITA margin and adjusted segment EBITA margin (defined as adjusted EBITA divided by net sales) are measures used by management to evaluate the Company's operational performance, as they exclude the impact of acquisition-related investments and non-operational items.

EBITDA (defined as EBIT excluding depreciation and amortization) and EBITDA margin (defined as EBITDA divided by net sales) are also used as measures of the Company's current operating performance, as they exclude the impact of capital and acquisition-related investments.

Adjusted EBITDA (defined as EBITDA excluding restructuring expense, first year purchase accounting related items and transaction fees, and certain gains, losses or impairments) and adjusted EBITDA margin (defined as Adjusted EBITDA divided by net sales) are also used to exclude the impact of non-operational items.

All of these are commonly used financial measures utilized by management to evaluate performance (U.S.

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earnings, earnings per share, return on common stockholders’ equity, return on total capital ).

Free cash flow (operating cash flow less capital expenditures) and free cash flow as a percent of net sales are indicators of the Company’s cash generating capabilities, and dividends as a percent of free cash flow is an indicator of the Company's ability to support its dividend, after considering investments in capital assets which are necessary to maintain and enhance existing operations.

Free cash flow (operating cash flow less capital expenditures) and free cash flow as a percent of net sales are indicators of the Company’s cash generating capabilities, dividends as a percent of free cash flow is an indicator of the Company's ability to support its divid end, and free cash flow conversion of adjusted net earnings (free cash flow divided by net earnings adjusted for intangibles amortization expense, restructuring expense, first year purchase accounting related items and transaction fees, and certain gains, losses or impairments) is an indicator of the quality of the Company's earnings, after considering investments in capital assets which are necessary to maintain and enhance existing operations.

The determination of operating cash flow adds back noncash depreciation expense to earnings and thereby does not reflect a charge for necessary capital expenditures.

Management believes that free cash flow, free cash flow as a percent of net sales and dividends as a percent of free cash flow are useful to both management and investors as measures of the Company’s ability to generate cash and support its dividend (U.S.

Managemen t believes that free cash flow, free cash flow as a percent of net sales and dividends as a percent of free cash flow are useful to both management and investors as measures of the Company’s ability to generate cash and support its dividend (U.S.

GAAP measures:

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Based on this evaluation, management has concluded that internal control over financial reporting was effective as of September 30, 2023.

The Company acquired a controlling interest in Aspen Technology, Inc.

during fiscal 2022, and management has excluded this business from its assessment of internal control over financial reporting as of September 30, 2022.

Total assets and revenues of this business excluded from the assessment represented approximately 36 percent and 2 percent, respectively, of the Company's related consolidated financial statement amounts as of and for the year ended September 30, 2022.

The Company's auditor, KPMG LLP, an independent registered public accounting firm, has issued an audit report on the effectiveness of the Company's internal control over financial reporting.

Karsanbhai /s/ Frank J.

Karsanbhai Frank J.

President Senior Executive Vice President

Karsanbhai /s/ Michael J.

Karsanbhai Michael J.

President Executive Vice President

and Chief Executive Officer and Chief Financial Officer

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Gain on subordinated interest $ — (453) (161)

Gain on sale of business $ — — (486)

Other deductions, net $ 319 519 683

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Interest expense, net $ 155 194 34

Earnings before income taxes $ 2,335 2,912 4,085 25 % 40 %

Interest income from related party $ — — (41)

Earnings from continuing operations before income taxes $ 1,762 2,432 2,726 38 % 12 %

Percent of sales 13.6 % 17.6 % 18.0 % 4.0 pts 0.4 pts

Earnings from continuing operations common stockholders $ 1,414 1,886 2,152 33 % 14 %

Percent of sales 10.9 % 13.7 % 14.2 % 2.8 pts 0.5 pts

Net earnings common stockholders $ 2,303 3,231 13,219 40 % 309 %

Percent of sales 17.8 % 23.4 % 87.2 % 5.6 pts 63.8 pts

Diluted EPS $ 3.24 3.82 5.41 18 % 42 %

Diluted EPS – Earnings from continuing operations $ 2.35 3.16 3.72 34 % 18 %

Diluted EPS – Net earnings $ 3.82 5.41 22.88 42 % 323 %

Adjusted Diluted EPS – Earnings from continuing operations $ 3.01 3.64 4.44 21 % 22 %

Return on common stockholders' equity 25.2 % 31.9 % 85.1 % 6.7 pts 53.2 pts

Return on total capital 18.1 % 20.4 % 66.5 % 2.3 pts 46.1 pts

Overall, sales for 2022 were $19.6 billion, up 8 percent compared with the prior year, reflecting strong growth across both platforms and favorable results across all geographies despite headwinds due to the impact of lockdowns in China and supply chain and logistics constraints.

Net earnings common stockholders were $3,231 in 2022, up 40 percent compared with prior year earnings of $2,303, and diluted earnings per share were $5.41, up 42 percent versus $3.82 per share in 2021.

Adjusted diluted earnings per share were $5.25 co m pared wi th $4.51 in the prior year, reflecting strong operating results and a $0.12 benefit related to the AspenTech acquisition.

The Company generated operating cash flow of $2.9 billion in 2022, a decrease of $653, or 18 percent, reflecting higher working capital due to increased sales and continued supply chain constraints.

The table below presents the Company's diluted earnings per share on an adjusted basis to facilitate period-to-period comparisons and provide additional insight into the underlying, ongoing operating performance of the Company.

Adjusted diluted earnings per share excludes intangibles amortization expense, restructuring expense, first year purchase accounting related items and transaction and AspenTech pre-closing costs, and certain gains, losses or impairments.

Overall, sales for 2023 were $15.2 billion, up 10 percent compared with the prior year, reflecting strong growth across the majority of the Company's business segments and all geographies.

Net earnings from continuing operations attributable to common stockholders were $2,152 in 2023, up 14 percent compared with prior year earnings of $1,886, and diluted earnings per share from continuing operations were $3.72, up 18 percent versus $3.16 in 2022.

Adjusted diluted earnings per share from continuing operations were $4.44 compared with $3.64 in the prior year, reflecting strong sales growth and operating performance.

The Company generated operating cash flow from continuing operations of $2.7 billion in 2023, an increase of $678, or 33 percent, reflecting higher earnings (excluding the impacts in both years from the Vertiv subordinated interest gains and higher Heritage AspenTech intangibles amortization in the current year).

The table below presents the Company's diluted earnings per share from continuing operations on an adjusted basis to facilitate period-to-period comparisons and provide additional insight into the underlying, ongoing operating performance of the Company.

Adjusted diluted earnings per share from continuing operations excludes intangibles

amortization expense, restructuring expense, first year purchase accounting related items and transaction-related costs, interest income on undeployed proceeds related to the Copeland transaction, gains or losses on the Copeland equity method investment, and certain gains, losses or impairments.

2021 2022 2023

Diluted earnings per share $ 3.24 3.82 5.41

Restructuring and related costs 0.42 0.24 0.15

Diluted earnings from continuing operations per share $ 2.35 3.16 3.72

Amortization of intangibles 0.38 0.45 0.62

Gain on subordinated interest — — (0.60)

Gain on sale of business — — (0.72)

Russia business exit — — 0.32

Restructuring and related costs 0.21 0.14 0.14

Acquisition/divestiture costs and pre-acquisition interest on AspenTech debt — 0.15 0.13

Gain on subordinated interest — (0.60) (0.21)

National Instruments investment gain — — (0.07)

Other investment-related gains — (0.02) —

AspenTech Micromine purchase price hedge — 0.04 (0.02)

Interest income on undeployed proceeds from Copeland transaction — — (0.19)

Loss on Copeland equity method investment — — 0.24

Russia business exit charge — 0.32 0.08

OSI first year acquisition accounting charges and fees 0.07 — —

Investment-related gains — (0.03) (0.02)

Discrete tax benefits (0.20) — —

Adjusted diluted earnings per share $ 3.78 4.51 5.25

The table below summarizes the changes in adjusted diluted earnings per share.

Adjusted diluted earnings from continuing operations per share $ 3.01 3.64 4.44

The table below summarizes the changes in adjusted diluted earnings per share from continuing operations.

The items identified below are discussed throughout MD&A, see further discussion above and in the Business Segments and Financial Position sections below.

Adjusted diluted earnings per share - prior year $ 3.78 4.51

Operations 0.68 0.56

AspenTech acquisition — 0.12

Adjusted diluted earnings from continuing operations per share - prior year $ 3.01 3.64

Operations, including impact of AspenTech acquisition 0.58 0.77

Corporate and other — 0.07

Stock compensation 0.12 (0.16)

Pensions 0.05 0.04

Gains on sales of investments - prior year — (0.07)

Gains on sales of investments - current year 0.07 —

Gains on sales of capital assets - current year — 0.02

Foreign currency (0.02) (0.12)

Higher effective tax rate (0.02) (0.05)

Share repurchases/other 0.02 0.02

Adjusted diluted earnings per share - current year $ 4.51 5.25

Pensions 0.03 0.07

Gains on sales of capital assets in 2022 0.02 (0.02)

Gains on sales of investments in 2021 (0.03) —

Effective tax rate (0.09) 0.01

Interest income on Copeland note receivable — 0.05

Other (0.01) (0.01)

Share repurchases 0.03 0.14

Adjusted diluted earnings from continuing operations per share - current year $ 3.64 4.44

Net sales for 2023 were $15.2 billion, an increase of $1.4 billion, or 10 percent compared with 2022.

Sales increased $466 in Automation Solutions, $337 in AspenTech and $580 in Commercial & Residential Solutions.

Underlying sales, which exclude foreign currency translation, acquisitions and divestitures, increased 9 percent on 4 percent higher volume and 5 percent higher price.

The AspenTech acquisition added 2 percent, foreign currency translation deducted 2 percent and the Therm-O-Disc divestiture deducted 1 percent.

Underlying sales increased 14 percent in the U.S.

and 6 percent internationally.

Intelligent Devices sales increased 7 percent, while Software and Control sales increased 20 percent, which included the impact of the Heritage AspenTech acquisition.

Underlying sales were up 10 percent on 6 percent higher volume and 4 percent higher price.

Foreign currency translation subtracted 2 percent, the Heritage AspenTech acquisition added 3 percent and the divestiture of Metran, Emerson's Russia-based manufacturing subsidiary, deducted 1 percent.

Underlying sales were up 11 percent in the U.S.

and up 9 percent internationally.

Net sales for 2022 were $13.8 billion, an increase of $0.9 billion, or 7 percent compared with 2021 .

Sales increased $266 in Automation Solutions.

$188 in AspenTech and $1,010 in Commercial & Residential Solutions.

Underlying sales, which exclude foreign currency translation, acquisitions and divestitures, increased 5 percent on higher volume and slightly higher price.

The Open Systems International Inc.

("OSI") acquisition added 1 percent and foreign currency translation added 3 percent.

Underlying sales increased 5 percent in the U.S.

and 5 percent internationally.

Intelligent Devices sales increased 5 percent, while Software and Control sales increased 16 percent.

Underlying sales increased 7 percent on 4 percent higher volume and 3 percent higher price.

The Heritage AspenTech acquisition

added 3 percent and fo reign currency translation deducted 3 percent.

Underlying sales were up 12 percent in the U.S.

and up 5 percent internationally.

INTERNATIONAL SALES

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International destination sales, including U.S.

exports, increased 2 percent, to $10.6 billion in 2022, reflecting the impact of the Heritage AspenTech acquisition and an increase in the Commercial & Residential Solutions business.

exports of $1.5 billion were up 33 percent compared with 2021, including an increase of approximately $200 due to the Heritage AspenTech acquisition.

Underlying international destination sales were up 6 percent, as foreign currency translation had a 5 percent unfavorable impact on the comparison, the AspenTech acquisition added 2 percent and the Therm-O-Disc divestiture subtracted 1 percent.

Underlying sales increased 2 percent in Europe, 5 percent in Asia, Middle East & Africa (China up 7 percent), 19 percent in Latin America and 15 percent in Canada.

Origin sales by international subsidiaries, including shipments to the U.S., totaled $9.2 billion in 2022, down 1 percent compared with 2021.

International destination sales, including U.S.

exports, increased 10 percent, to $10.3 billion in 2021, reflecting increases in both the Automation Solutions and Commercial & Residential Solutions businesses.

exports of $1.1 billion were up 12 percent compared with 2020.

Underlying international destination sales were up 5 percent, as foreign currency translation had a 4 percent favorable impact on the comparison and the OSI acquisition added 1 percent.

exports, increased 9 percent, to $8.9 billion in 2023, reflecting the Company's overall increase in sales and the impact of the Heritage AspenTech acquisition.

expo rts of $1.0 billion were up 6 percent compared with 2022.

Underlying international destination sales were up 9 percent, as foreign currency translation had a 3 percent unfavorable imp act on the comparison, the Heritage AspenTech acquisition added 3 percent and the divestiture of Metran, Emerson's Russia-based manufacturing subsidiary, deducted 1 percent.

Underlying sales increased 10 percent in Europe, 9 percent in Asia, Middle East & Africa (China up 4 percent), 14 percent in Latin America and 1 percent in Canada.

Origin sales by international subsidiaries, including shipments to the U.S., totaled $7.7 billion in 2023, up 5 percent compared with 2022.

International destination sales, including U.S.

exports, increased 2 percent, to $8.2 billion in 2022, reflecting the impact of the Heritage AspenTech acquisition.

exports of $1.0 billion were up 51 percent compared with 2021, including an increase of approximately $200 due to the Heritage AspenTech acquisition .

Underlying international destination sales were up 5 percent, as foreign currency translation had a 5 percent unfavorable impact on the comparison and the Heritage AspenTech acquisition added 2 percent.

Underlying sales increased 5 percent in Asia, Middle East & Africa (China up 11 percent), 18 percent in Latin Americ a and 14 percent in Canada, while Europe was down slightly.

Origin sales by international subsidiaries, including shipments to the U.S., totaled $7.4 billion in 2022, down 2 percent compared with 2021.

ACQUISITIONS AND DIVESTITURES

Portfolio management is an integral component of Emerson's growth and value creation strategy.

Over the past 18 months, Emerson has taken significant actions to accelerate the transformation of its portfolio through the completion of strategic acquisitions and divestitures of non-core businesses.

These actions were undertaken to create a higher growth and cohesive industrial technology portfolio as a global automation leader serving a diversified set of end markets with differentiated capabilities in intelligent devices and software.

Over the past two years, the Company has taken significant actions to accelerate the transformation of its portfolio through the completion of strategic acquisitions and divestitures of non-core businesses.

These actions were undertaken to create a higher growth and cohesive industrial technology portfolio as a global automation leader serving a diversified set of end markets.

The Company’s recent portfolio actions include the following transactions:

On October 31, 2022, 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.

The Company expects to recognize a pretax gain of approximately $10 billion (approximately $8 billion after-tax) in fiscal 2023 upon the completion of the transaction.

On October 31, 2022, the Company completed the divestiture of its InSinkErator business, which manufactures food waste disposers, to Whirlpool Corporation for $3.0 billion.

This business had net sales of $630 and pretax earnings of $152 in fiscal 2022 and is reported in the Tools & Home Products segment.

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.

The Company expects to recognize a pretax gain of approximately $2.8 billion (approximately $2.1 billion after-tax) in the first quarter of fiscal 2023.

On October 11, 2023, subsequent to Emerson's fiscal year-end, the Company completed the acquisition of National Instruments Corporation ("NI") at an equity value of $8.2 billion.

NI, which provides software-connected automated test and measurement systems that enable enterprises to bring products to market faster and at a lower cost, had revenues of approximately $1.7 billion and pretax earnings of approximately $170 for the 12 months ended September 30, 2023.

In 2023, the Company acquired two businesses, Flexim, which will be reported in the Measurement & Analytical segment, and Afag, which will be reported in the Discrete Automation segment, for $705, net of cash acquired.

On March 31, 2023, Emerson completed the divestiture of Metran, its Russia-based manufacturing subsidiary.

In 2023, the Company recognized a pretax loss of $47 in Other deductions ($47 after-tax, in total $0.08 per share) related to its exit of business operations in Russia.

The Company had previously announced its intention to exit business operations in 2022 and recognized a pretax loss of $181 ($190 after-tax, in total $0.32 per share).

This charge included a loss of $36 in operations and $145 reported in Other deductions ($10 of which is reported in restructuring costs) and was primarily non-cash.

Emerson's historical net sales in Russia represented approximately 2.0 percent of consolidated annual sales.

On May 31, 2023, the Company completed the previously announced sale of a majority stake in its Climate Technologies business (which constitutes the former Climate Technologies segment, excluding Therm-O-Disc which was divested earlier in 2022) to private equity funds managed by Blackstone in a $14.0 billion transaction.

The Company recognized a pretax gain of approximately $10.6 billion (approximately $8.4 billion after-tax including tax expense recognized in prior quarters related to subsidiary restructurings).

The new standalone business is named Copeland.

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, and the Company recognized a pretax gain of approximately $2.8 billion (approximately $2.1 billion after-tax) in 2023.

On May 31, 2022 the Company completed the divestiture of its Therm-O-Disc sensing and protection technologies business to an affiliate of One Rock Capital Partners, LLC.

The Company recognized a pretax gain of $486 ($429 after-tax) in 2022.

Climate Technologies, Therm-O-Disc and InSinkErator are reported within discontinued operations for all periods presented.

On May 16, 2022, the Company completed the transactions contemplated by its definitive agreement with Aspen Technology, Inc.

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

and the Geological Simulation Software business (collectively, the “Emerson Industrial Software Business”), along with approximately $6.0 billion in cash 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 Heritage AspenTech’s previous stock ticker symbol “AZPN.” On a pro forma basis, AspenTech had fiscal 2022 net sales of $1.1 billion.

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 o f $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.

Upon closing of the transaction, Emerson owned 55 percent of the outstanding shares of AspenTech common stock (on a fully diluted basis).

AspenTech and its subsidiaries now operate under Heritage AspenTech’s previous name “Aspen Technology, Inc.” and AspenTech common stock is traded on NASDAQ under AspenTech’s previous stock ticker symbol “AZPN.” Due to the timing of the acquisition, the results for the first half of fiscal 2022 do not include the results of Heritage AspenTech.

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 had net sales of $191 in fiscal 2021 and is now reported in the AspenTech segment .

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.

See Note 4 and Item 1A - "Risk Factors" for further information on acquisitions and divestitures.

This business had net sales of $191 in 2021 and is now reported in the AspenTech segment.

See Notes 4, 5, 8 and 23 and Item 1A - "Risk Factors" for further information on acquisitions and divestitures.

COST OF SALES

Cost of sales for 2023 were $7,738, an increase of $240 compared with $7,498 in 2022.

Gross profit was $7,427 in 2023 compared to $6,306 in 2022, while gross margin increased 3.3 percentage poi nts to 49.0 percent due to favorable price less net material inflation, the impact of the Heritage AspenTech acquisition which benefited margins by 0.6 percentage points, and favorable mix.

Cost of sales for 2022 were $7,498 , an increase of $296 compared with $7,202 in 2021 , primarily due to higher sales volume and higher materials costs.

Gross profit was $8,188 in 2022 compared to $7,563 in 2021, while gross margin increased 0.2 percentage points to 41.7 percent.

The Heritage AspenTech acquisition benefited gross margin 0.7 percentage points, while price less net material inflation was favorable but had a dilutive impact on margins.

Higher freight and other inflation also negatively impacted margins, partially offset by favorable mix.

Cost of sales for 2021 were $10,673, an increase of $897 compared with $9,776 in 2020, primarily due to higher sales volume in Commercial & Residential Solutions, foreign currency translation, and the OSI acquisition which added $112 including intangibles amortization of $39.

Gross profit was $7,563 in 2021 compared to $7,009 in 2020, while gross margin decreased 0.3 percentage points to 41.5 percent, as leverage on higher sales volume was offset by unfavorable price-cost in Commercial & Residential Solutions primarily driven by higher steel prices, intangibles amortization from the OSI acquisition which deducted 0.2 percentage points, and unfavorable mix.

G ross profit was $6,306 in 2022 compared to $5,730 in 2021 , while gross margin increased 1.4 percentage points to 45.7 percent.

The Heritage AspenTech acquisition benefited gross margin 0.9 percentage points and favorable mix also contributed to the increase.

Price less net material inflation was favorable but had a slightly dilutive impact on margins, while higher freight and other inflation also negatively impacted margins.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

SG&A expenses of $4,186 in 2023 increased $572 compared with 2022 and SG&A as a percent of sales increased 1.4 percentage points to 27.6 percent, reflecting the Heritage AspenTech acquisition and higher stock compensation expense of $125, of which $75 related to Emerson stock plans due to a higher share price and $50 was attributable to AspenTech stock plans.

These items were partially offset by strong operating leverage on higher sales.

SG&A expenses of $3,614 in 2022 increased $120 compared with 2021, reflecting the impact of higher sales and higher wage and other inflation.

SG&A as a percent of sales decreased 1.3 percentage points to 21.6 percent, reflecting leverage on higher sales and lower stock compensation expense of $80 due to a lower share price in the current year (0.5 percentage points).

SG&A expenses of $4,179 in 2021 increased $193 compared with 2020 on higher stock compensation expense, as well as increased sales volume.

SG&A as a percent of sales decreased 0.9 percentage points to 22.9 percent, reflecting increased savings of approximately $240 from the Company's restructuring and cost reset actions, partially offset by higher stock compensation expense of $144 (0.6 percentage points) due to a higher share price in 2021.

INVESTMENT AND DIVESTITURE GAINS

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).

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.

On May 31, 2022, the Company completed the sale of its Therm-O-Disc sensing and protection technologies business to an affiliate of One Rock Capital Partners, LLC.

The Company recognized a pretax gain o f $486 ($429 after-tax, $0.72 per share).

SG&A as a percent of sales decreased 0.8 percentage points to 26.2 percent, reflecting lower stock compensation expense of $72 due to a lower share price in 2022 (0.6 percentage points) and leverage on higher sales.

GAIN ON SUBORDINATED INTEREST

In the first quarter of 2022, the Company received a distribution of $438 related to its subordinated interest in Vertiv (in total, a pretax gain of $453 was recognized in the first quarter of 2022, $358 after-tax, $0.60 per share) and received the remaining $15 related to the pretax gain in the first quarter of 2023.

In 2023, the Company received additional distributions totaling $161 ($122 after-tax, $0.21 per share).

Based on the terms of the agreement and the current calculation, the Company could receive additional distributions of approximately $40.

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.

OTHER DEDUCTIONS, NET

Other deductions, net were $683 in 2023, an increase of $164 compared with 2022, reflecting a loss of $177 on the Company's equity method investment in Copeland, higher intangibles amortization of $146 primarily related to the Heritage AspenTech acquisition, and an unfavorable impact from foreign currency transactions of $112 reflecting losses in the current year compared to gains in the prior year.

The prior year included a charge of $145 related to the Company exiting its business in Russia compared to a charge of $47 in the current year .

The current year also included a mark-to-market gain of $56 on the Company's equity investment in NI, and a mark-to-market gain of $24 related to foreign currency forward contracts entered into by AspenTech to mitigate the impact of foreign currency exchange associated with the Micromine purchase price compared to a loss of $50 in the prior year.

On June 21, 2023, AspenTech terminated all outstanding foreign currency forward contracts.

Other deductions, net were $519 in 2022, an increase of $200 compared with 2021 , reflecting a charge of $145 related to the Company exiting its business in Russia ($10 of which is reported in restructuring costs), acquisition/divestiture costs of $91, higher intangibles amortization of $59, primarily related to the Heritage AspenTech acquisition, and a mark-to-market loss of $50 related to foreign currency forward contracts entered into by AspenTech to mitigate the impact of foreign currency exchange associated with the Micromine purchase price.

These items were partially offset by lower restructuring costs of $64 , gains from the sales of capital assets of $15, and a $14 gain from the acquisition of full ownership of an equity investment.

The prior year also had several investment-related gains which are described below.

These items were partially offset by lower restructuring costs of $57.

See Notes 6 and 7.

Other deductions, net were $318 in 2021, a decrease of $214 compared with 2020, reflecting lower restructuring costs of $134, investment-related gains, including gains of $21 from an investment sale and $17 from the acquisition of full ownership of an equity investment, and a gain of $31 from the sale of an equity investment, a favorable impact from pensions, and favorable foreign currency transactions of $17.

These items were partially offset by higher intangibles amortization of $61, primarily related to the OSI acquisition.

INTEREST EXPENSE, NET

Interest expense, net was $34 , $194 and $155 in 2023, 2022 and 2021, respectively.

The increase in 2022 reflects the issuance of $3 billion of long-term debt in December 2021 to support the AspenTech transaction, partially offset by $500 of notes that matured in the first quarter of fiscal 2022.

The decrease in 2023 reflects interest income on undeployed proceeds from the Copeland transaction of $141 ($108 after-tax, $0.19 per share).

The increase in 2022 compared to 2021 reflects the issuance of $3 billion of long-term debt in December 2021 to support the AspenTech transaction, partially offset by $500 of notes that matured in the first quarter of 2022.

Interest income from related party was $41 in 2023 and reflects n on-cash interest income on the Copeland note receivable, which is capitalized to the carrying value of the note.

EARNINGS BEFORE INCOME TAXES

Pretax earnings of $4,085 increased $1,173 in 2022, up 40 percent compared with 2021 reflecting the impact of the Vertiv and Therm-O-Disc gains discussed above.

Earnings increased $401 in Automation Solutions, $19 in AspenTech and $76 in Commercial & Residential Solutions.

Costs reported at Corporate increased $223, largely due to the Russia business exit loss and acquisition/divestiture costs, offset by lower stock compensation expense of $80.

Pretax earnings from conti nuing operations of $2,726 increased $294 in 2023, up 12 percent compared with 2022, reflecting strong operating results in the current year.

Earnings increased $447 in Intelligent Devices and decreased $27 in Software and Control (reflecting the impact of higher intangibles amortization due to the Heritage AspenTech acquisition).

Pretax earnings from continuing operations of $2,432 increased $670 in 2022, up 38 percent compared with 2021, reflecting the impact of the Vertiv gain discussed above and strong earnings, which increased $340 in Intelligent Devices and increased $74 in Software and Contr ol.

See the Business Segments discussion that follows and Note 20.

Pretax earnings of $2,912 increased $577 in 2021, up 25 percent compared with 2020.

Earnings increased $416 in Automation Solutions, $9 in AspenTech and $246 in Commercial & Residential Solutions.

Costs reported at Corporate increased $96, reflecting higher stock compensation expense of $114 and first year acquisition accounting charges and fees related to the OSI acquisition of $50, partially offset by the investment-related gains discussed above and lower unallocated pension and postretirement costs which decreased by $41.

In come taxes were $599, $549 and $346 for 2023, 2022 and 2021, respectively, resulting in effective tax rates of 22 percent, 23 percent and 20 percent in 2023, 2022 and 2021, respectively.

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 rate in 2022 reflected the impact of the Russia business exit which was essentially offset by a benefit related to the completion of tax examinations.

NET EARNINGS AND EARNINGS PER SHARE

Net earnings attributable to common stockholders in 2022 were $3,231, up 40 percent compared with 2021, and diluted earnings per share were $5.41, up 42 percent compared with $3.82 in 2021.

Results reflected strong operating results and included a pretax gain of $453 ($358 after-tax, $0.60 per share) related to the Company's subordinated interest in Vertiv and a pretax gain of $486 ($429 after-tax, $0.72 per share) related to the Therm-O-Disc divestiture.

Net earnings from continuing operations attributable to common stockholders in 2023 were $2,152, up 14 percent compared with 2022, and diluted earnings per share from continuing operations were $3.72, up 18 percent compared with $3.16 in 2022, reflecting strong operating results.

Adjusted diluted earnings per share from continuing operations were $4.44 compared with $3.64 in the prior year.

See the analysis of adjusted earnings per share in the Overview section for further detai ls.

Earnings from discontinued operations attributable to common stockholders in 2023 were $11,067 ($19.16 per share) which included the $8.4 billion after-tax gain on the Copeland transaction and the $2.1 billion after-tax gain on the divestiture of InSinkErator, compared to $1,345 ($2.25 per share) in 2022.

N et earnings attributable to common stockholders were $13,219 ($22.88 per share) compared with $3,231 ($5.41 per share) in 2022 .

Net earnings from continuing operations attributable to common stockholders in 2022 were $1,886 , up 33 percent compared with 2021 , and diluted earnings per share from continuing operations were $3.16, up 34 percent compared with $2.35 in 2021.

Results reflected strong operating results and included a gain of $0.60 per share related to the Company's subordinated interest in Vertiv.

Adjusted diluted earnings per share from continuing

operations were $3.64 compared with $3.01 in the prior year.

See the analysis of adjusted earnings per share in the Overview section for further details.

Net earnings attributable to common stockholders in 2021 were $2,303, up 17 percent compared with 2020, and diluted earnings per share were $3.82, up 18 percent compared with $3.24 in 2020 due to improved operating results reflecting significant savings from the Company's restructuring and cost reset actions and leverage on higher sales volume in Commercial & Residential Solutions.

The table below, which shows results on an adjusted EBITA basis, is intended to supplement the Company's discussion of its results of operations herein.

The Company defines adjusted EBITA as earnings excluding interest expense, net, income taxes, intangibles amortization expense, restructuring expense, first year purchase accounting related items and transaction fees, and certain gains, losses or impairments.

Adjusted EBITA and adjusted EBITA margin are measures used by management and may be useful for investors to evaluate the Company's operational performance.

Twelve Months Ended September 30 2021 2022 Change

Earnings before income taxes $ 2,912 4,085 40 %

Percent of sales 16.0 % 20.8 % 4.8 pts

Earnin gs from discontinued operations attributable to common stockholders in 2022 wer e $1,345 ($2.25 per share) compared to $889 ($1.47 per share) in 2021, reflecting an after-tax gain of $429 ($0.72 per share) related to the Therm-O-Disc divestiture in 2022.

Net earnings common stockholders w ere $3,231 ($5.41 per share) in 2022 compared with $2,303 ($3.82 per share) in 2021 .

The table below, which shows results on an adjusted EBITA basis, is intended to supplement the Company's

discussion of its results of operations herein.

Twelve Months Ended September 30 2021 2022 2023 22 vs.

Earnings from continuing operations before income taxes $ 1,762 2,432 2,726 38 % 12 %

Percent of sales 13.6 % 17.6 % 18.0 % 4.0 pts 0.4 pts

Interest expense, net 155 194 34

Restructuring and related costs 188 119

Interest income from related party — — (41)

Amortization of intangibles 304 430 678

Restructuring and related costs 166 105 92

Acquisition/divestiture and related costs — 91 84

Gain on subordinated interest — (453) (161)

Gain on sale of Therm-O-Disc — (486)

Russia business exit — 181

Acquisition/divestiture costs — 110

National Instruments investment gain — — (56)

Other investment-related gains (14) —

AspenTech Micromine purchase price hedge — 50 (24)

Investment-related gains (17) (14)

Loss on Copeland equity method investment — — 177

Russia business exit charge — 181 47

OSI first year acquisition accounting charges 50 — —

Adjusted EBITA $ 3,614 4,236 17 %

Percent of sales 19.8 % 21.6 % 1.8 pts

Adjusted EBITA from continuing operations $ 2,437 3,016 3,556 24 % 18 %

Percent of sales 18.8 % 21.8 % 23.4 % 3.0 pts 1.6 pts

RETURNS ON EQUITY AND TOTAL CAPITAL

Return on common stockholder s' equity (net earnings attributable to common stockholders divided by average common stockholders' equity) was 31.9 percent in 2022 compared with 25.2 percent in 2021 and 23.6 percent in 2020.

Return on total capital (computed as net earnings attributable to common stockholders excluding after-tax net interest expense, divided by average common stockholders' equity plus short- and l ong-term debt less cash and short-term investments) was 20.4 percent in 2022 compared with 18.1 percent in 2021 and 16.8 percent in 2020 .

The higher returns in 2022 included the impact of the Vertiv subordinated interest after-tax gain of $358, the after-tax gain on the Therm-O-Disc divestiture of $429, after-tax acquisition/divestiture costs of $93, and the Russia business exit after-tax loss of $190 .

Excluding these items, return on common stockholders' equity and return on total capital were 26.9 percent and 17.4 percent, respectively.

Return on common stockholders' equity (net earnings attributable to common stockholders divided by average common stockholders' equity) was 85.1 percent in 2023 compared with 31.9 percent in 2022 and 25.2 percent in 2021.

Return on total capital (computed as net earnings attributable to common stockholders excluding after-tax net interest expense, divided by average common stockholders' equity plus short- and long-term debt less cash and short-term investments) was 66.5 percent in 2023 compared with 20.4 percent in 2022 and 18.1 percent in 2021.

The higher returns in 2023 included the impact of the after-tax gain from the Copeland transaction (approximately $8.4 billion), the after-tax gain on the InSinkErator divestiture (approximately $2.1 billion), the Vertiv subordinated interest after-tax gain of $122, the National Instruments investment after-tax gain of $43, the after-tax loss on the Copeland equity method investment of $134, after-tax acquisition/divestiture costs of $78, and the Russia business exit after-tax loss of $47.

The higher returns in 2022 included the impact of the Vertiv subordinated interest after-tax gain of $358, the after-tax gain on the Therm-O-Disc divestiture of $429, after-tax acquisition/divestiture costs of $93 (including amounts reported in discontinued operations), and the Russia business exit after-tax loss of $190.

Excluding these items in both years, return on common stockholders' equity was 17.9 percent and 26.9 percent in 2023 and 2022, respectively, and return on total capital was 14.0 percent and 17.4 percent, respectively.

The decrease in 2023 reflects the increase to equity from the after-tax gains on the Copeland transaction and InSinkErator divestiture.

Business Segments

1 unchanged sentence

The Company defines segment earnings as earnings before interest and income taxes.

AUTOMATION SOLUTIONS

2020 2021 2022 21 vs.

Sales $ 11,026 11,292 11,758 2 % 4 %

Earnings $ 1,539 1,955 2,356 27 % 20 %

Margin 14.0 % 17.3 % 20.0 % 3.3 pts 2.7 pts

Restructuring and related costs $ 238 146 89

INTELLIGENT DEVICES

2022 2023 Change FX Acq/Div U/L

Final Control $ 3,607 3,970 10 % 2 % 1 % 13 %

Measurement & Analytical 3,215 3,595 12 % 2 % 2 % 16 %

Discrete Automation 2,612 2,635 1 % 2 % — % 3 %

Safety & Productivity 1,402 1,388 (1) % — % — % (1) %

Total $ 10,836 11,588 7 % 2 % 1 % 10 %

Final Control $ 592 865 46 %

Measurement & Analytical 785 936 19 %

Discrete Automation 542 509 (6) %

Safety & Productivity 250 306 22 %

Total $ 2,169 2,616 21 %

Margin 20.0 % 22.6 % 2.6 pts

Amortization of intangibles:

Final Control $ 94 88

Measurement & Analytical 21 27

Discrete Automation 30 29

Safety & Productivity 26 26

Total $ 171 170

Restructuring and related costs:

Final Control $ 75 28

Measurement & Analytical 3 13

Discrete Automation — 27

Safety & Productivity 10 —

Total $ 88 68

Adjusted EBITA $ 2,428 2,854 18 %

Adjusted EBITA Margin 17.8 % 20.3 % 22.2 % 2.5 pts 1.9 pts

Sales by Major Product Offering

Measurement & Analytical Instrumentation $ 3,108 3,071 3,206 (1) % 4 %

Valves, Actuators & Regulators 3,589 3,483 3,604 (3) % 3 %

Industrial Solutions 2,012 2,266 2,403 13 % 6 %

Systems & Software 2,317 2,472 2,545 6 % 3 %

Adjusted EBITA Margin 22.4 % 24.6 % 2.2 pts

2022 - Intelligent Devices sales were $11.6 billion in 2023, an increase of $752, or 7 percent.

Underlying sales increased 10 percent on 5 percent higher volume and 5 percent higher price.

Underlying sales increased 11 percent in the Americas (U.S.

up 12 percent), increased 9 percent in Europe and increased 8 percent in Asia, Middle East & Africa (China up 2 percent).

Sales for Final Control increased $363, or 10 percent.

Underlying sales increased 13 percent, reflecting strength in chemical and energy end markets and across all geographies, particularly in the U.S.

Sa les for Measurement & Analytical increased $380, or 12 percent.

Underlying sales increased 16 percent, reflecting robust growth in the Americas and Europe due to strong demand, while Asia, Middle East & Africa was up moderately due to softness in China.

D iscrete Automation sales increased $23, or 1 percent, while underlying sales increased 3 percent, reflecting softening demand in the second half of the year, with all geographies up low-to-mid single digits for the full year.

Safety & Productivity sales decreased $14, or 1 percent, and underlying sales decreased 1 percent, reflecting softness in the Americas and Europe, while Asia, Middle East & Africa was up slightly.

Earnings for Intellig ent Devices were $2,616 , an increase of $447 , or 21 percent , and margin increased 2.6 percentage points to 22.6 percent, reflecting favorable price less net material inflation, leverage on higher sales and favorable mix, partially offset by wage and other inflation.

Adj usted EBITA margin was 24.6 percent , an increase of 2.2 percentage points.

INTELLIGENT DEVICES

2021 2022 Change FX Acq/Div U/L

Final Control $ 3,488 3,607 4 % 3 % — % 7 %

Measurement & Analytical 3,078 3,215 4 % 3 % — % 7 %

Discrete Automation 2,474 2,612 6 % 4 % — % 10 %

Safety & Productivity 1,340 1,402 5 % 2 % — % 7 %

Total $ 10,380 10,836 5 % 3 % — % 8 %

2021 - Automation Solutions sales were $11.8 billion in 2022, an increase of $466, or 4 percent.

Underlying sales increased 7 percent on 5 percent higher volume and 2 percent higher price, reflecting strength in process end markets and sustained demand in discrete and hybrid end markets, despite supply chain and logistics constraints which unfavorably impacted sales.

Final Control $ 432 592 37 %

Measurement & Analytical 684 785 15 %

Discrete Automation 457 542 18 %

Safety & Productivity 256 250 (2) %

Total $ 1,829 2,169 19 %

Margin 17.6 % 20.0 % 2.4 pts

Amortization of intangibles:

Final Control $ 107 94

Measurement & Analytical 25 21

Discrete Automation 34 30

Safety & Productivity 28 26

Total $ 194 171

Restructuring and related costs:

Final Control $ 66 75

Measurement & Analytical 58 3

Discrete Automation 11 —

Safety & Productivity 4 10

Total $ 139 88

Adjusted EBITA $ 2,162 2,428 12 %

Adjusted EBITA Margin 20.8 % 22.4 % 1.6 pts

2021 - Intelligent Devices sales were $10.8 billion in 2022, an increase of $456, or 5 percent.

Underlying sales increased 8 percent on 5 percent higher volume and 3 percent higher price.

Foreign currency translation had a 3 percent unfavorable impact.

Sales for Measurement & Analytical Instrumentation increased $135 or 4 percent.

Sales were strong in China and North America, while sales were down moderately in Europe due to supply chain constraints.

Valves, Actuators & Regulators increased $121, or 3 percent, reflecting strong demand in the Americas and China, partially offset by softness in the rest of Asia, Middle East & Africa.

Industrial Solutions sales increased $137, or 6 percent, reflecting strong demand across all geographies.

Systems & Software increased $73, or 3 percent, reflecting strength in process end markets in North America and China, partially offset by weakness in Europe, while power end markets were strong in North America and Europe.

Underlying sales increased 12 percent in the Americas (U.S.

up 13 percent), while Europe, which was negatively impacted by 5 percentage points due to the business exit from Russia, decreased 1 percent, and Asia, Middle East & Africa was up 5 percent (China up 11 percent).

Earnings of $2,356 increased $401 from the prior year, and margin increased 2.7 percentage points to 20.0 percent, reflecting leverage on higher volume, favorable mix, lower restructuring expenses which benefited margins 0.4 percentage points, savings from cost reduction actions and favorable price less net material inflation, partially offset by higher freight and other inflation.

2020 - Automatio n Solutions sales were $11.3 billion in 2021, an increase of $266, or 2 percent.

Underlying sales were flat as higher prices offset slightly lower volume.

Discrete and hybrid markets exhibited strength throughout the year while longer cycle process automation markets began to recover in the second half of the year, including a sharp recovery in core North American automation markets.

Foreign currency translation had a 2 percent favorable impact.

Sales for Measurement & Analytical Instrumentation decreased $37, or 1 percent, as process industries were weak in the first half of the year, but have improved sequentially as markets continue to recover from the impacts of COVID-19.

Valves, Actuators & Regulators decreased $106, or 3 percent, reflecting slower demand in most end markets, particularly in North America and Europe, partially offset by modest growth in Asia.

Industrial Solutions sales increased $254, or 13 percent, on strong growth in Europe and robust growth in China, while North American discrete end markets were up moderately.

Systems & Software increased $155, or 6 percent.

Process end markets were strong in Europe and had moderate growth in Asia while North America was flat.

Power generation end markets were solid in North America and strong in Europe, partially offset by softness in Asia .

Underlying sales decreased 2 percent in the Americas (U.S.

down 3 percent), increased 1 percent in Europe and 2 percent in Asia, Middle East & Africa (China up 14 percent).

Earnings of $1,955 increased $416 from the prior year, and m argin increased 3.3 percentage points to 17.3 percent, as significant savings from cost reduction actions

and favorable price-cost more than offset higher performance-based compensation expense.

Lower restructuring expense benefited margins 0.9 percentage points.

2020 2021 2022 21 vs.

Sales $ 131 319 656 145 % 106 %

Earnings (loss) $ (16) (7) 12 56 % 269 %

Margin (12.8) % (2.3) % 1.9 % 10.5 pts 4.2 pts

Restructuring and related costs $ 6 2 —

up 12 percent), increased 1 percent in Europe and increased 5 percent in Asia, Middle East & Africa (China up 11 percent).

Sales for Final Control increased $119, or 4 percent, and underlying sales increased 7 percent, reflecting strong demand in the Americas and China, partially offset by softness in the rest of Asia, Middle East & Africa.

Sales for Measurement & Analytical increased $137, or 4 percent, and underlying sales increased 7 percent.

Sales were strong in China and North America, while sales were down moderately in Europe due to supply chain constraints.

Discrete Automation sales increased $138, or 6 percent, and underlying sales increased 10 percent, reflecting strong demand across all geographies.

Safety & Productivity sales increased $62, or 5 percent, and underlying sales increased 7 percent.

Sales of professional tools were strong, while wet/dry vacuums decreased moderately due to difficult comparisons.

Earnings for Intelligent Devices were $2,169, an increase of $340, or 19 percent, and margin increased 2.4 percentage points to 20.0 percent, reflecting leverage on higher volume, favorable mix, lower restructuring expenses which benefited margins 0.5 percentage points, savings from cost reduction actions and favorable price less net material inflation, partially offset by higher freight and other inflation.

Adjusted EBITA margin was 22.4 percent, an increase of 1.6 percentage points.

SOFTWARE AND CONTROL

2022 2023 Change FX Acq/Div U/L

Control Systems & Software $ 2,398 2,606 9 % 1 % 1 % 11 %

AspenTech 656 1,042 59 % — % (60) % (1) %

Total $ 3,054 3,648 20 % 1 % (11) % 10 %

Control Systems & Software $ 437 529 21 %

AspenTech 12 (107) (967) %

Total $ 449 422 (6) %

Margin 14.7 % 11.6 % (3.1) pts

Amortization of intangibles:

Control Systems & Software $ 22 22

AspenTech 237 486

Total $ 259 508

Restructuring and related costs:

Control Systems & Software $ 11 9

AspenTech — 1

Total $ 11 10

Adjusted EBITA $ 719 940 31 %

Adjusted EBITA Margin 10.1 % 26.2 % 38.0 % 16.1 pts 11.8 pts

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.

The results for this new segment include the historical results of the Emerson Industrial Software Business (which was previously reported in the Automation Solutions segment), while results related to the Heritage AspenTech business include only periods subsequent to the close of the transaction on May 16, 2022.

See Note 4 for further details.

2021 - AspenTech sales were $656 in 2022, an increase of $337, or 106 percent due to the acquisition of Heritage AspenTec h.

Earnings were $12, an increase of $19, and margin improved to 1.9 percent, reflecting the impact of the Heritage AspenTech acquisition.

Resul ts for fiscal 2022 included intangibles amortization of $148 related to the Heritage AspenTech acquisition ($51 of which was reported in Cost of sales).

2020 - AspenTech sales were $319 in 2021, an increase of $188, or 145 percent due to the Open Systems International, Inc.

("OSI") acquisition.

The segment had a loss $7, an improvement of $9 compared to 2020 , and margin improve d to (2.3) percent, reflecting the impact of the OSI acquisition.

Results for fiscal 2021 included intangibles amortization of $66 related to the OSI acquisition.

COMMERCIAL & RESIDENTIAL SOLUTIONS

2020 2021 2022 21 vs.

Climate Technologies $ 3,980 4,748 5,200 19 % 10 %

Tools & Home Products 1,663 1,905 2,033 15 % 7 %

Adjusted EBITA Margin 23.5 % 25.8 % 2.3 pts

2022 - Software and Control sales were $3.6 billion in 2023, an increase of $594, or 20 percent compared to the prior year, reflecting the impact of the Heritage AspenTech acquisition and strong growth in Control Systems & Software.

Underlying sales increased 10 percent on 8 percent higher volume and 2 percent higher price.

Underlying sales increased 7 percent in the Americas (U.S.

up 6 percent), increased 11 percent in Europe and increased 13 percent in Asia, Middle East & Africa (China up 16 percent).

Sales for Control Systems & Software increased $208, or 9 percent, and underlying sales increased 11 percent, reflecting global strength in process end markets while power end markets were up modestly.

Sales for AspenTech increased $386, or 59 percent, due to the acquisition of Heritage AspenTech.

Earnings for Software and Control were $422, a decrease of $27, or 6 percent, and margin decreased 3.1 percentage points to 11.6 percent, reflecting the impact from $249 of incremental intangibles amortization related to the Heritage AspenTech acquisition.

Adjusted EBITA margin was 25.8 percent, an increase of 2.3 percentage points, reflecting leverage on higher sales, higher price and favorable mix, partially offset by inflation and unfavorable foreign currency transactions.

SOFTWARE AND CONTROL

2021 2022 Change FX Acq/Div U/L

Control Systems & Software $ 2,321 2,398 3 % 4 % — % 7 %

AspenTech 319 656 106 % — % (106) % — %

Total $ 2,640 3,054 16 % 4 % (13) % 7 %

Climate Technologies $ 801 965 1,038 20 % 8 %

Tools & Home Products 317 399 402 26 % 1 %

Control Systems & Software $ 382 437 14 %

AspenTech (7) 12 269 %

Total $ 375 449 20 %

Margin 19.8 % 20.5 % 19.9 % 0.7 pts (0.6) pts

Restructuring and related costs $ 52 26 24

Margin 14.2 % 14.7 % 0.5 pts

Amortization of intangibles:

Control Systems & Software $ 20 22

AspenTech 89 237

Total $ 109 259

Restructuring and related costs:

Control Systems & Software $ 11 11

AspenTech 2 —

Total $ 13 11

Adjusted EBITA $ 497 719 45 %

Adjusted EBITA Margin 21.6 % 21.6 % 20.9 % - pts (0.7) pts

2021 - Commercial & Residential Solutions sales were $7.2 billion in 2022, an increase of $580, or 9 percent.

Foreign currency translation had a 2 percent unfavorable impact and divestitures deducted 2 percent.

Underlying sales increased 13 percent on 3 percent higher volume and 10 percent higher price .

Climate Technologies sales were $5.2 billion in 2022, an increase of $452, or 10 percent.

Air conditioning, heating and refrigeration sales were strong, reflecting global demand across all end markets.

Tools & Home Products sales were $2.0 billion in 2022, up $128 or 7 percent compared to the prior year.

Sales of professional tools and food waste disposers were strong, while wet/dry vacuums decreased moderately due to difficult comparisons .

Overall, underlying sales increased 15 percent in the Americas (U.S.

up 14 percent) and 11 percent in Europe, while Asia, Middle East & Africa increased 5 percent (China down 7 percent).

Earnings were $1,440, an increase of $76, and margin was down 0.6 percentage points, as price less net material in flation was favorable but had a slightly dilutive impact on margins and higher freight and other inflation also negatively impacted margins, partially offset by leverage on higher sales and savings from cost reduction actions.

2020 - Commercial & Residential Solutions sales were $6.7 billion in 2021, an increase of $1,010, or 18 percent.

Underlying sales increased 16 percent on strong global demand, as nearly all businesses achieved double-digit growth each quarter, while foreign currency translation added 2 percent.

Climate Technologies sales were $4.7 billion in 2021, an increase of $768, or 19 percent.

Air conditioning an d heating sales were up mid-teens, reflecting strong demand for residential-oriented products and solutions in North America and robust growth in Europe and China.

Cold chain sales were up over 20 percent, driven by favorable global market conditions and strength in food retail and aftermarket.

Tools & Home Products sales were $1.9 billion in 2021, up $242 or 15 percent compared to the prior year.

Sales of wet/dry vacuums were robust in part due to competitor outages, while sales were strong for global professional tools and solid for food waste disposers .

Overall, underlying sales increased 16 percent in the Americas (U.S.

up 15 percent) and 17 percent in Europe, while Asia, Middle East & Africa increased 17 percent (China up 17 percent).

Earnings were $1,364, an increase of $246, and margin was up 0.7 percentage points, reflecting leverage on higher volume and savings from cost reduction actions, partially offset by unfavorable price-cost primarily due to steel price increases which negatively impacted the second half of the fiscal year.

Adjusted EBITA Margin 18.8 % 23.5 % 4.7 pts

2021 - Software and Control sales were $3.1 billion in 2022, an increase of $414, or 16 percent compared to 2021, reflecting the impact of the Heritage AspenTech acquisition and growth in Control Systems & Software.

Underlying sales increased 7 percent on higher volume.

Underlying sales increased 13 percent in the Americas (U.S.

up 12 percent), decreased 4 percent in Europe and increased 6 percent in Asia, Middle East & Africa (China up 11 percent).

Sales for Control Systems & Software increased $77, or 3 percent, and underlying sales increased 7 percent, reflecting strength in process end markets in North America and China, partially offset by weakness in Europe, while power end markets were strong in North America and Europe.

Sales for AspenTech increased $337, or 106 percent, due to the acquisition of Heritage AspenTech.

Earnings for Software and Control were $449, an increase of $74, or 20 percent, and margin increased 0.5 percentage points to 14.7 percent.

Results for 2022 included intangibles amortization of $148 related to the Heritage AspenTech acquisition.

Adjusted EBITA margin was 23.5 percent, an increase of 4.7 percentage points, reflecting the impact of the Heritage AspenTech acquisition and leverage on higher volume in Control Systems & Software.

Financial Position, Liquidity and Capital Resources

Emerson maintains a conservative financial structure to provide the strength and flexibility necessary to achieve our strategic objectives and has been successful in efficiently deploying cash where needed worldwide to fund operations, complete acquisitions and sustain long-term growth.

Emerson maintains a conservative financial structure to provide the strength and flexibility necessary to achieve our strategic objectives and efficiently deploy cash where needed worldwide to fund operations, complete acquisitions and sustain long-term growth.

Emerson is in a strong financial position, with total assets of $43 billion and stockholders' equity of $21 billion, and has the resources available for reinvestment in existing businesses, strategic acquisitions and managing its capital structure on a short- and long-term basis.

The Co mpany continues to generate substantial operating cash flow with over $2.9 billion in each of the last three years.

Cash flows have been and are expected to be sufficient for at least the next 12 months to meet the Company’s operating requir ements, including those related to salaries and wages, working capital, capital expenditures, and other liquidity requirements associated with operations.

The Company also has certain contractual obligations, primarily long-term debt and operating leases (see Notes 7, 10 and 11).

The Company continues to generate substantial operating cash flow, including over $2.7 billion from continuing operations in 2023.

Cash flows have been and are expected to be sufficient for at least the next 12 months to meet the Company’s operating requirements, including those related to salaries and wages, working capital, capital expenditures, and other liquidity requirements associated with operations.

Th e Company also has certain contractual obligations, primarily long-term debt and operating leases (see Notes 9, 12 and 13).

The Company has been able to readily meet all its funding requirements and currently believes that sufficient funds will be available to meet its needs for the foreseeable future through operating cash flow, existing resources, short- and long-term debt capacity, or its $3.5 billion revolving backup credit facility under which it has not incurred any borrowings.

9 unchanged sentences

Percent of sales 3.5 % 7.2 % 8.5 %

Operating cash flow for 2022 was $2.9 billion, a $653, or 18 percent decrease compared with 2021, reflecting higher working capital due to increased sales and ongoing supply chain constraints.

Operating cash flow of $3.6 billion in 2021 increased 16 percent compared to $3.1 billion in 2020, due to higher earnings.

Operating cash flow from continuing operations for 2023 was $2.7 billion, an increase of $678, or 33 percent compared with 2022, reflecting higher earnings (excluding the impacts in both years from the Vertiv subordinated interest gains and higher Heritage AspenTech intangibles amortization in the current year).

Operating cash flow included approximately $310 generated by AspenTech.

Operating cash flow from continuing operations of $2.0 billion in 2022 decreased 17 percent compared to $2.5 billion in 2021, reflecting higher working capital due to increased sales and ongoing supply chain constraints.

At September 30, 2023, operating working capital as a percent of sales was 8.5 percent compared with 7.2 percent in 2022 and 3.5 percent in 2021.

The increase for 2022 compared to the prior year is due to higher inventory levels to support sales growth and reflecting ongoing supply chain constraints.

In addition, the Heritage AspenTech acquisition increased operating working capital by approximately $250.

As of September 30, 2022, Emerson's cash and equivalents totaled $1.8 billion, which included approximately $380 attributable to AspenTech.

The cash held by AspenTech is intended to be used for its own purposes and is not a readily available source of liquidity for other Emerson general business purposes or to return to Emerson shareholders.

Contributions to pension plans were $43 in 2022, $41 in 2021 and $66 in 2020.

Capital expenditures were $531, $581 and $538 in 2022, 2021 and 2020, respectively.

Free cash flow (operating cash flow less capital expenditures) was $2.4 billion in 2022, down 20 percent.

Free cash flow was $3.0 billion in 2021, compared with $2.5 billion in 2020.

The Company is targeting capital spending from continuing operations of approximately $350 in 2023.

Operating working capital remained elevated in 2023 due to higher inventory levels to support sales growth and higher receivables.

The increase for 2022 compared to 2021 was due to higher inventory levels to support sales growth and reflecting supply chain constraints.

In addition, the Heritage AspenTech acquisition increased operating working capital by approximately $250 in 2022.

As of September 30, 2023, Emerson's cash and equivalents totaled $8.1 billion, reflecting the after-tax proceeds related to the Copeland transaction, which were used along with other available liquidity to fund the National Instruments transaction subsequent to year-end (see the Leverage/Capitalization section for further discussion of Emerson's post-close financial position).

Going forward, Copeland is not expected to issue dividends to the Company but will distribute cash for the Company to pay its share of U.S.

The Company's cash also includes approximately $120 attributable to AspenTech which is intended to be used for its own purposes and is not available to return to Emerson shareholders.

Free cash flow from continuing operations (operating cash flow less capital expenditures) was $2,363 in 2023, up 35 percent, reflecting the increase in operating cash flow.

Free cash flow from continuing operations was $1,749 in 2022, compared with $2,054 in 2021.

Net cash paid in connection with acquisitions was $705, $5,702 and $1,592 in 2023, 2022 and 2021, respectively.

The Company's agreement to sell a majority stake in its Climate Technologies business will impact its cash flows in future periods after the transaction is completed.

In 2022, this business had operating cash flow of approximately $875, capital expenditures of approximately $200, and free cash flow of approximately $675.

The Company expects its remaining businesses will continue to generate significant cash flows that will be available to support the return of cash to shareholders and to reinvest for future growth.

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic, and among other things, provided tax relief to businesses.

Total cash provided by operating activities including the impact of discontinued operations was $637, $2,922 and $3,575 in 2023, 2022 and 2021, respectively.

The decrease in 2023 was due to approximately $2.3 billion of income taxes paid related to the gains on the Copeland transaction and InSinkErator divestiture and subsidiary restructurings related to the Copeland transaction.

Investing cash flow from discontinued operations of $12.5 billion in 2023 reflects the proceeds from the Copeland transaction and InSinkErator divestiture.

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic, and among other things, provides tax relief to businesses.

Tax provisions of the CARES Act included the deferral of certain payroll taxes, relief for retaining employees, and other provisions.

The Company deferred $73 of certain payroll taxes through the end of calendar year 2020, of which approximately $37 was paid in December 2021 with the remaining amount due in December 2022.

The Company deferred $73 of certain payroll taxes through the end of calendar year 2020, of which approximately $37 was paid in December 2021 and the remainder paid in December 2022.

Dividends were $1,198 ($2.08 per share) in 2023, compared with $1,223 ($2.06 per share) in 2022 and $1,210 ($2.02 per share) in 2021.

In October 2022 , the Board of Directors voted to increase the quarterly cash dividend 1 percent, to an annualized rate of $2.08 per share.

In November 2023, the Board of Directors voted to increase the quarterly cash dividend 1 percent, to an annualized rate of $2.10 per share.

Purchases of Emerson common stock totaled $2,000, $500 and $500 in 2023, 2022 and 2021, respectively, at average per share prices of $94.09, $87.64 and $94.65.

In November 2015, the Board of Directors authorized the purchase of up to 70 million shares, and during fiscal 2022, the remaining shares available under this authorization were purchased.

In March 2020, the Board of Directors authorized the purchase of an additional 60 million shares and a tot al of approximately 55 million shares remain available.

The Company purchase d 5.7 mi llion shares in 2022, 5.3 million shares in 2021 and 16.4 million shares in 2020 under the authorizations.

AspenTech repurchases were $214 in 2023, which increased the Company's common ownership percentage to approximately 57 percent.

In November 2015, the Board of Directors authorized the purchase of up to 70 million shares, and during 2022, the remaining shares available under this authorization were purchased.

In March 2020, the Board of Directors authorized the purchase of an a dditional 60 million shares and a total of approximately 33.3 million shares remain available.

The Company purchased 21.3 million shares in 2023, 5.7 million shares in 2022 and 5.3 million shares in 2021 under the authorizations.

LEVERAGE/CAPITALIZATION

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Total debt, which includes long-term debt, current maturities of long-term debt, commercial paper and other short-term borrowings, was $8,157, $10,374 and $6,665 as of September 30, 2023, 2022 and 2021, respectively.

The increased debt was due to the issuance of $3 billion of long-term debt and increased commercial paper borrowings of approximately $1.3 billion compared to September 30, 2021.

The decrease in 2023 included a net reduction in short-term borrowings of approximately $1.6 billion and repayments of long-term debt of $741 (including $264 related to AspenTech's repayment of the outstanding balance on its existing term loan facility plus accrued interest).

The increase in 2022 was due to the issuance of $3 billion of long-term debt and increased commercial paper borrowings of approximately $1.3 billion compared to September 30, 2021.

The Company used the net proceeds from the sale of the notes and the increased commercial paper borrowings to fund the majority of its contribution of approximately $6.0 billion to existing stockholders of Heritage AspenTech as part of the transaction.

Long-term debt was issued i n December 2021 as follows:

Long-term debt was issued in December 2021 as follows:

$1 billion of 2.0% notes due December 2028, $1 billion of 2.2% notes due December 2031, and $1 billion of 2.8% notes due December 2051.

Additionally, the Company repaid $500 of 2.625% notes that matured.

Additionally, the Company repaid $500 of 2.625% notes that matured in 2022, and in 2021 repaid $300 of 4.25% notes that matured.

See Note 4 and Note 13.

In fiscal 2021, the Company repaid $300 of 4.25% notes that matured and in fiscal 2020 repaid $500 of 4.875% notes that matured.

Additionally, in fiscal 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, and in September 2020, the Company issued $750 of 0.875% notes due October 2026.

The net proceeds from the sale of the notes were used to reduce commercial paper borrowings and for general corporate purposes.

A portion of the proceeds from the notes issued in September 2020 were also used to fund the acquisition of OSI, which closed on October 1, 2020.

The total debt-to-total capital ratio and net debt-to-net capital ratio (less cash and short-term investments) increased in 2022 due to the increased borrowings to support the AspenTech transaction discussed above, while it decreased in 2021 due to lower long-term debt and higher equity compared to the prior year.

The total debt-to-total capital ratio and net debt-to-net capital ratio (less cash and short-term investments) decreased in 2023 due to the proceeds and after-tax gains (which increased common stockholder's equity) on the Copeland transaction and InSinkErator divestiture.

Considering the cash paid to complete the National Instruments transaction in October 2023, the Company's net debt-to-net capital ratio was approximately 29.0 percent, reflecting moderate levels of debt consistent with prior years.

These ratios increased in 2022 due to the increased borrowings to support the AspenTech transaction discussed above.

The interest coverage ratio is computed as earnings before income taxes plus interest expense, divided by interest expense.

The increase in 2022 reflects higher pretax earnings in the current year, which included the Vertiv subordinated interest gain of $453, the gain on the Therm-O-Disc divestiture of $486, and the Russia business exit loss of $181.

Excluding these items, the interest coverage ratio was 15.6, reflecting higher interest expense due to the increased long-term debt and commercial paper borrowings to fund the Heritage AspenTech acquisition.

The increase in 2021 reflects higher earnings and slightly lower interest expense.

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 Company's earnings increased in 2023 and 2022 which offset higher interest expense due to the increased long-term debt and commercial paper borrowings to fund the Heritage AspenTech acquisition.

In February 2023, the Company entered into a $3.5 billion five-year revolving backup credit facility with various banks, which replaced the May 2018 $3.5 billion facility.

The credit facility is maintained to support general corporate purposes, including commercial paper borrowings.

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Fees to maintain the facility are immaterial.

The Company expects to be able to renew its revolving backup credit facility in fiscal 2023 on substantially the same terms as the current facility.

The Company also maintains a universal shelf registration statement on file with the SEC under which it can issue debt securities, preferred stock, common stock, warrants, share purchase contracts or share purchase units without a predetermined limit.

Securities can be sold in one or more separate offerings with the size, price and terms to be determined at the time of sale.

Emerson's financial structure provides the flexibility necessary to achieve its strategic objectives.

The Company has been successful in efficiently deploying cash where needed worldwide to fund operations, complete acquisitions and sustain long-term growth.

At September 30, 2022, the majority of the Company's cash was held outside of the U.S.

(primarily in Europe and Asia).

The Company routinely repatriates a portion of its non-U.S.

cash from earnings each

year, or otherwise when it can be accomplished tax efficiently, and provides for withholding taxes and any applicable U.S.

income taxes as appropriate.

FINANCIAL INSTRUMENTS

The Company is exposed to market risk related to changes in interest rates, foreign currency exchange rates and commodity prices, and selectively uses derivative financial instruments, including forwards, swaps and purchased options to manage these risks.

The Company does not hold derivatives for trading or speculative purposes.

In the normal course of business, the Company is exposed to changes in interest rates and foreign currency exchange rates due to its worldwide presence and diverse business pr ofile and selectively uses derivative financial instruments, including forwards, swaps and purchased options to manage these risks.

The Company does not hold

derivatives for trading or speculative purposes.

The value of derivatives and other financial instruments is subject to change as a result of market movements in rates and prices.

Sensitivity analysis is one technique used to fo recast the impact of these movements.

Based on a hypothetical 10 percent increase in interest rates, a 10 percent decrease in commodity prices or a 10 percent weakening in the U.S.

Based on a hypothetical 10 percent increase in interest rates or a 10 percent weakening in the U.S.

dollar across all currencies, the potential losses in future earnings, fair value or cash flows are not material.

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dollar would benefit future earnings through favorable translation of non-U.S.

operating results, and lower commodity prices would benefit future earnings through lower cost of sales.

operating results.

See Notes 1, and 11 through 13.

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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 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.

The majority of the Company's revenues relate to a broad offering of manufactured products and software which are recognized at the point in time when control transfers, generally in accordance with shipping terms, or the first day of the contractual term for software.

A portion of the Company's revenues relate to the sale of post-contract customer support, parts and labor for repairs, and engineering services.

In 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.

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In other instances, the Company determines the standalone selling price based on thi rd-party pricing or management's best estimate.

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.

VALUATION OF ASSETS AND LIABILITIES ACQUIRED IN A BUSINESS COMBINATION

The Company also has software maintenance contracts where revenue is recognized ratably over the maintenance term.

VALUATION OF ASSETS AND LIABILITIES

Assets and liabilities acquired in business combinations, including intangible assets, are accounted for using the acquisition method and recorded at their respective fair values.

In fiscal 2022, the Company completed the acquisition of Aspen Technology, Inc.

In 2022, the Company completed the acquisition of Aspen Technology, Inc.

and engaged an independent third-party valuation specialist to assist in the determination of the fair value of intangible assets.

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Although we believe the assumptions and estimates to be reasonable and appropriate, they require judgement and are based on experience and historical information obtained from Aspen Technology, Inc.

In 2023, the consideration received from the divestiture of a majority stake in Copeland included a note receivable with a face value of $2.25 billion and the Company also retained a 40 percent non-controlling common equity interest in Copeland.

The note receivable and common equity interest were required to be initially valued at fair value as part of the overall consideration received for the transaction.

The fair value of the common equity investment was determined using a discounted cash flow model, which included estimating financial projections for Copeland and applying an appropriate discount rate, and an option pricing model based on various assumptions.

Fair value for the note receivable was determined using a market approach primarily based on interest rates for companies with similar credit quality and the expected duration of the note.

LONG-LIVED ASSETS

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A 0.25 percentage point decrease in the U.S.

discount rates would have increased the total projected benefit obligation at September 30, 2022 by $1 00 and increased fiscal 2023 pension expense by $15.

A 0.25 percentage point decrease in the expected return on plan assets would increase fiscal 2023 pension expense by $15.

discount rates would have increased the total projected benefit obligation at September 30, 2023 by $100 and increased 2024 pension expense by $15.

A 0.25 percentage point decrease in the expected return on plan assets would increase 2024 pension expense by $15.

See Note 1 4.

CONTINGENT LIABILITIES

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LEGAL MATTERS

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.

At September 30, 2023, there were no known contingent liabilities (including guarantees, pending litigation, taxes and other claims) that management believes will be material in relation to the Company's financial statements, nor were there any material commit ments outside the normal course of business.

NEW ACCOUNTING PRONOUNCEMENTS

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.

In 2023, the Company adopted ASU No.

2021-10 (Topic 832), Government Assistance, which requires annual disclosures about certain types of government assistance received.

This standard has no impact on the accounting for government assistance and did not materially impact the Company's disclosures.

In 2022, the Company adopted three accounting standard updates, and in 2021 adopted two accounting standard updates and one new accounting standard, each of which had an immaterial or no impact on the Company's financial statements.

These included:

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• 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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• 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.

FISCAL 2024 OUTLOOK

Following the announcement of its Climate Technologies divestiture, Emerson will report financial results for Climate Technologies, InSinkErator and Therm-O-Disc as discontinued operations for all periods presented, beginning in 2023.

The earnings from discontinued operations for 2023 are expected to be $10 billion to $11 billion, or $17 to $19 per share, including the net gains on 2023 divestitures.

Emerson expects order strength and backlog to support fiscal 2023 sales growth.

For the full year, consolidated net sales from continuing operations are expected to be up 7 to 9 percent, with underlying sales up 6.5 to 8.5 percent excluding a 3.5 percent unfavorable impact from foreign currency translation and a 4 percent favorable impact from acquisitions net of divestitures.

Earnings per share from continuing operations are expected to be $3.51 to $3.66 (which excludes any potential impact from the 45 percent common equity ownership in Climate Technologies' income or loss post-close), while adjusted earnings per share are expected to be $4.00 to $4.15, excluding a $0.13 per share impact from restructuring actions, a $0.61 per share impact from amortization of intangibles, $0.10 per share from interest income on the Climate Technologies note receivable, and $0.15 per share of interest income on undeployed proceeds from the Climate Technologies and InSinkErator divestitures.

The Company's fiscal 2023 results from continuing operations after the Climate Technologies divestiture (assumed to close March 31, 2023 for purposes of the guidance above) will include interest income from the $2.25 billion note receivable from Climate Technologies and reflect the 45 percent common equity ownership in the income, or loss, of Climate Technologies.

Emerson will not control Climate Technologies post-closing and is therefore unable to estimate the amount of its 45 percent share of Climate Technologies' post-close results.

The Company will exclude the interest income from the note receivable from Climate Technologies and its 45 percent share of Climate Technologies' operations in its calculation of fiscal 2023 adjusted earnings per share.

Also excluded from adjusted earnings per share is the interest income on any undeployed net proceeds.

The effect of Emerson's 45 percent share of Climate Technologies is expected to be immaterial to post-closing cash flows.

The fiscal 2023 outlook assumes approximately $1.2 billion of dividend payments and approximately $2 billion to be returned to shareholders through share repurchases.

For fiscal year 2024, consolidated net sales from continuing operations are expected to be up 13 to 15.5 percent, with underlying sales up 4 to 6 percent excluding a 1 percent unfavorable impact from foreign currency translation and a 10 to 10.5 percent impact from the NI acquisition.

Earnings per share, which incorporate the NI acquisition other than as set forth below, are expected to be $3.82 to $4.02, while adjusted earnings per share are expected to be $5.15 to $5.35 (see the following reconciliation).

Outlook for Fiscal 2024 Earnings Per Share 2024

Diluted earnings per share $3.82 - $4.02

Amortization of intangibles ~ 0.67

Restructuring and related costs ~ 0.22

Acquisition/divestiture fees and related costs ~ 0.22

Copeland equity loss ~ 0.22

Adjusted diluted earnings per share $5.15 - $5.35

Operating cash flow is expected to be $3.0 to $3.1 billion and free cash flow, which excludes projected capital spending of approximately $0.4 billion, is expected to be $2.6 to $2.7 billion.

The fiscal 2024 outlook assumes approximately $500 million returned to shareholders through share repurchases and approximately $1.2 billion of dividend payments.

GAAP earnings per share guidance for fiscal 2024 does not include the impact of intangibles amortization and other purchase accounting-related costs related to the NI transaction.

The initial accounting for this transaction is not yet complete and therefore Emerson is unable to estimate these amounts.

Although these items may have a significant impact on GAAP earnings per share, they will be excluded from adjusted earnings per share and will have no impact on cash flows.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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What changed 10-K

Item 7. Management’s Discussion and Analysis