EMERSON ELECTRIC CO 10-K

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 16 Safe Harbor Statement This Annual Report on Form 10-K contains various forward-looking statements and includes assumptions concerning Emerson's operations, future results and prospects. These forward-looking statements are based on current expectations and are subject to risks and uncertainties. Emerson undertakes no obligation to update any such statements to reflect later developments. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, Emerson provides the cautionary statements set forth under Item 1A - “Risk Factors,” which are hereby incorporated by reference and identify important economic, political and technological factors, among others, changes in which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions. Non-GAAP Financial Measures To supplement the Company’s financial information presented in accordance with U.S. generally accepted accounting principles (U.S. GAAP), management periodically uses certain “non-GAAP financial measures,” as such term is defined in Regulation G under SEC rules, to clarify and enhance understanding of past performance and prospects for the future. Generally, a non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position or cash flows that excludes or includes amounts that are included in or excluded from the most directly comparable measure calculated and presented in accordance with U.S. GAAP. For exa mple, non-GAAP measures may exclude the impact of certain items such as acquisitions or divestitures, amortization of intangibles, restructuring costs, discrete taxes, ch anges in reporting segments, gains, losses and impairments, or items outside of management’s control, such as foreign currency exchange rate fluctuations. Management believes that the following non-GAAP financial measures provide investors and analysts useful insight into the Company’s financial position and operating performance. Any non-GAAP measure provided should be viewed in addition to, and not as an alternative to, the most directly comparable measure determined in accordance with U.S. GAAP, as identified in italics below. 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 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: net sales ). Operating profit (defined as net sales less cost of sales and selling, general and administrative expenses) and operating profit margin (defined as operating profit divided by net sales) are indicative of short-term operational performance and ongoing profitability. 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, 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. GAAP measures: pretax earnings or pretax profit margin, segment earnings or segment margin ). Earnings and earnings per share excluding certain gains and losses, impairments, restructuring costs, impacts of acquisitions or divestitures, amortization of intangibles, discrete taxes, or other items provide additional insight into the underlying, ongoing operating performance of the Company and facilitate period-to-period comparisons by excluding the earnings impact of these items. Management believes that presenting earnings and earnings per 17 share excluding these items is more representative of the Company’s operational performance and may be more useful for investors (U.S. GAAP measures: earnings, earnings per share ). 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 divid end, 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. 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: operating cash flow, operating cash flow as a percent of net sales, dividends as a percent of operating cash flow ). 18 FINANCIAL REVIEW Report of Management The Company's management is responsible for the integrity and accuracy of the financial statements. Management believes that the financial statements for each of the years in the three-year period ended September 30, 2024 have been prepared in conformity with U.S. generally accepted accounting principles appropriate in the circumstances. In preparing the financial statements, management makes informed judgments and estimates where necessary to reflect the expected effects of events and transactions that have not been completed. The Company's disclosure controls and procedures ensure that material information required to be disclosed is recorded, processed, summarized and communicated to management and reported within the required time periods. In meeting its responsibility for the reliability of the financial statements, management relies on a system of internal accounting controls. This system is designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with U.S. generally accepted accounting principles. Although the design of this system recognizes that errors or irregularities may occur, management believes that the Company's internal accounting controls provide reasonable assurance that errors or irregularities that could be material to the financial statements are prevented or would be detected within a timely period. The Audit Committee of the Board of Directors, which is composed solely of independent directors, is responsible for overseeing the Company's financial reporting process. The Audit Committee meets with management and the Company's internal auditors periodically to review the work of each and to monitor the discharge by each of its responsibilities. The Audit Committee also meets periodically with the independent auditors, who have free access to the Audit Committee and the Board of Directors, to discuss the quality and acceptability of the Company's financial reporting and internal controls, as well as nonaudit-related services. The independent auditors are engaged to express an opinion on the Company's consolidated financial statements and on the Company's internal control over financial reporting. Their opinions are based on procedures that they believe to be sufficient to provide reasonable assurance that the financial statements contain no material errors and that the Company's internal controls are effective. Management's Report on Internal Control Over Financial Reporting The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. With the participation of the Chief Executive Officer and the Chief Financial Officer, management conducted an evaluation of the effectiveness of internal control over financial reporting based on the frame work and the criteria established in Internal Control - Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has concluded that internal control over financial reporting was effective as of September 30, 2024. 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. /s/ S. L. Karsanbhai /s/ Michael J. Baughman S. L. Karsanbhai Michael J. Baughman President Executive Vice President and Chief Executive Officer and Chief Financial Officer 19 Results of Operations Years ended September 30 (Dollars in Item 7 are in millions, except per share amounts or where noted) 2022 2023 2024 23 vs. 22 24 vs. 23 Net sales $ 13,804 15,165 17,492 10 % 15 % Gross profit $ 6,306 7,427 8,885 18 % 20 % Percent of sales 45.7 % 49.0 % 50.8 % 3.3 pts 1.8 pts SG&A $ 3,614 4,186 5,142 Percent of sales 26.2 % 27.6 % 29.4 % 1.4 pts 1.8 pts Loss on Copeland note receivable $ — — 279 Gain on subordinated interest $ (453) (161) (79) Other deductions, net $ 519 506 1,434 Amortization of intangibles $ 336 482 1,077 Restructuring costs $ 75 72 228 Interest expense, net $ 194 34 175 Interest income from related party $ — (41) (86) Earnings from continuing operations before income taxes $ 2,432 2,903 2,020 19 % (30) % Percent of sales 17.6 % 19.1 % 11.5 % 1.5 pts (7.6) pts Earnings from continuing operations common stockholders $ 1,886 2,286 1,618 21 % (29) % Percent of sales 13.7 % 15.1 % 9.2 % 1.4 pts (5.9) pts Net earnings common stockholders $ 3,231 13,219 1,968 309 % (85) % Percent of sales 23.4 % 87.2 % 11.2 % 63.8 pts (76.0) pts Diluted EPS – Earnings from continuing operations $ 3.16 3.96 2.82 25 % (29) % Diluted EPS – Net earnings $ 5.41 22.88 3.43 323 % (85) % Adjusted Diluted EPS – Earnings from continuing operations $ 3.64 4.44 5.49 22 % 24 % OVERVIEW On October 11, 2023, the Company completed the acquisition of National Instruments Corporation ("NI"), which is now referred to as Test & Measurement and reported as a new segment in the Software and Control business group. NI provides software-connected automated test and measurement systems that enable enterprises to bring products to market faster and at a lower cost, and had revenues of approximately $1.7 billion for the 12 months ended September 30, 2023. See Note 4. On June 6, 2024, the Company entered into definitive agreements to sell its 40 percent non-controlling common equity interest in Copeland to private equity funds managed by Blackstone for $1.5 billion and its note receivable to Copeland for $1.9 billion, and the transactions were subsequently completed in August 2024. Upon entering into the note agreement, the Company recorded a pretax loss in continuing operations of $279 ($217 after-tax, $0.38 per share) to adjust the carrying value of the note to $1.9 billion to reflect the transaction price, while the Company recognized a gain of $539 ($435 after-tax) in discontinued operations upon the sale of the common equity interest. In addition, the equity method losses related to the Company's non-controlling common equity interest in Copeland, which were reported since May 2023 in Other deductions, net, have been reclassified and are now reported as discontinued operations for all periods presented. See Notes 5 and 8 for further detail. 20 Overall, in 2024 sales were $17.5 billion, up 15 percent compared with the prior year. Underlying sales, which exclude foreign currency translation, acquisitions and divestitures, were up 6 percent. The Test & Measurement acquisition added 9.5 percent and the divestiture of Metran, Emerson's Russia-based manufacturing subsidiary, deducted 0.5 percent. Net earnings from continuing operations attributable to common stockholders were $1,618 in 2024, down 29 percent compared with prior year earnings of $2,286, and diluted earnings per share from continuing operations were $2.82, down 29 percent versus $3.96 in 2023. The decrease was primarily due to purchase accounting related impacts from the NI acquisition and higher associated restructuring charges, and the loss on the sale of the Copeland note receivable. Adjusted diluted earnings per share from continuing operations were $5.49 compared with $4.44 in the prior year, reflecting sales growth and strong operating performance, as well as a $0.45 contribution from Test & Measurement. The Company generated operating cash flow from continuing operations of $3.3 billion in 2024, an increase of $607, or 22 percent, reflecting higher earnings (excluding the impact of non-cash items related to the NI acquisition and the loss on the Copeland note receivable). 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. 2022 2023 2024 Diluted earnings from continuing operations per share $ 3.16 3.96 2.82 Amortization of intangibles 0.45 0.62 1.43 Restructuring and related costs 0.14 0.14 0.33 Amortization of acquisition-related inventory step-up — — 0.38 Acquisition/divestiture costs and pre-acquisition interest on AspenTech debt (in 2022) 0.15 0.13 0.26 Loss on divestiture of businesses — — 0.09 Loss on Copeland note receivable — — 0.38 Discrete taxes — — (0.10) Gain on subordinated interest (0.60) (0.21) (0.10) 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) — Russia business exit charge 0.32 0.08 — Adjusted diluted earnings from continuing operations per share $ 3.64 4.44 5.49 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. 21 2023 2024 Adjusted diluted earnings from continuing operations per share - prior year $ 3.64 4.44 Operations 0.77 1.06 Corporate and other 0.07 (0.02) Stock compensation (0.16) 0.05 Foreign currency (0.12) (0.07) Pensions 0.07 — Gains on sales of capital assets in 2022 (0.02) — Effective tax rate 0.01 (0.06) Interest income on Copeland note receivable 0.05 0.06 Other (0.01) — Share repurchases 0.14 0.03 Adjusted diluted earnings from continuing operations per share - current year $ 4.44 5.49 NET SALES Net sales for 2024 were $17.5 billion, an increase of $2.3 billion, or 15 percent compared with 2023. Intelligent Devices sales increased 5 percent, while Software and Control sales increased 48 percent, which included the impact of the Test & Measurement acquisition. Underlying sales were up 6 percent on 4 percent higher volume and 2 percent higher price. The Test & Measurement acquisition added 9.5 percent and the divestiture of Metran deducted 0.5 percent. Underlying sales were up 2 percent in the U.S. and up 9 percent internationally. Net sales for 2023 were $15.2 billion, an increase of $1.4 billion, or 10 percent compared with 2022 . 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 increased 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 deducted 1 percent . Underlying sales were up 11 percent in the U.S. and up 9 percent internationally. INTERNATIONAL SALES Emerson is a global business with international sales representing 60 percent of total sales in 2024, including U.S. exports . The Company generally expects faster economic growth in emerging markets in Asia, Latin America, Eastern Europe and Middle East/Africa. International destination sales, including U.S. exports, increased 18 percent, to $10.5 billion in 2024, reflecting the Company's overall increase in sales and the impact of the Test & Measurement acquisition. U.S. expo rts of $1.3 billion were up 26 percent compared with 2023. Underlying international destination sales were up 9 percent and t he Test & Measurement acquisition added 9 percent. Underlying sales increased 7 percent in Europe, 8 percent in Asia, Middle East & Africa (China down 3 percent), 21 percent in Latin America and 5 percent in Canada. Origin sales by international subsidiaries, including shipments to the U.S., totaled $9.3 billion in 2024, up 20 percent compared with 2023. International destination sales, including U.S. 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. U.S . exports 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 impact on the comparison, the Heritage AspenTech acquisition added 3 percent and the divestiture of Metran 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 Americ a 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. 22 ACQUISITIONS AND DIVESTITURES Portfolio management is an integral component of Emerson's growth and value creation strategy. Over the past three 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 cohesive, higher growth and higher margin 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 November 5, 2024, the Company announced a proposal to acquire all outstanding shares of common stock of AspenTech not already owned by Emerson for $240 per share in cash, which implies a fully diluted market capitalization for AspenTech of $15.3 billion and an enterprise value of $15.1 billion. The Company currently owns approximately 57 percent of AspenTech's outstanding shares of common stock. The proposal is not subject to any financing condition and would be financed from cash on hand, committed lines of credit and/or other available sources of financing. Also on November 5, 2024, the Company announced that it is exploring strategic alternatives, including a cash sale, for its Safety & Productivity segment. No assurance can be given whether the proposal or the review will lead to one or more transactions or as to any of the terms or conditions of such transactions. See Item 1A - "Risk Factors" for additional information. On October 11, 2023, 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 is reported in the Measurement & Analytical segment, and Afag, which is reported in the Discrete Automation segment, for $715, 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 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 standalone business is named Copeland. Subsequently, on June 6, 2024, the Company entered into definitive agreements to sell its 40 percent non-controlling common equity interest in Copeland to private equity funds managed by Blackstone for $1.5 billion and its note receivable to Copeland for $1.9 billion and the transactions were completed in August 2024. See Notes 5 and 8 and the discussion below for further details. On October 31, 2022, the Company completed the divestiture of its InSinkErator business, which manufactures food waste disposers, to Whirlpool Corporation for $3.0 billion, 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 (including equity method losses related to the Company's non-controlling common equity interest in Copeland), 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 23 Industrial Software Business”), along with approximately $6.0 billion in cash to Heritage AspenTech stockholders, to create "New AspenTech" (defined as "AspenTech" herein). 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. See Notes 4, 5 and 8 and Item 1A - "Risk Factors" for further information on acquisitions and divestitures. COST OF SALES Cost of sales for 2024 were $8,607, an increase of $869 compared with $7,738 in 2023, reflecting the impact of higher volume and the Test & Measurement acquisition. Gross profit was $8,885 in 2024 compared to $7,427 in 2023, while gross margin increased 1.8 percentage poi nts to 50.8 percent, reflecting the Test & Measurement acquisition and higher price partially offset by the impact from acquisition-related inventory step-up amortization of $231, which negatively impacted margins by approximately 1.3 percentage points. Cost of sales for 2023 were $7,738 , an increase of $240 compared with $7,498 in 2022. G ross profit was $7,427 in 2023 compared to $6,306 in 2022 , while gross margin increased 3.3 percentage points 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. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES SG&A expenses of $5,142 in 2024 increased $956 compared with 2023 and SG&A as a percent of sales increased 1.8 percentage points to 29.4 percent, reflecting the impact of the Test & Measurement acquisition, partially offset by strong operating leverage on higher sales. 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. SALE OF COPELAND NOTE RECEIVABLE AND EQUITY INTEREST On June 6, 2024, the Company entered into definitive agreements to sell its 40 percent non-controlling common equity interest in Copeland to private equity funds managed by Blackstone for $1.5 billion and its note receivable to Copeland for $1.9 billion, and the transactions were subsequently completed in August 2024. Upon entering into the note agreement, the Company recorded a pretax loss in continuing operations of $279 ($217 after-tax, $0.38 per share) to adjust the carrying value of the note to $1.9 billion to reflect the transaction price, while the Company recognized a gain of $539 ($435 after-tax) in discontinued operations upon the sale of the common equity interest. In addition, the equity method losses related to the Company's non-controlling common equity interest in Copeland, which were reported since May 2023 in Other deductions, net, have been reclassified and are now reported as discontinued operations for all periods presented. 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) and in 2024, received its final distribution of $79 ($60 after-tax, $0.10 per share). OTHER DEDUCTIONS, NET Other deductions, net were $1,434 in 2024, an increase of $928 compared with 2023. The current year included intangibles amortization related to the Test & Measurement acquisition of $560, while restructuring costs increased by $156 and acquisition/divestiture costs increased by $27. The Company also incurred divestiture losses of $48 ($50 after-tax, $0.09 per share). Other deductions, net were $506 in 2023, a decrease of $13 compared with 2022 , and included 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 24 2023. In 2023, the Company recognized a mark-to-market gain of $56 on its equity investment in NI, and a mark-to-market gain of $24 r elated 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 2022. On June 21, 2023, AspenTech terminated all outstanding foreign currency forward contracts. See Notes 6 and 7. INTEREST EXPENSE, NET Interest expense, net was $175 , $34 and $194 in 2024, 2023 and 2022, respectively. Results in 2023 included interest income on undeployed proceeds from the Copeland transaction of $141 ($108 after-tax, $0.19 per share). Interest income from related party was $86 and $41 in 2024 and 2023, respectively and reflects n on-cash interest income on the Copeland note receivable, which was capitalized to the carrying value of the note through the date of the sale agreement. EARNINGS BEFORE INCOME TAXES Pretax earnings from conti nuing operations of $2,020 decreased $883 in 2024, down 30 percent compared with 2023, which included the impact of acquisition-related inventory step-up amortization, higher amortization due to the Test & Measurement acquisition, and the loss on the Copeland note receivable discussed above. Earnings increased $191 in Intelligent Devices and decreased $140 in Software and Control. Pretax earnings from continuing operations of $2,903 increased $471 in 2023, up 19 percent compared with 2022. Earnings increased $447 in Intelligent Devices and decreased $27 in Software and Contr ol. See the Business Segments discussion that follows and Note 20. INCOME TAXES In come taxes were $415, $642 and $549 for 2024, 2023 and 2022, respectively, resulting in effective tax rates of 21 percent, 22 percent and 23 percent in 2024, 2023 and 2022, respectively. The current year rate included a $57 ($0.10 per share) benefit related to discrete tax items and a benefit related to the filing of the prior year U.S. tax return, partially offset by unfavorable impacts from inventory step-up amortization and the divestiture losses (see Note 4), which were non-deductible for tax purposes. In total, the net impact of these items benefited the rate by approximately 1 percentage point. See Note 16. NET EARNINGS AND EARNINGS PER SHARE Net earnings from continuing operations attributable to common stockholders in 2024 were $1,618, down 29 percent compared with 2023, and diluted earnings per share from continuing operations were $2.82, down 29 percent compared with $3.96 in 2023, reflecting the impact of acquisition-related inventory step-up amortization, higher amortization due to the Test & Measurement acquisition, and the loss on the Copeland note receivable discussed above. Adjusted diluted earnings per share from continuing operations were $5.49 compared with $4.44 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 2024 were $350 ($0.61 per share) and included the gain on the sale of the Company's 40 percent non-controlling common equity interest in Copeland of $539 ($435 after-tax). Earnings from discontinued operations in 2023 were $10,933 ($18.92 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. See Note 5. Net earni ngs attributable to common stockholders were $1,968 ($3.43 per share) compared with $13,219 ($22.88 per share) in 2023 . Net earnings from continuing operations attributable to common stockholders in 2023 were $2,286 , up 21 percent compared with 2022 , and diluted earnings per share from continuing operations were $3.96, up 25 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 details. Earnin gs from discontinued operations attributable to common stockholders in 2023 wer e $10,933 ($18.92 per share) compared to $1,345 ($2.25 per share) in 2022. See Note 5. Net earnings common stockholders w ere $13,219 ($22.88 per share) in 2022 compared with $3,231 ($5.41 per share) in 2022 . 25 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. 2022 2023 2024 23 vs. 22 24 vs. 23 Earnings from continuing operations before income taxes $ 2,432 2,903 2,020 19 % (30) % Percent of sales 17.6 % 19.1 % 11.5 % 1.5 pts (7.6) pts Interest expense, net 194 34 175 Interest income from related party — (41) (86) Amortization of intangibles 430 678 1,274 Restructuring and related costs 105 92 244 Amortization of acquisition-related inventory step-up — — 231 Acquisition/divestiture and related costs 91 84 220 Loss on divestitures of businesses — — 48 Loss on Copeland note receivable — — 279 Gain on subordinated interest (453) (161) (79) National Instruments investment gain — (56) — Other investment-related gains (14) — — AspenTech Micromine purchase price hedge 50 (24) — Russia business exit charge 181 47 — Adjusted EBITA from continuing operations $ 3,016 3,556 4,326 18 % 22 % Percent of sales 21.8 % 23.4 % 24.7 % 1.6 pts 1.3 pts Business Segments Following is an analysis of segment results for 2024 compared with 2023, and 2023 compared with 2022. The Company defines segment earnings as earnings before interest and income taxes. 26 INTELLIGENT DEVICES 2023 2024 Change FX Acq/Div U/L Sales: Final Control $ 3,970 4,204 6 % — % — % 6 % Measurement & Analytical 3,595 4,061 13 % — % 1 % 14 % Discrete Automation 2,635 2,506 (5) % — % — % (5) % Safety & Productivity 1,388 1,390 — % — % — % — % Total $ 11,588 12,161 5 % — % — % 5 % Earnings: Final Control $ 865 977 13 % Measurement & Analytical 936 1,056 13 % Discrete Automation 509 466 (9) % Safety & Productivity 306 308 1 % Total $ 2,616 2,807 7 % Margin 22.6 % 23.1 % 0.5 pts Amortization of intangibles: Final Control $ 88 87 Measurement & Analytical 27 55 Discrete Automation 29 34 Safety & Productivity 26 26 Total $ 170 202 Restructuring and related costs: Final Control $ 28 17 Measurement & Analytical 13 26 Discrete Automation 27 35 Safety & Productivity — 7 Total $ 68 85 Adjusted EBITA $ 2,854 3,094 8 % Adjusted EBITA Margin 24.6 % 25.4 % 0.8 pts 2024 vs. 2023 - Intelligent Devices sales were $12.2 billion in 2024, an increase of $573, or 5 percent. Underlying sales increased 5 percent on 3 percent higher volume and 2 percent higher price. Underlying sales increased 3 percent in the Americas (U.S. up 1 percent), increased 5 percent in Europe and increased 9 percent in Asia, Middle East & Africa (China down 2 percent). Sales for Final Control increased $234, or 6 percent, reflecting strength in energy and power end markets. Sa les for Measurement & Analytical increased $466, or 13 percent, reflecting robust growth in all geographies and strong backlog conversion. D iscrete Automation sales decreased $129, or 5 percent, reflecting softness in all geographies. Safety & Productivity sales increased $2, essentially flat, reflecting moderate results across all geographies. Earnings for Intellig ent Devices were $2,807 , an increase of $191 , or 7 percent , and margin increased 0.5 percentage points to 23.1 percent, reflecting leverage on higher sales and favorable price less net material inflation, partially offset by increases in other costs. Adj usted EBITA margin was 25.4 percent , an increase of 0.8 percentage points. 27 INTELLIGENT DEVICES 2022 2023 Change FX Acq/Div U/L Sales: 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 % — % 10 % Earnings: 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 22.4 % 24.6 % 2.2 pts 2023 vs. 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. Sales 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. Discrete 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 Intelligent 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. Adjusted EBITA margin was 24.6 percent, an increase of 2.2 percentage points. 28 SOFTWARE AND CONTROL 2023 2024 Change FX Acq/Div U/L Sales: Control Systems & Software $ 2,606 2,842 9 % — % 1 % 10 % Test & Measurement — 1,464 AspenTech 1,042 1,093 5 % — % — % 5 % Total $ 3,648 5,399 48 % — % (40) % 8 % Earnings: Control Systems & Software $ 529 645 22 % Test & Measurement — (290) AspenTech (107) (73) 32 % Total $ 422 282 (33) % Margin 11.6 % 5.2 % (6.4) pts Amortization of intangibles: Control Systems & Software $ 22 26 Test & Measurement — 560 AspenTech 486 486 Total $ 508 1,072 Restructuring and related costs: Control Systems & Software $ 9 15 Test & Measurement — 81 AspenTech 1 8 Total $ 10 104 Adjusted EBITA $ 940 1,458 55 % Adjusted EBITA Margin 25.8 % 27.0 % 1.2 pts 2024 vs. 2023 - Software and Control sales were $5.4 billion in 2024, an increase of $1,751, or 48 percent compared to the prior year, reflecting the impact of the Test & Measurement acquisition. Underlying sales increased 8 percent on 5 percent higher volume and 3 percent higher price. Underlying sales increased 8 percent in the Americas (U.S. up 7 percent), increased 9 percent in Europe and increased 8 percent in Asia, Middle East & Africa (China down 5 percent). Sales for Control Systems & Software increased $236, or 9 percent, reflecting strong international demand in process and hybrid end markets while power end markets were strong globally. Test & Measurement sales were $1,464. Sales for AspenTech increased $51, or 5 percent, reflecting higher maintenance and services revenue. Earnings for Software and Control were $282, a decrease of $140, or 33 percent, and margin decreased 6.4 percentage points to 5.2 percent, reflecting the impact from $560 of incremental intangibles amortization related to the Test & Measurement acquisition. Adjusted EBITA margin was 27.0 percent, an increase of 1.2 percentage points, reflecting leverage on higher sales and higher price, partially offset by the impact of the Test & Measurement acquisition. 29 SOFTWARE AND CONTROL 2022 2023 Change FX Acq/Div U/L Sales: Control Systems & Software $ 2,398 2,606 9 % 1 % 1 % 11 % Test & Measurement — — AspenTech 656 1,042 59 % — % (60) % (1) % Total $ 3,054 3,648 20 % 1 % (11) % 10 % Earnings: Control Systems & Software $ 437 529 21 % Test & Measurement — — AspenTech 12 (107) (967) % Total $ 449 422 (6) % Margin 14.7 % 11.6 % (3.1) pts Amortization of intangibles: Control Systems & Software $ 22 22 Test & Measurement — — AspenTech 237 486 Total $ 259 508 Restructuring and related costs: Control Systems & Software $ 11 9 Test & Measurement — — AspenTech — 1 Total $ 11 10 Adjusted EBITA $ 719 940 31 % Adjusted EBITA Margin 23.5 % 25.8 % 2.3 pts 2023 vs. 2022 - Software and Control sales were $3.6 billion in 2023, an increase of $594, or 20 percent compared to 2022, 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. 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 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 $44 billion and stockholders' equity of $22 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 Company continues to generate substantial operating cash flow, including over $3.3 billion from continuing operations in 2024. Cash flows have been and are expected to be sufficient for at least the next 12 months to meet 30 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. CASH FLOW 2022 2023 2024 Operating Cash Flow $ 2,048 2,710 3,317 Percent of sales 14.8 % 17.9 % 19.0 % Capital Expenditures $ 299 363 419 Percent of sales 2.2 % 2.4 % 2.4 % Free Cash Flow (Operating Cash Flow less Capital Expenditures) $ 1,749 2,347 2,898 Percent of sales 12.7 % 15.5 % 16.6 % Operating Working Capital $ 990 1,283 1,394 Percent of sales 7.2 % 8.5 % 8.0 % Operating cash flow from continuing operations for 2024 was $3.3 billion, an increase of $607, or 22 percent compared with 2023, reflecting higher earnings (excluding the impact of non-cash items related to the NI acquisition and the loss on the Copeland note receivable). Acquisition-related costs and integration activities negatively impacted operating cash flow in the current year by approximately $235. AspenTech generated operating cash flow of approximately $320 compared to approximately $310 in the prior year. Operating cash flow from continuing operations for 2023 was $2.7 billion, an increase of 32 percent compared to $2.0 billion in 2022, reflecting higher earnings (excluding the impacts in both years from the Vertiv subordinated interest gains and higher Heritage AspenTech intangibles amortization in 2023). At September 30, 2024, operating working capital as a percent of sales was 8.0 percent compared with 8.5 percent in 2023 and 7.2 percent in 2022. Total operating working capital increased in 2024 due to the NI acquisition, but improved as a percent of sales compared to 2023 due improvements in inventory levels. Operating working capital was elevated in 2023 due to higher inventory levels to support sales growth and higher receivables. Free cash flow from continuing operations (operating cash flow less capital expenditures) was $2,898 in 2024, up 23 percent, reflecting the increase in operating cash flow. Free cash flow from continuing operations was $2,347 in 2023, compared with $1,749 in 2022. Net cash paid in connection with acquisitions was $8,342, $705 and $5,702 in 2024, 2023 and 2022, respectively. Total cash provided by operating activities including the impact of discontinued operations was $3,332, $637 and $2,922 in 2024, 2023 and 2022, 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 was $3.4 billion in 2024, reflecting the proceeds of approximately $1.5 billion related to the sale of the Company's 40 percent non-controlling common equity interest in Copeland and $1.9 billion related to the sale of the note receivable, while 2023 was $12.5 billion, reflecting 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 and the remainder paid in December 2022. Dividends were $1,201 ($2.10 per share) in 2024, compared with $1,198 ($2.08 per share) in 2023 and $1,223 ($2.06 per share) in 2022. In November 2024, the Board of Directors voted to increase the quarterly cash dividend to an annualized rate of $2.11 per share. 31 Purchases of Emerson common stock totaled $435, $2,000 and $500 in 2024, 2023 and 2022, respectively, at average per share prices of $99.04, $94.09 and $87.64. AspenTech repurchases were $208 in 2024 and $214 in 2023, and the Company's current common ownership percentage is 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 additional 60 million shares and a total of approximately 28.9 million shares remain available. The Company purchased 4.4 million shares in 2024, 21.3 million shares in 2023 and 5.7 million shares in 2022 under the authorizations. LEVERAGE/CAPITALIZATION 2022 2023 2024 Total Assets $ 35,672 42,746 44,246 Long-term Debt $ 8,259 7,610 7,155 Common Stockholders' Equity $ 10,364 20,689 21,636 Total Debt-to-Total Capital Ratio 50.0 % 28.3 % 26.2 % Net Debt-to-Net Capital Ratio 45.3 % 0.5 % 15.9 % Operating Cash Flow-to-Debt Ratio 19.7 % 33.2 % 43.2 % Interest Coverage Ratio 11.7X 12.1X 7.2X Total debt, which includes long-term debt, current maturities of long-term debt, commercial paper and other short-term borrowings, was $7,687, $8,157 and $10,374 as of September 30, 2024, 2023 and 2022, respectively. The decrease in 2024 reflected the repayment of €500 of 0.375% euro notes that matured in May 2024. 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). Activity in 2022 included the issuance of $3 billion of long-term debt and increased commercial paper borrowings of approximately $1.3 billion. 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 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 in 2022. See Note 4 and Note 13. The total debt-to-total capital ratio decreased slightly in 2024, reflecting repayments of long-term debt, while the net debt-to-net capital ratio increased reflecting the use of cash held on the balance sheet at September 30, 2023 that was used to complete the NI acquisition. These ratios decreased in 2023 compared to 2022 due to the proceeds and after-tax gains (which increased common stockholder's equity) on the Copeland transaction and InSinkErator divestiture. The interest coverage ratio is computed as earnings before income taxes plus interest expense, divided by interest expense. The decrease in 2024 reflects lower GAAP pretax earnings largely due to the NI acquisition. Excluding the impact from acquisition-related inventory step-up amortization of $231, higher intangibles amortization of $595, acquisition/divestiture fees and related costs of $220, higher restructuring and related costs of $152, the loss of $279 on the Copeland note receivable and the gain on the subordinated interest of $79, the interest coverage ratio was 11.6X. The Company's earnings increased in 2023 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. The Company has not incurred any borrowings under this or previous facilities. The credit facility contains no financial covenants and is not subject to termination based on a change of credit rating or material adverse changes. The facility is unsecured and may be accessed under various interest rate alternatives at the Company’s option. Fees to maintain the facility are immaterial. 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. 32 FINANCIAL INSTRUMENTS 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 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. Sensitivity analysis has limitations; for example, a weaker U.S. dollar would benefit future earnings through favorable translation of non-U.S. operating results. See Notes 1, and 11 through 13. Critical Accounting Policies Preparation of the Company's financial statements requires management to make judgments, assumptions and estimates regarding uncertainties that could affect reported revenue, expenses, assets, liabilities and equity. Note 1 describes the significant accounting policies used in preparation of the consolidated financial statements. The most significant areas where management judgments and estimates impact the primary financial statements are described below. Actual results in these areas could differ materially from management's estimates under different assumptions or conditions. REVENUE RECOGNITION The Company evaluates its contracts with customers to identify the promised goods or services and recognizes revenue for the identified performance obligations at the amount the Company expects to be entitled to in exchange for those goods or services. A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. Revenue is recognized when, or as, performance obligations are satisfied and control has transferred to the customer, typically when products are shipped or delivered, title and risk of loss pass to the customer, and the Company has a present right to payment. The majority of the Company's revenues relate to a broad offering of manufactured products 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. Tangible products represent a large majority of the delivered items in contracts with multiple performance obligations or where revenue is recognized over time, while a smaller portion is attributable to installation, service and maintenance. In sales arrangements that involve multiple performance obligations, revenue is allocated based on the relative standalone selling price for each performance obligation. Observable selling prices from actual transactions are used whenever possible. In other instances, the Company determines the standalone selling price based on thi rd-party pricing or management's best estimate. 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. 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 2024, the Company completed the acquisition of National Instruments Corporation and in 2022 completed the acquisition of Aspen Technology, Inc. and engaged independent third-party valuation specialists to assist in the determination of the fair value of intangible assets. This included the use of certain assumptions and estimates, including projected revenue for customer relationship and developed technology intangible assets, the attrition rate for customer relationship intangible assets, and the obsolescence rate for developed technology intangible assets. 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 National Instruments Corporation and Aspen Technology, Inc. LONG-LIVED ASSETS Long-lived assets, which include property, plant and equipment, goodwill and identifiable intangible assets, are reviewed for impairment whenever events or changes in business circumstances indicate impairment may exist. If 33 the Company determines that the carrying value of a long-lived asset may not be recoverable, a permanent impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its estimated fair value. Reporting units are also reviewed for possible goodwill impairment at least annually, in the fourth quarter. If an initial assessment indicates it is more likely than not an impairment may exist, it is evaluated by comparing the reporting unit's estimated fair value to its carrying value. Fair value is generally estimated using an income approach that discounts estimated future cash flows using discount rates judged by management to be commensurate with the applicable risk. Estimates of future sales, operating results, cash flows and discount rates are subject to changes in the economic environment, including such factors as the general level of market interest rates, expected equity market returns and the volatility of markets served, particularly when recessionary economic circumstances continue for an extended period of time. RETIREMENT PLANS The Company maintains a prudent long-term investment strategy consistent with the duration of pension obligations. The determination of defined benefit plan expense and liabilities is dependent on various assumptions, including the expected annual rate of return on plan assets, the discount rate and the rate of annual compensation increases. In accordance with U.S. generally accepted accounting principles, actual results that differ from the Compa ny's assumptions are accumulated as deferred actuarial gains or losses and amortized to expense in future periods. The Company's principal U.S. defined benefit plan is closed to employees hired after January 1, 2016 while shorter-tenured employees ceased accruing benefits effective October 1, 2016. Effective January 1, 2025, the Company is implementing a new profit sharing retirement program for all U.S. non-union employees. Eligible employees will receive a base contribution to a cash balance account administered within the principal U.S. defined benefit plan, to be funded by surplus pension assets, as well as a potential profit sharing contribution to their defined contribution account. After December 31, 2024, future service for employees that had continued to accrue benefits in the principal U.S. defined benefit plan will be frozen. As of September 30, 2024, the U.S. pension plans were overfunded by $800 in total (approximately 22 percent in excess of the projected benefit obligation), including unfunded plans totaling $161. The non-U.S. plans were underfunded by $38, including unfunded plans totaling $230. The Company contributed a total of $38 to defined benefit plans in 2024 and expects to contribute approximately $40 in 2025. At year-end 2024, the discount rate for U.S. plans was 4.97 percent, and was 6.03 percent in 2023. The assumed investment return on plan assets was 6.50 percent in 2024, 6.00 percent in 2023 and 6.00 percent in 2022, and will be 6.50 percent for 2025. While management believes its assumptions used are appropriate, actual experience may differ. A 0.25 percentage point decrease in the U.S. and non-U.S. discount rates would have increased the total projected benefit obligation at September 30, 2024 by $100 and increased 2025 pension expense by $15. A 0.25 percentage point decrease in the expected return on plan assets would increase 2025 pension expense by $15. See Note 1 4. CONTINGENT LIABILITIES The Company is a party to a number of pending legal proceedings and claims, including those involving general and product liability (including asbestos) and other matters, several of which claim substantial amounts of damages. The Company accrues for such liabilities when it is probable that future costs (including legal fees and expenses) will be incurred and such costs can be reasonably estimated. Accruals are based on developments to date; management's estimates of the outcomes of these matters; and the Company's experience in contesting, litigating and settling similar matters. T he Company engages an outside expert to develop an actuarial estimate of its expected costs to resolve all pending and future asbestos claims, including defense costs, as well as its related insurance receivables. The reserve for asbestos litigation, which is recorded on an undiscounted basis, is based on projected claims through 2065. Although it is not possible to predict the ultimate outcome of these matters, the Company historically has been largely successful in defending itself against claims and suits that have been brought against it, and will continue to defend itself vigorously in all such matters. While the Company believes a material adverse impact is unlikely, given the inherent uncertainty of litigation, a remote possibility exists that a future development could have a material adverse impact on the Company. See Note 15. INCOME TAXES Income tax expense and tax assets and liabilities reflect management's assessment of taxes paid or expected to be paid (received) on items included in the financial statements. Deferred tax assets and liabilities arise from temporary differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and consideration of operating loss and tax credit carryforwards. Deferred income taxes are measured using enacted tax rates in effect for the year in which the temporary differences are expected to be 34 recovered or settled. The impact on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Valuation allowances are provided to reduce deferred tax assets to the amount that will more likely than not be realized. This requires management to make judgments and estimates regarding the amount and timing of the reversal of taxable temporary differences, expected future taxable income, and the impact of tax planning strategies. Uncertainty exists regarding tax positions taken in previously filed tax returns which remain subject to examination, along with positions expected to be taken in future returns. The Company provides for unrecognized tax benefits, based on the technical merits, when it is more likely than not that an uncertain tax position will not be sustained upon examination. Adjustments are made to the uncertain tax positions when facts and circumstances change, such as the closing of a tax audit; changes in applicable tax laws, including tax case rulings and legislative guidance; or expiration of the applicable statute of limitations. Cash repatriated to the U.S. is generally not subject to U.S. federal income taxes. No provision is made for withholding taxes and any applicable U.S. income taxes on the undistributed earnings of non-U.S. subsidiaries where these earnings are considered indefinitely invested or otherwise retained for continuing international operations. Determination of the amount of taxes that might be paid on these undistributed earnings if eventually remitted is not practicable. See Notes 1 and 16. Other Items LEGAL MATTERS At September 30, 2024, 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 In 2024, the Company adopted ASU No. 2022-04 (Subtopic 405-50), Liabilities - Supplier Finance Programs, which requires disclosures about the use of supplier finance programs. This standard has no impact on the accounting for supplier finance programs and did not materially impact the Company's disclosures. 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, each of which had an immaterial or no impact on the Company's financial statements. These included: • Updates to Accounting Standards Codification ("ASC") 805, Business Combinations , which clarify the accounting for contract assets and liabilities assumed in a business combination. In general, this will result in contract liabilities being recognized at their historical amounts under ASC 606, rather than at fair value in accordance with the general requirements of ASC 805. • Updates to ASC 740, Income Taxes , which require the recognition of a franchise tax that is partially based on income as an income-based tax with any incremental amount as a non-income based tax. These updates also make certain changes to intra-period tax allocation principles and interim tax calculations. • Updates to ASC 321, Equity Securities , ASC 323 Investments - Equity Method and Joint Ventures , and ASC 815, Derivatives and Hedging , which clarify how to account for the transition into and out of the equity method of accounting when evaluating observable transactions. 35 FISCAL 2025 OUTLOOK For fiscal year 2025, consolidated net sales from continuing operations are expected to be up 3.5 to 5.5 percent, with underlying sales up 3 to 5 percent, excluding a 0.5 percent favorable impact from foreign currency translation. Earnings per share are expected to be $4.42 to $4.62, while adjusted earnings per share are expected to be $5.85 to $6.05 (see the following reconciliation). Outlook for Fiscal 2025 Earnings Per Share 2025 Diluted earnings per share $4.42 - $4.62 Amortization of intangibles ~ 1.23 Restructuring and related costs ~ 0.16 Acquisition/divestiture fees and related costs ~ 0.04 Adjusted diluted earnings per share $5.85 - $6.05 Operating cash flow is expected to be $3.6 to $3.7 billion and free cash flow, which excludes projected capital spending of approximately $0.4 billion, is expected to be $3.2 to $3.3 billion. The fiscal 2025 outlook assumes approximately $2.0 billion returned to shareholders through share repurchases (including approximately $1.0 billion expected to be completed in the first fiscal quarter) and approximately $1.2 billion of dividend payments. ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information from this Annual Report on Form 10-K set forth in Item 7 under "Financial Instruments" is hereby incorporated by reference.