Form: 10-Q

Quarterly report [Sections 13 or 15(d)]

May 4, 2022

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-Q


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ____________________ to __________________

Commission file number 1-278

EMERSON ELECTRIC CO.
(Exact name of registrant as specified in its charter)
Missouri
emr-20220331_g1.jpg
43-0259330
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
8000 W. Florissant Ave.  
 
P.O. Box 4100
St. Louis, Missouri 63136
(Address of principal executive offices) (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading
Symbol(s)
Name of each exchange on which registered
Common Stock of $0.50 par value per share EMR New York Stock Exchange
NYSE Chicago
0.375% Notes due 2024 EMR 24 New York Stock Exchange
1.250% Notes due 2025 EMR 25A New York Stock Exchange
2.000% Notes due 2029 EMR 29 New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes No









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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common stock of $0.50 par value per share outstanding at March 31, 2022: 594.0 million shares.








PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

Consolidated Statements of Earnings
EMERSON ELECTRIC CO. & SUBSIDIARIES

Three and six months ended March 31, 2021 and 2022
(Dollars in millions, except per share amounts; unaudited)
 
  Three Months Ended
March 31,
Six Months Ended
March 31,
  2021  2022  2021  2022 
Net sales $ 4,431  4,791  8,592  9,264 
Cost of sales 2,569  2,839  5,007  5,490 
Selling, general and administrative expenses 1,054  1,049  2,052  2,060 
Gain on subordinated interest       (453)
Other deductions, net 33  40  155  91 
Interest expense (net of interest income of $4, $4, $6, and $7, respectively)
38  52  78  90 
Earnings before income taxes 737  811  1,300  1,986 
Income taxes 169  136  280  416 
Net earnings 568  675  1,020  1,570 
Less: Noncontrolling interests in subsidiaries 7  1  14   
Net earnings common stockholders $ 561  674  1,006  1,570 
Earnings per share:
Basic $ 0.94  1.13  1.68  2.64 
Diluted $ 0.93  1.13  1.67  2.63 
Weighted average outstanding shares:
Basic 599.4  593.3  599.0  593.9 
Diluted 602.8  596.5  602.3  597.3 

 















See accompanying Notes to Consolidated Financial Statements.





1




Consolidated Statements of Comprehensive Income
EMERSON ELECTRIC CO. & SUBSIDIARIES

Three and six months ended March 31, 2021 and 2022
(Dollars in millions; unaudited)
  Three Months Ended March 31, Six Months Ended March 31,
  2021  2022  2021  2022 
Net earnings $ 568  675  1,020  1,570 
Other comprehensive income (loss), net of tax:
Foreign currency translation (21) (60) 168  (132)
Pension and postretirement 27  18  54  36 
Cash flow hedges 1  6  32  10 
        Total other comprehensive income (loss) 7  (36) 254  (86)
Comprehensive income 575  639  1,274  1,484 
Less: Noncontrolling interests in subsidiaries 6    13  (1)
Comprehensive income common stockholders $ 569  639  1,261  1,485 

































See accompanying Notes to Consolidated Financial Statements.





2




Consolidated Balance Sheets
EMERSON ELECTRIC CO. & SUBSIDIARIES

(Dollars and shares in millions, except per share amounts; unaudited)
  Sept 30, 2021 Mar 31, 2022
ASSETS    
Current assets    
Cash and equivalents $ 2,354  6,929 
Receivables, less allowances of $116 and $114, respectively
2,971  2,958 
Inventories 2,050  2,399 
Other current assets 1,057  1,253 
Total current assets 8,432  13,539 
Property, plant and equipment, net 3,738  3,567 
Other assets  
Goodwill 7,723  7,631 
Other intangible assets 2,877  2,699 
Other 1,945  2,061 
Total other assets 12,545  12,391 
Total assets $ 24,715  29,497 
LIABILITIES AND EQUITY    
Current liabilities    
Short-term borrowings and current maturities of long-term debt $ 872  2,762 
Accounts payable 2,108  2,049 
Accrued expenses 3,266  3,261 
Total current liabilities 6,246  8,072 
Long-term debt 5,793  8,203 
Other liabilities 2,753  2,608 
Equity    
Common stock, $0.50 par value; authorized, 1,200.0 shares; issued, 953.4 shares; outstanding, 595.8 shares and 593.9 shares, respectively
477  477 
Additional paid-in-capital 522  579 
Retained earnings 26,047  27,003 
Accumulated other comprehensive income (loss) (872) (957)
Cost of common stock in treasury, 357.6 shares and 359.5 shares, respectively
(16,291) (16,527)
Common stockholders’ equity 9,883  10,575 
Noncontrolling interests in subsidiaries 40  39 
Total equity 9,923  10,614 
Total liabilities and equity $ 24,715  29,497 



See accompanying Notes to Consolidated Financial Statements.





3




Consolidated Statements of Equity
EMERSON ELECTRIC CO. & SUBSIDIARIES

Three and six months ended March 31, 2021 and 2022
(Dollars in millions; unaudited)
Three Months Ended March 31, Six Months Ended March 31,
2021  2022  2021  2022 
Common stock $ 477  477  477  477 
Additional paid-in-capital
     Beginning balance 499  564  470  522 
     Stock plans 12  15  41  57 
        Ending balance 511  579  511  579 
Retained earnings
     Beginning balance 25,096  26,636  24,955  26,047 
     Net earnings common stockholders 561  674  1,006  1,570 
Dividends paid (per share: $0.505, $0.515, $1.01 and $1.03, respectively)
(303) (307) (606) (614)
     Adoption of accounting standard     (1)  
        Ending balance 25,354  27,003  25,354  27,003 
Accumulated other comprehensive income (loss)
     Beginning balance (1,330) (922) (1,577) (872)
     Foreign currency translation (20) (59) 169  (131)
     Pension and postretirement 27  18  54  36 
     Cash flow hedges 1  6  32  10 
        Ending balance (1,322) (957) (1,322) (957)
Treasury stock
     Beginning balance (15,847) (16,506) (15,920) (16,291)
     Purchases (69) (27) (82) (285)
     Issued under stock plans 26  6  112  49 
        Ending balance (15,890) (16,527) (15,890) (16,527)
Common stockholders' equity 9,130  10,575  9,130  10,575 
Noncontrolling interests in subsidiaries
     Beginning balance 44  39  42  40 
     Net earnings 7  1  14   
     Other comprehensive income (1) (1) (1) (1)
     Dividends paid     (5)  
        Ending balance 50  39  50  39 
Total equity $ 9,180  10,614  9,180  10,614 







See accompanying Notes to Consolidated Financial Statements.





4




Consolidated Statements of Cash Flows
EMERSON ELECTRIC CO. & SUBSIDIARIES

Six Months Ended March 31, 2021 and 2022
(Dollars in millions; unaudited)
Six Months Ended
March 31,
  2021  2022 
Operating activities    
Net earnings $ 1,020  1,570 
Adjustments to reconcile net earnings to net cash provided by operating activities:
        Depreciation and amortization 483  452 
        Stock compensation 125  91 
        Pension expense 16  2 
        Changes in operating working capital 66  (588)
        Gain on subordinated interest   (453)
        Other, net (95) (109)
            Cash provided by operating activities 1,615  965 
Investing activities
Capital expenditures (222) (225)
Purchases of businesses, net of cash and equivalents acquired (1,611) (37)
Proceeds from subordinated interest   438 
Other, net 61  (17)
    Cash provided by (used in) investing activities (1,772) 159 
Financing activities
Net increase in short-term borrowings 60  871 
Proceeds from short-term borrowings greater than three months   1,040 
Proceeds from long-term debt   2,975 
Payments of long-term debt (301) (504)
Dividends paid (606) (613)
Purchases of common stock (78) (285)
Other, net 83  15 
    Cash provided by (used in) financing activities (842) 3,499 
Effect of exchange rate changes on cash and equivalents 26  (48)
Increase (Decrease) in cash and equivalents (973) 4,575 
Beginning cash and equivalents 3,315  2,354 
Ending cash and equivalents $ 2,342  6,929 
Changes in operating working capital
Receivables $ 75  (68)
Inventories (61) (428)
Other current assets (16) (24)
Accounts payable 55  18 
Accrued expenses 13  (86)
Total changes in operating working capital $ 66  (588)





See accompanying Notes to Consolidated Financial Statements.





5




Notes to Consolidated Financial Statements
EMERSON ELECTRIC CO. & SUBSIDIARIES

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

(1) BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary for a fair presentation of operating results for the interim periods presented. Adjustments consist of normal and recurring accruals. The consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all disclosures required for annual financial statements presented in conformity with U.S. generally accepted accounting principles (GAAP). For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2021.

Effective October 1, 2021, the Company adopted three accounting standard updates which had no impact or an immaterial impact on the Company's financial statements as of and for the six months ended March 31, 2022. These included:

Updates to 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.

(2) REVENUE RECOGNITION

Emerson is a global manufacturer that combines technology and engineering to provide innovative solutions to its customers, largely in the form of tangible products. The vast majority of the Company's revenues relate to a broad offering of manufactured products which are recognized at the point in time when control transfers, while a smaller portion is recognized over time or relates to sales arrangements with multiple performance obligations. See Note 13 for additional information about the Company's revenues.

The following table summarizes the balances of the Company's unbilled receivables (contract assets), which are reported in Other current assets, and its customer advances (contract liabilities), which are reported in Accrued expenses.     
Sept 30, 2021 Mar 31, 2022
Unbilled receivables (contract assets) $ 528  524 
Customer advances (contract liabilities) (730) (868)
      Net contract liabilities $ (202) (344)
    
The majority of the Company's contract balances relate to arrangements where revenue is recognized over time and payments from customers are made according to a contractual billing schedule. The increase in net contract liabilities was due to customer billings which exceeded revenue recognized for performance completed during the period. Revenue recognized for the three and six months ended March 31, 2022 included $108 and $456 that was included in the beginning contract liability balance. Other factors that impacted the change in net contract liabilities were immaterial. Revenue recognized for the three and six months ended March 31, 2022 for performance obligations that were satisfied in previous periods, including cumulative catchup adjustments on the Company's long-term contracts, was not material.





6





As of March 31, 2022, the Company's backlog relating to unsatisfied (or partially unsatisfied) performance obligations in contracts with its customers was approximately $7.8 billion. The Company expects to recognize approximately 85 percent of its remaining performance obligations as revenue over the next 12 months, with the remainder substantially over the subsequent two years thereafter.     

(3) COMMON SHARES AND SHARE-BASED COMPENSATION

Reconciliations of weighted-average shares for basic and diluted earnings per common share follow. Earnings allocated to participating securities were inconsequential.
Three Months Ended
March 31,
Six Months Ended
March 31,
  2021  2022  2021  2022 
Basic shares outstanding 599.4  593.3  599.0  593.9 
Dilutive shares 3.4  3.2  3.3  3.4 
Diluted shares outstanding 602.8  596.5  602.3  597.3 
 
The Company changed the terms of its annual performance share awards issued in the first quarter of fiscal 2022. The new terms meet the criteria for equity classification in accordance with ASC 718, Compensation - Stock Compensation, and therefore expense will be recognized on a fixed basis over the three-year performance period. The terms of the performance share awards issued in fiscal 2020 and 2021 are unchanged and will therefore continue to be accounted for as liability awards and marked-to-market each period based on changes in the stock price.

(4) ACQUISITIONS AND DIVESTITURES

On March 3, 2022 the Company announced an agreement to sell its Therm-O-Disc sensing and protection technologies business, which is reported in the Climate Technologies segment, to an affiliate of One Rock Capital Partners, LLC. Assets and liabilities for this business are reported as held-for-sale as of March 31, 2022 and included in other current assets, accrued expenses, other assets and other liabilities in the consolidated balance sheet. The transaction is expected to close in the third quarter subject to regulatory approvals and other customary closing conditions.

On October 11, 2021, the Company announced that it entered into a definitive agreement with Aspen Technology, Inc. ("AspenTech") to contribute two of Emerson's stand-alone industrial software businesses, Open Systems International, Inc. and the Geological Simulation Software business, along with approximately $6.0 billion in cash to AspenTech stockholders, to create "new AspenTech", a diversified, high-performance industrial software leader with greater scale, capabilities and technologies. Upon closing of the transaction, the Company will own 55 percent of new AspenTech and its results and financial position will be consolidated in Emerson's financial statements.

On October 1, 2020, the Company completed the acquisition of Open Systems International, Inc. ("OSI"), a leading operations technology software provider in the global power industry, for approximately $1.6 billion, net of cash acquired. This business, which had net sales of $191 in fiscal 2021 and is reported in the Automation Solutions segment, expands the Company's offerings in the power industry to include the digitization and modernization of the electric grid. The Company recognized goodwill of $967 (none of which is expected to be tax deductible), identifiable intangible assets of $783, primarily intellectual property and customer relationships with a weighted-average useful life of approximately 11 years, and deferred tax liabilities of approximately $193. Results of operations for the three months ended March 31, 2021 included first year pre-tax acquisition accounting charges related to backlog amortization and deferred revenue of $6 and $4, respectively, while year-to-date results included $17 and $8, respectively.

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 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





7




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.

(5) PENSION & POSTRETIREMENT PLANS

Total periodic pension and postretirement (income) expense is summarized below:
  Three Months Ended March 31, Six Months Ended March 31,
  2021  2022  2021  2022 
Service cost $ 21  19  42  38 
Interest cost 32  34  64  68 
Expected return on plan assets
(84) (78) (168) (156)
Net amortization 35  23  70  46 
Total $ 4  (2) 8  (4)

(6) OTHER DEDUCTIONS, NET

Other deductions, net are summarized below:
  Three Months Ended
March 31,
Six Months Ended
March 31,
  2021  2022  2021  2022 
Amortization of intangibles (intellectual property and customer relationships) $ 74  62  152  125 
Restructuring costs 17  10  83  19 
Other (58) (32) (80) (53)
Total $ 33  40  155  91 

In the second quarter of fiscal 2022, the decrease in intangibles amortization for the three and six months ended March 31, 2022 was largely due to backlog amortization of $6 and $17, respectively, in the prior year related to the OSI acquisition. Other is composed of several items, including acquisition/divestiture costs, foreign currency transaction gains and losses, pension expense and other items. For the three and six months ended March 31, 2022, the change in other included acquisition/divestiture costs of $13 and $36, respectively, and a favorable impact from foreign currency transactions of $9 and $35, respectively. In the first quarter of fiscal 2022, other also included gains from the sales of capital assets of $15. Comparisons were also impacted by prior year investment-related gains, including $21 from an investment sale and $17 from the acquisition of full ownership of an equity investment in the first quarter of fiscal 2021, and a gain of $31 from the sale of an equity investment in the second quarter of fiscal 2021.

(7) RESTRUCTURING COSTS

Restructuring expense reflects costs associated with the Company’s ongoing efforts to improve operational efficiency and deploy assets globally in order to remain competitive on a worldwide basis. Costs incurred in the first six months of fiscal 2022 relate to the Company's initiatives that began in the third quarter of fiscal 2019 to improve operating margins and were subsequently increased in response to the effects of the COVID-19 pandemic on demand for the Company's products. Expenses incurred in the first six months of fiscal 2022 included costs related to workforce reductions of approximately 200 employees. The Company expects fiscal 2022 restructuring expense and related costs to be approximately $150, including costs to complete actions initiated in the first six months of the year.






8




Restructuring expense by business segment follows:
  Three Months Ended
March 31,
Six Months Ended
March 31,
  2021  2022  2021  2022 
Automation Solutions $ 12  8  76  13 
Climate Technologies 3  1  4  3 
Tools & Home Products 1  1  2  2 
Commercial & Residential Solutions 4  2  6  5 
Corporate 1    1  1 
Total $ 17  10  83  19 

Details of the change in the liability for restructuring costs during the six months ended March 31, 2022 follow:
  Sept 30, 2021 Expense Utilized/Paid Mar 31, 2022
Severance and benefits $ 172  5  32  145 
Other 4  14  17  1 
Total $ 176  19  49  146 

The tables above do not include $4 and $5 of costs related to restructuring actions incurred for the three months ended March 31, 2021 and 2022, respectively, that are required to be reported in cost of sales and selling, general and administrative expenses; year-to-date amounts are $7 and $14, respectively.
 
(8) TAXES

Income taxes were $136 in the second quarter of fiscal 2022 and $169 in 2021, resulting in effective tax rates of 17 percent and 23 percent, respectively. The current year rate included a 6 percentage point benefit related to the completion of tax examinations, while both years included unfavorable discrete items which increased the rates 1 percentage point.

Income taxes were $416 for the first six months of 2022 and $280 for 2021, resulting in effective tax rates of 21 percent and 22 percent, respectively. The current year rate included a 3 percentage point benefit related to the completion of tax examinations, partially offset by portfolio restructuring activities which negatively impacted the rate by 2 percentage points.

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

(9) OTHER FINANCIAL INFORMATION

Sept 30, 2021 Mar 31, 2022
Inventories
Finished products $ 616  764 
Raw materials and work in process 1,434  1,635 
Total $ 2,050  2,399 





9




Sept 30, 2021 Mar 31, 2022
Property, plant and equipment, net    
Property, plant and equipment, at cost $ 9,427  9,198 
Less: Accumulated depreciation 5,689  5,631 
     Total $ 3,738  3,567 
Goodwill by business segment
Automation Solutions $ 6,552  6,504 
Climate Technologies 753  723 
Tools & Home Products 418  404 
Commercial & Residential Solutions 1,171  1,127 
     Total $ 7,723  7,631 
Other intangible assets    
Gross carrying amount $ 5,911  5,897 
Less: Accumulated amortization 3,034  3,198 
     Net carrying amount $ 2,877  2,699 
Other intangible assets include customer relationships, net, of $1,495 and $1,401 as of September 30, 2021 and March 31, 2022, respectively.
Three Months Ended March 31, Six Months Ended March 31,
2021  2022  2021  2022 
Depreciation and amortization expense include the following:
Depreciation expense $ 122  121  246  249 
Amortization of intangibles (includes $14, $14, $28, and $28 reported in Cost of Sales, respectively)
88  76  180  153 
Amortization of capitalized software 29  24  57  50 
Total $ 239  221  483  452 
Amortization of intangibles included backlog amortization of $6 and $17 related to the OSI acquisition for the three and six months ended March 31, 2021, respectively.
Sept 30, 2021 Mar 31, 2022
Other assets include the following:
Pension assets $ 1,015  1,076 
Operating lease right-of-use assets 558  523 
Deferred income taxes 115  103 
Asbestos-related insurance receivables 95  88 
Accrued expenses include the following:
Customer advances (contract liabilities) $ 730  868 
Employee compensation 690  493 
Operating lease liabilities (current) 155  151 
Product warranty 146  137 





10




Sept 30, 2021 Mar 31, 2022
Other liabilities include the following:    
Deferred income taxes $ 711  750 
Pension and postretirement liabilities 676  666 
Operating lease liabilities (noncurrent) 413  382 
Asbestos litigation 256  242 
(10) DEBT
In December 2021, the Company issued $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. The Company expects to use the net proceeds from the sale of the notes to pay a portion of its contribution of approximately $6.0 billion to existing stockholders of AspenTech as part of the transaction discussed further in Note 4. If the transaction with AspenTech is not completed or is terminated, the Company will be required to redeem the notes at a redemption price equal to 101% of the principal amount plus accrued and unpaid interest.
In the second quarter of fiscal 2022, the Company increased its commercial paper borrowings by approximately $2.2 billion to generate additional cash to fund the AspenTech transaction.

In the first quarter of fiscal 2022, the Company repaid $500 of 2.625% notes that matured.

(11) FINANCIAL INSTRUMENTS
Hedging Activities – As of March 31, 2022, the notional amount of foreign currency hedge positions was approximately $2.6 billion, and commodity hedge contracts totaled approximately $120 (primarily 32 million pounds of copper and aluminum). All derivatives receiving hedge accounting are cash flow hedges. The majority of hedging gains and losses deferred as of March 31, 2022 are expected to be recognized over the next 12 months as the underlying forecasted transactions occur. Gains and losses on foreign currency derivatives reported in Other deductions, net reflect hedges of balance sheet exposures that do not receive hedge accounting.
Net Investment Hedge – In fiscal 2019, the Company issued euro-denominated debt of €1.5 billion. The euro notes reduce foreign currency risk associated with the Company's international subsidiaries that use the euro as their functional currency and have been designated as a hedge of a portion of the investment in these operations. Foreign currency gains or losses associated with the euro-denominated debt are deferred in accumulated other comprehensive income (loss) and will remain until the hedged investment is sold or substantially liquidated.
The following gains and losses are included in earnings and other comprehensive income (OCI) for the three and six months ended March 31, 2021 and 2022:
Into Earnings Into OCI
2nd Quarter Six Months 2nd Quarter Six Months
Gains (Losses) Location 2021  2022  2021  2022  2021  2022  2021  2022 
Commodity Cost of sales $ 8  6  11  13  13  10  26  23 
Foreign currency
Sales
1    2  1  (2) (2) 3  (2)
Foreign currency
Cost of sales
2  9  2  11    14  27  17 
Foreign currency
Other deductions, net
29  8  25  52 
Net Investment Hedges
Euro denominated debt 53  35  (27) 79 
     Total   $ 40  23  40  77  64  57  29  117 

Regardless of whether derivatives and non-derivative financial instruments receive hedge accounting, the Company expects hedging gains or losses to be offset by losses or gains on the related underlying exposures. The amounts ultimately recognized will differ from those presented above for open positions, which remain subject to ongoing market price fluctuations until settlement. Derivatives receiving hedge accounting are highly effective and no amounts were excluded from the assessment of hedge effectiveness.





11




Fair Value Measurement – Valuations for all derivatives and the Company's long-term debt fall within Level 2 of the GAAP valuation hierarchy. As of March 31, 2022, the fair value of long-term debt was $8.5 billion, which exceeded the carrying value by $230. The fair values of commodity and foreign currency contracts were reported in Other current assets and Accrued expenses and did not materially change since September 30, 2021.
Counterparties to derivatives arrangements are companies with investment-grade credit ratings. The Company has bilateral collateral arrangements with counterparties with credit rating-based posting thresholds that vary depending on the arrangement. If credit ratings on the Company's debt fall below pre-established levels, counterparties can require immediate full collateralization of all derivatives in net liability positions. The maximum amount that could potentially have been required was immaterial. The Company also can demand full collateralization of derivatives in net asset positions should any counterparty credit ratings fall below certain thresholds. No collateral was posted with counterparties and none was held by the Company as of March 31, 2022.

(12) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Activity in Accumulated other comprehensive income (loss) for the three and six months ended March 31, 2021 and 2022 is shown below, net of income taxes: 
Three Months Ended March 31, Six Months Ended March 31,
2021  2022  2021  2022 
Foreign currency translation
   Beginning balance $ (522) (701) (711) (629)
   Other comprehensive income (loss), net of tax of $(13), $(8), $6 and $(18), respectively
(20) (59) 169  (131)
   Ending balance (542) (760) (542) (760)
Pension and postretirement
   Beginning balance (837) (241) (864) (259)
Amortization of deferred actuarial losses into earnings, net of tax of $(8), $(5), $(16) and $(10), respectively
27  18  54  36 
   Ending balance (810) (223) (810) (223)
Cash flow hedges
   Beginning balance 29  20  (2) 16 
Gains deferred during the period, net of taxes of $(2), $(5), $(13) and $(9), respectively
9  17  43  29 
   Reclassification of realized (gains) losses to sales and cost of sales, net of tax of $3, $4, $4 and $6, respectively
(8) (11) (11) (19)
   Ending balance 30  26  30  26 
Accumulated other comprehensive income (loss) $ (1,322) (957) (1,322) (957)






12




(13) BUSINESS SEGMENTS

Summarized information about the Company's results of operations by business segment follows:
  Three Months Ended March 31, Six Months Ended March 31,
  Sales Earnings Sales Earnings
  2021  2022  2021  2022  2021  2022  2021  2022 
Automation Solutions $ 2,793  2,937  471  556  5,485  5,742  832  1,082 
Climate Technologies 1,160  1,341  245  262  2,191  2,504  457  454 
Tools & Home Products 485  516  112  103  930  1,024  210  210 
Commercial & Residential Solutions
1,645  1,857  357  365  3,121  3,528  667  664 
Stock compensation
(61) (50) (125) (91)
Unallocated pension and postretirement costs 23  25  47  51 
Corporate and other (15) (33) (43) (83)
Gain on subordinated interest       453 
Eliminations/Interest (7) (3) (38) (52) (14) (6) (78) (90)
     Total $ 4,431  4,791  737  811  8,592  9,264  1,300  1,986 

Automation Solutions sales by major product offering are summarized below.
  Three Months Ended March 31, Six Months Ended March 31,
  2021  2022  2021  2022 
Measurement & Analytical Instrumentation $ 732  767  1,430  1,502 
Valves, Actuators & Regulators 836  883  1,642  1,699 
Industrial Solutions 555  602  1,063  1,168 
Systems & Software 670  685  1,350  1,373 
     Automation Solutions $ 2,793  2,937  5,485  5,742 

Depreciation and amortization (includes intellectual property, customer relationships and capitalized software) by business segment are summarized below:
Three Months Ended March 31, Six Months Ended March 31,
2021  2022  2021  2022 
Automation Solutions $ 156  147  312  302 
Climate Technologies 47  46  96  93 
Tools & Home Products 20  19  39  39 
Commercial & Residential Solutions 67  65  135  132 
Corporate and other 16  9  36  18 
     Total $ 239  221  483  452 







13




Sales by geographic destination are summarized below:
Three Months Ended March 31,
2021 2022
  Automation Solutions Commercial & Residential Solutions Total Automation Solutions Commercial & Residential Solutions Total
Americas $ 1,223  1,119  2,342  1,383  1,283  2,666 
Asia, Middle East & Africa 953  305  1,258  995  338  1,333 
Europe 617  221  838  559  236  795 
     Total $ 2,793  1,645  4,438  2,937  1,857  4,794 
Six Months Ended March 31,
2021 2022
Automation Solutions Commercial & Residential Solutions Total Automation Solutions Commercial & Residential Solutions Total
Americas $ 2,390  2,100  4,490  2,624  2,427  5,051 
Asia, Middle East & Africa 1,896  613  2,509  2,000  660  2,660 
Europe 1,199  408  1,607  1,118  441  1,559 
     Total $ 5,485  3,121  8,606  5,742  3,528  9,270 


(14) SUBSEQUENT EVENTS
On May 4, 2022, Emerson announced its intention to exit business operations in Russia and is exploring strategic options to divest Metran, its Russia-based manufacturing subsidiary. Emerson is committed to an orderly transfer of these assets and will support its employees through this process. Emerson's historical net sales in Russia were principally in the Automation Solutions segment and in total, represent approximately 1.5 percent of consolidated annual sales. As of March 31, 2022, Emerson's Russian operations had net assets of approximately $50 and accumulated foreign currency translation losses of approximately $145 (which will be recognized as a non-cash charge when the exit is completed). The Company is currently unable to estimate the full financial consequences of the exit due to uncertainty regarding the commercial terms of the exit and related tax impacts.





14




Items 2 and 3.

Management's Discussion and Analysis of Financial Condition and Results of Operations 
(Dollars are in millions, except per share amounts or where noted)

OVERVIEW

For the second quarter of fiscal 2022, net sales were $4.8 billion, up 8 percent compared with the prior year. Underlying sales, which exclude foreign currency translation, acquisitions and divestitures, were up 10 percent. Foreign currency translation had a 2 percent unfavorable impact. Sales growth continued to be strong in the quarter with favorable results across both business platforms and all geographies.
Net earnings common stockholders were $674, up 20 percent, and diluted earnings per share were $1.13, up 22 percent compared with $0.93 in the prior year. Adjusted diluted earnings per share were $1.29 compared with $1.07 in the prior year, reflecting strong operating results and a lower effective tax rate in the quarter.

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.

Three Months Ended Mar 31 2021 2022
Diluted earnings per share $ 0.93  1.13 
    Restructuring and related costs 0.03  0.02 
    Amortization of intangibles 0.10  0.10 
    Acquisition/divestiture costs and interest on AspenTech debt —  0.04 
    OSI first year acquisition accounting charges 0.01   
Adjusted diluted earnings per share $ 1.07  1.29 

The table below summarizes the changes in adjusted diluted earnings per share. The items identified below are discussed throughout MD&A, see further discussion above and in the Business Segments and Financial Position sections below.

Three Months Ended
Adjusted diluted earnings per share - Mar 31, 2021
$ 1.07 
    Operations 0.11 
    Stock compensation 0.02 
    Pensions 0.01 
    Gain on sale of investment - prior year (0.04)
    Foreign currency 0.01 
    Lower effective tax rate 0.08 
    Share repurchases 0.03 
Adjusted diluted earnings per share - Mar 31, 2022
$ 1.29 





15




RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31

Following is an analysis of the Company’s operating results for the second quarter ended March 31, 2021, compared with the second quarter ended March 31, 2022.
2021 2022 Change
Net sales $ 4,431  4,791  %
Gross profit $ 1,862  1,952  %
Percent of sales 42.0  % 40.7  %  
SG&A $ 1,054  1,049  —  %
Percent of sales 23.8  % 21.9  %  
Other deductions, net $ 33  40   
Amortization of intangibles $ 74  62 
Restructuring costs $ 17  10 
Interest expense, net $ 38  52   
Earnings before income taxes $ 737  811  10  %
Percent of sales 16.6  % 16.9  %  
Net earnings common stockholders $ 561  674  20  %
Percent of sales 12.7  % 14.1  %  
Diluted earnings per share $ 0.93  1.13  22  %

Net sales for the second quarter of fiscal 2022 were $4.8 billion, up 8 percent compared with 2021. Automation Solutions sales were up 5 percent and Commercial & Residential Solutions sales were up 13 percent. Underlying sales were up 10 percent on 6 percent higher volume and 4 percent higher price, while foreign currency translation had a 2 percent negative impact. Underlying sales were up 14 percent in the U.S. and up 6 percent internationally. The Americas was up 14 percent, Europe was up 2 percent and Asia, Middle East & Africa was up 7 percent (China up 11 percent).

Cost of sales for the second quarter of fiscal 2022 were $2,839, an increase of $270 compared with 2021, due to higher sales volume and higher materials costs. Gross margin of 40.7 percent decreased 1.3 percentage points compared with the prior year as price increases were largely offset by higher material costs, and other inflation negatively impacted margins.
Selling, general and administrative (SG&A) expenses of $1,049 decreased $5 and SG&A as a percent of sales decreased 1.9 percentage points to 21.9 percent compared with the prior year, reflecting leverage on higher sales, lower stock compensation expense of $11 and savings from the Company's cost reset actions, partially offset by wage and other inflation.

Other deductions, net were $40 in 2022, an increase of $7 compared with the prior year, reflecting acquisition/divestiture costs of $13, a decline in restructuring costs of $7 and a favorable impact from foreign currency transactions of $9. Intangibles amortization was lower by $12, partially due to backlog amortization of $6 in the prior year related to the OSI acquisition. The prior year also included a gain on the sale of an equity investment of $31. See Notes 6 and 7.

Pretax earnings of $811 increased $74, up 10 percent compared with the prior year. Earnings increased $85 in Automation Solutions and increased $8 in Commercial & Residential Solutions, while costs reported at Corporate increased $5. See the Business Segments discussion that follows and Note 13.

Income taxes were $136 in the second quarter of fiscal 2022 and $169 in 2021, resulting in effective tax rates of 17 percent and 23 percent, respectively. The current year rate included a 6 percentage point benefit related to the completion of tax examinations, while both years included unfavorable discrete items which increased the rates 1 percentage point.






16




Net earnings common stockholders in the second quarter of fiscal 2022 were $674, up 20 percent, compared with $561 in the prior year, and earnings per share were $1.13, up 22 percent, compared with $0.93 in the prior year. See discussion in the Overview above and the analysis below of adjusted earnings per share for further details.

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.

Three Months Ended Mar 31 2021 2022 Change
Earnings before income taxes $ 737  811  10  %
      Percent of sales 16.6  % 16.9  %
    Interest expense, net 38  52 
    Restructuring and related costs 21  15 
    Amortization of intangibles 82  76 
    Acquisition/divestiture costs —  13 
    OSI first year acquisition accounting charges 10   
Adjusted EBITA $ 888  967  %
      Percent of sales 20.0  % 20.2  %



Business Segments
Following is an analysis of operating results for the Company’s business segments for the second quarter ended March 31, 2021, compared with the second quarter ended March 31, 2022. The Company defines segment earnings as earnings before interest and taxes. See Note 13 for a discussion of the Company's business segments.

AUTOMATION SOLUTIONS
Three Months Ended Mar 31 2021 2022 Change
Sales $ 2,793  2,937  %
Earnings $ 471  556  18  %
     Margin 16.8  % 18.9  %  
   Restructuring and related costs $ 14  11 
   Amortization of intangibles $ 69  64 
Adjusted EBITA $ 554  631  15  %
   Adjusted EBITA Margin 19.8  % 21.5  %

Sales by Major Product Offering
Measurement & Analytical Instrumentation $ 732  767  %
Valves, Actuators & Regulators 836  883  %
Industrial Solutions 555  602  %
Systems & Software 670  685  %
     Total $ 2,793  2,937  %
Automation Solutions sales were $2.9 billion in the second quarter, an increase of $144 or 5 percent. Foreign currency translation had a 2 percent unfavorable impact. Underlying sales increased 7 percent on 5 percent higher volume and 2 percent higher price, reflecting strength in North America and China and favorable results in all major end markets. Supply chain and logistics constraints continued to unfavorably impact sales in the second quarter. Underlying sales





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increased 13 percent in the Americas (U.S. up 14 percent), as process end markets continue to recover, while Europe was down 3 percent, and Asia, Middle East & Africa increased 6 percent (China up 17 percent). Sales for Measurement & Analytical Instrumentation increased $35, or 5 percent as market conditions continued to improve for North American process industries. Measurement & Analytical sales were strong in North America and Asia, Middle East & Africa, with China up over 25 percent, while Europe was down over 10 percent due to supply chain issues and lower project activity. Valves, Actuators & Regulators increased $47, or 6 percent, reflecting strength in power and chemical end markets. Demand was favorable in the Americas (up mid-teens) and China (up over 20 percent), while sales increased modestly in the rest of Asia, Middle East & Africa and were down mid-single digits in Europe. Industrial Solutions sales were up $47, or 8 percent, on continued strength in discrete end markets. Systems & Software increased $15, or 2 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. Earnings were $556, an increase of $85, or 18 percent, and margin increased 2.1 percentage points to 18.9 percent, reflecting leverage on higher volume, favorable mix, savings from cost reduction actions and a 0.3 percentage point benefit from foreign currency transactions. Price-cost was neutral while freight and other inflation was slightly negative.

COMMERCIAL & RESIDENTIAL SOLUTIONS
Three Months Ended Mar 31 2021 2022 Change
Sales:
  Climate Technologies $ 1,160  1,341  16  %
  Tools & Home Products 485  516  %
     Total $ 1,645  1,857  13  %
Earnings:
  Climate Technologies $ 245  262  %
  Tools & Home Products 112  103  (7) %
     Total $ 357  365  %
     Margin 21.7  % 19.7  %  
   Restructuring and related costs $ 3 
   Amortization of intangibles $ 13  12 
Adjusted EBITA $ 375  380  %
   Adjusted EBITA Margin 22.8  % 20.5  %

Commercial & Residential Solutions sales were $1.9 billion in the second quarter, up $212, or 13 percent compared to the prior year. Foreign currency translation had a 1 percent unfavorable impact. Underlying sales increased 14 percent on 5 percent higher volume and 9 percent higher price, reflecting growth across nearly all businesses and geographies, with strength in commercial and industrial end markets. Overall, underlying sales increased 15 percent in the Americas (U.S. up 15 percent), 14 percent in Europe and 11 percent in Asia, Middle East & Africa (China down 6 percent). Climate Technologies sales were $1.3 billion in the second quarter, an increase of $181, or 16 percent. Air conditioning, heating and refrigeration sales were strong, reflecting global demand across all end markets. Tools & Home Products sales were $516 in the second quarter, an increase of $31, or 6 percent. Sales of food waste disposers and professional tools were both up approximately 10 percent, while wet/dry vacuums sales decreased 9 percent. Earnings were $365, up 2 percent compared with the prior year driven by slightly favorable price-cost due to higher prices. Margin decreased 2.0 percentage points to 19.7 percent, as the benefit from higher prices was mostly offset by higher materials costs. Freight and other inflation also negatively impact margin, partially offset by leverage on higher sales volume and savings from cost reduction actions.






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RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31

Following is an analysis of the Company’s operating results for the six months ended March 31, 2021, compared with the six months ended March 31, 2022.
2021 2022 Change
Net sales $ 8,592  9,264  %
Gross profit $ 3,585  3,774  %
Percent of sales 41.7  % 40.7  %  
SG&A $ 2,052  2,060  —  %
Percent of sales 23.9  % 22.2  %  
Gain on subordinated interest $ —  (453)
Other deductions, net $ 155  91   
Amortization of intangibles $ 152  125 
Restructuring costs $ 83  19 
Interest expense, net $ 78  90   
Earnings before income taxes $ 1,300  1,986  53  %
Percent of sales 15.1  % 21.4  %  
Net earnings common stockholders $ 1,006  1,570  56  %
Percent of sales 11.7  % 16.9  %  
Diluted earnings per share $ 1.67  2.63  57  %

Net sales for the first six months of 2022 were $9.3 billion, up 8 percent compared with 2021. Automation Solutions sales were up 5 percent while Commercial & Residential Solutions sales were up 13 percent. Underlying sales were up 9 percent on 5 percent higher volume and 4 percent higher price, and foreign currency translation subtracted 1 percent. Underlying sales increased 12 percent in the U.S. and increased 6 percent internationally. The Americas was up 13 percent, Europe was up 2 percent and Asia, Middle East & Africa was up 7 percent (China up 11 percent).

Cost of sales for 2022 were $5,490, an increase of $483 versus $5,007 in 2021, primarily due to higher sales volume and higher materials costs. Gross margin of 40.7 percent decreased 1.0 percentage point compared to the prior year, reflecting unfavorable price-cost in Commercial & Residential Solutions, partially offset by leverage on higher sales volume and favorable mix.

SG&A expenses of $2,060 increased $8 compared with the prior year on increased sales volume, partially offset by lower stock compensation expense of $34. SG&A as a percent of sales decreased 1.7 percentage points to 22.2 percent, reflecting leverage on higher sales, lower stock compensation expense, and savings from the Company's restructuring and cost reset actions.

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 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.
Other deductions, net were $91 in 2022, a decrease of $64 compared with the prior year, reflecting a decline in restructuring costs of $64, a favorable impact from foreign currency transactions of $35 due to losses in the prior year and gains in the current year, and gains from the sales of capital assets of $15 in the first quarter of fiscal 2022, partially offset by acquisition/divestiture costs of $36. Intangibles amortization decreased $27 largely due to backlog





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amortization in the prior year of $17 related to the OSI acquisition. The prior year also included investment-related gains, including a gain of $21 from an investment sale, a $17 gain from the acquisition of full ownership of an equity investment and a gain of $31 on the sale of an equity investment. See Notes 6 and 7.
Pretax earnings of $1,986 increased $686, or 53 percent. Earnings increased $250 in Automation Solutions and decreased $3 in Commercial & Residential Solutions, while costs reported at Corporate increased $2. See the Business Segments discussion that follows and Note 13.

Income taxes were $416 for 2022 and $280 for 2021, resulting in effective tax rates of 21 percent and 22 percent, respectively. The current year rate included a 3 percentage point benefit related to the completion of tax examinations, partially offset by portfolio restructuring activities which negatively impacted the rate by 2 percentage points.

Net earnings common stockholders in 2022 were $1,570, up 56 percent compared with the prior year, and earnings per share were $2.63, up 57 percent compared with $1.67 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. See the analysis below of adjusted earnings per share for further details.

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.

Six Months Ended Mar 31 2021 2022 Change
Earnings before income taxes $ 1,300  1,986  53  %
      Percent of sales 15.1  % 21.4  %
    Interest expense, net 78  90 
    Restructuring and related costs 90  33 
    Amortization of intangibles 163  153 
    Gain on subordinated interest —  (453)
    Acquisition/divestiture costs —  36 
    Gain on acquisition of full ownership of equity investment (17)  
    OSI first year acquisition accounting charges and fees 31   
Adjusted EBITA $ 1,645  1,845  12  %
      Percent of sales 19.2  % 19.9  %






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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.

Six Months Ended Mar 31 2021 2022
Diluted earnings per share $ 1.67  2.63 
    Restructuring and related costs 0.12  0.04 
    Amortization of intangibles 0.20  0.20 
    Gain on subordinated interest —  (0.60)
    Acquisition/divestiture costs and interest on AspenTech debt —  0.07 
    Gain on acquisition of full ownership of equity investment (0.03)  
    OSI first year acquisition accounting charges and fees 0.04   
Adjusted diluted earnings per share $ 2.00  2.34

The table below summarizes the changes in adjusted diluted earnings per share. The items identified below are discussed throughout MD&A, see further discussion above and in the Business Segments and Financial Position sections below.

Six Months Ended
Adjusted diluted earnings per share - Mar 31, 2021
$ 2.00 
    Operations 0.21 
    Stock compensation 0.05 
    Pensions 0.03 
    Gains on sales of investments - prior year (0.07)
    Gains on sales of capital assets - current year 0.02 
    Foreign currency 0.03 
    Lower effective tax rate 0.02 
    Share repurchases 0.05 
Adjusted diluted earnings per share - Mar 31, 2022
$ 2.34 





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Business Segments
Following is an analysis of operating results for the Company’s business segments for the six months ended March 31, 2021, compared with the six months ended March 31, 2022. The Company defines segment earnings as earnings before interest and taxes.

 AUTOMATION SOLUTIONS
Six Months Ended Mar 31 2021 2022 Change
Sales $ 5,485  5,742  %
Earnings $ 832  1,082  30  %
     Margin 15.2  % 18.8  %  
Restructuring and related costs $ 78  23 
Amortization of intangibles $ 137  129 
Adjusted EBITA $ 1,047  1,234  18  %
Adjusted EBITA Margin 19.1  % 21.5  %
Sales by Major Product Offering
Measurement & Analytical Instrumentation $ 1,430  1,502  %
Valves, Actuators & Regulators 1,642  1,699  %
Industrial Solutions 1,063  1,168  10  %
Systems & Software 1,350  1,373  %
     Total $ 5,485  5,742  %

Automation Solutions sales were $5.7 billion in the first six months of 2022, an increase of $257, or 5 percent. Foreign currency translation had a 1 percent unfavorable impact. Underlying sales increased 6 percent on 5 percent higher volume and 1 percent higher price, reflecting continued recovery in most end markets and world areas despite supply chain and logistics constraints which unfavorably impacted sales. Underlying sales increased 10 percent in the Americas, while Europe decreased 2 percent and Asia, Middle East & Africa was up 6 percent (China up 17 percent). Sales for Measurement & Analytical Instrumentation increased $72, or 5 percent. Sales were strong in Asia, Middle East & Africa and up moderately in North America on continued improvement for North American process industries, while sales were down moderately in Europe due to supply chain constraints. Valves, Actuators & Regulators increased $57, or 3 percent, reflecting strong demand in the Americas and China, partially offset by softness in the rest of Asia, Middle East & Africa and Europe. Industrial Solutions sales increased $105, or 10 percent, reflecting strong global demand in discrete end markets. Systems & Software increased $23, or 2 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 Asia, Middle East & Africa and up modestly in North America. Earnings were $1,082, an increase of $250, or 30 percent, and margin increased 3.6 percentage points to 18.8 percent, reflecting leverage on higher volume, lower restructuring expense which benefited margins 1.0 percentage point, savings from cost reduction actions and favorable mix, partially offset by higher inflation. Foreign currency transactions also benefited margins by 0.4 percentage points.








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COMMERCIAL & RESIDENTIAL SOLUTIONS
Six Months Ended Mar 31 2021 2022 Change
Sales:
  Climate Technologies $ 2,191  2,504  14  %
  Tools & Home Products 930  1,024  10  %
     Total $ 3,121  3,528  13  %
Earnings:
  Climate Technologies $ 457  454  (1) %
  Tools & Home Products 210  210  —  %
     Total $ 667  664  —  %
     Margin 21.4  % 18.8  %  
Restructuring and related costs $ 7 
Amortization of intangibles $ 26  24 
Adjusted EBITA $ 701  695  (1) %
Adjusted EBITA Margin 22.4  % 19.7  %

Commercial & Residential Solutions sales were $3.5 billion in the first six months of 2022, an increase of $407, or 13 percent compared to the prior year. Underlying sales were up 14 percent on 6 percent higher volume and 8 percent higher price, while foreign currency translation subtracted 1 percent. Overall, underlying sales increased 16 percent in the Americas, 14 percent in Europe and 7 percent in Asia, Middle East & Africa (China down 3 percent). Climate Technologies sales were $2.5 billion in the first six months of 2022, an increase of $313, or 14 percent. Air conditioning, heating and refrigeration sales were strong, reflecting global demand across all end markets. Tools & Home Products sales were $1.0 billion in the first six months of 2022, up $94, or 10 percent. Sales of professional tools were up nearly 15 percent and food waste disposers were up 10 percent, while wet/dry vacuums were up slightly. Earnings were $664, flat compared to the prior year, and margin decreased 2.6 percentage points, due to unfavorable price-cost reflecting steel prices, partially offset by leverage on higher volume and savings from cost reduction actions.






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FINANCIAL CONDITION
Key elements of the Company's financial condition for the six months ended March 31, 2022 as compared to the year ended September 30, 2021 and the six months ended March 31, 2021 follow.
  Mar 31, 2021 Sept 30, 2021 Mar 31, 2022
Operating working capital $ 781  $ 704  $ 1,300 
Current ratio 1.3  1.3  1.7 
Total debt-to-total capital 44.4  % 40.3  % 50.9  %
Net debt-to-net capital 35.1  % 30.4  % 27.6  %
Interest coverage ratio 16.6  X 18.6  X 21.5  X
The Company's operating working capital increased compared to the same quarter last year and compared to September 30, 2021 due to higher inventory levels to support sales growth and reflecting ongoing supply chain and logistics constraints. The increase in the current ratio reflects increased cash from the Company's $3 billion of debt issued in the first quarter of fiscal 2022 to support the AspenTech transaction and cash received in the first quarter related to the Vertiv subordinated interest of $438. The interest coverage ratio (earnings before income taxes plus interest expense, divided by interest expense) of 21.5X for the first six months of fiscal 2022 compares to 16.6X for the six months ended March 31, 2021. The increase reflects higher pretax earnings in the current year, including the Vertiv subordinated interest gain of $453. Excluding the gain, the interest coverage ratio was 16.8X.
In December 2021, the Company issued $1 billion of 2.00% notes due 2028, $1 billion of 2.20% notes due 2031 and $1 billion of 2.80% notes due 2051. The net proceeds from the sale of the notes will be used to pay a portion of the Company's contribution of approximately $6.0 billion to existing stockholders of Aspen Technology, Inc. (“AspenTech”) as part of the AspenTech transaction. In the second quarter of fiscal 2022, the Company increased its commercial paper borrowings by approximately $2.2 billion to generate additional cash to fund the AspenTech transaction. The Company expects to finance the remainder of the contribution through existing sources, including cash on hand, short-term debt capacity, and cash from operations. See Note 4 and Note 10.
Operating cash flow for the first six months of fiscal 2022 was $965, a decrease of $650 compared with $1,615 in the prior year due to higher inventory levels to support sales growth and reflecting ongoing supply chain and logistics constraints. Operating cash flow was also negatively impacted by approximately $45 of taxes paid in the second quarter of fiscal 2022 on the Vertiv subordinated interest gain. The remaining taxes owed on the gain are approximately $45 and are expected to be paid by the end of fiscal 2022. Free cash flow of $740 in the first six months of fiscal 2022 (operating cash flow of $965 less capital expenditures of $225) decreased $653 compared to free cash flow of $1,393 in 2021 (operating cash flow of $1,615 less capital expenditures of $222), reflecting the decrease in operating cash flow. Cash provided by investing activities was $159, reflecting cash received related to the Vertiv subordinated interest of $438. Cash provided by financing activities was $3,499, primarily due to proceeds of nearly $3 billion from the December 2021 debt issuance and increased commercial paper borrowings of $2.2 billion to fund the AspenTech transaction, partially offset by the repayment of $500 of long-term debt, dividend payments, and share repurchases.
On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic, and among other things, provides tax relief to businesses. Tax provisions of the CARES Act include the deferral of certain payroll taxes, relief for retaining employees, and other provisions. The Company deferred $73 of certain payroll taxes through the end of calendar year 2020, of which approximately $37 was paid in December 2021 with the remaining amount due in December 2022.
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 is in a strong financial position, with total assets of $29 billion and stockholders' equity of $11 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.






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FISCAL 2022 OUTLOOK
Emerson continues to see strong overall business performance while managing continued macroeconomic and geopolitical uncertainty, supply chain constraints and challenges related to COVID-19. For the full year, consolidated net sales are expected to be up 8 to 10 percent, with underlying sales up 9 to 11 percent excluding a 1 percent unfavorable impact from foreign currency translation. Automation Solutions net sales are expected to be up 6 to 8 percent, with underlying sales up 7 to 9 percent excluding a 1 percent unfavorable impact from foreign currency translation. Commercial & Residential Solutions net sales are expected to be up 11 to 13 percent with underlying sales up 12 to 14 percent excluding a 1 percent unfavorable impact from foreign currency translation. Earnings per share are expected to be $4.77 to $4.92, while adjusted earnings per share are expected to be $4.95 to $5.10. Adjusted earnings per share exclude a $0.20 impact from restructuring actions, a $0.39 impact from amortization of intangibles, a $0.60 gain from the Vertiv subordinated interest (see Note 4), and a $0.19 impact from transaction and Aspen Tech pre-closing costs. Operating cash flow is expected to be approximately $3.6 billion and free cash flow, which excludes projected capital spending of $600 million, is expected to be approximately $3.0 billion. Share repurchases are expected to be approximately $250 to $500 million in fiscal 2022. Emerson's guidance excludes the operational impact of the transaction with AspenTech, which is expected to close in the second calendar quarter of 2022, but does include estimated transaction fees and interest expense on $3 billion of debt already issued to fund the transaction. The guidance also excludes the effect of the Therm-O-Disc sale, expected to close in the second calendar quarter of 2022. The guidance includes the operational impact of exiting the Russia business, discussed below, but excludes any potential charges or other costs associated with the exit.
Statements in this report that are not strictly historical may be "forward-looking" statements, which involve risks and uncertainties, and Emerson undertakes no obligation to update any such statements to reflect later developments. These risks and uncertainties include the Company's ability to successfully complete on the terms and conditions contemplated, and the financial impact of, the proposed AspenTech transaction, the scope, duration and ultimate impact of the COVID-19 pandemic, and the Russia-Ukraine conflict, as well as economic and currency conditions, market demand, including related to the pandemic and oil and gas price declines and volatility, pricing, protection of intellectual property, cybersecurity, tariffs, competitive and technological factors, inflation, among others, which are set forth in the “Risk Factors” of Part I, Item 1A, and the "Safe Harbor Statement" of Part II, Item 7, to the Company's Annual Report on Form 10-K for the year ended September 30, 2021 and in subsequent reports filed with the SEC, which are hereby incorporated by reference.
On May 4, 2022, Emerson announced its intention to exit business operations in Russia and is exploring strategic options to divest Metran, its Russia-based manufacturing subsidiary. Emerson is committed to an orderly transfer of these assets and will support its employees through this process. Emerson's historical net sales in Russia were principally in the Automation Solutions segment and in total, represent approximately 1.5 percent of consolidated annual sales. As of March 31, 2022, Emerson's Russian operations had net assets of approximately $50 and accumulated foreign currency translation losses of approximately $145 (which will be recognized as a non-cash charge when the exit is completed). The Company is currently unable to estimate the full financial consequences of the exit due to uncertainty regarding the commercial terms of the exit and related tax impacts.
Item 4. Controls and Procedures 
The Company maintains a system of disclosure controls and procedures designed to ensure that information required to be disclosed in its reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported in a timely manner. This system also is designed to ensure information is accumulated and communicated to management, including the Company's certifying officers, to allow timely decisions regarding required disclosure. Based on an evaluation performed, the certifying officers have concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report.
Notwithstanding the foregoing, there can be no assurance that the Company's disclosure controls and procedures will detect or uncover all failures of persons within the Company and its consolidated subsidiaries to report material information otherwise required to be set forth in the Company's reports.
There was no change in the Company's internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.






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PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Issuer Purchases of Equity Securities (shares in 000s).
Period Total Number of Shares
Purchased
Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 2022 268  $91.45 268  57,201
February 2022 25  $91.83 25  57,176
March 2022 —  —  57,176
     Total 293  $91.48 293  57,176
In November 2015, the Board of Directors authorized the purchase of up to 70 million shares. In March 2020, the Board of Directors authorized the purchase of an additional 60 million shares and a total of approximately 57.2 million shares remain available for purchase under the authorizations.

Item 6. Exhibits

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

2(b)
2(c)*
31 
   
32 
101 
Attached as Exhibit 101 to this report are the following documents formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Statements of Earnings for the three and six months ended March 31, 2022 and 2021, (ii) Consolidated Statements of Comprehensive Income for the three and six months ended March 31, 2022 and 2021, (iii) Consolidated Balance Sheets as of September 30, 2021 and March 31, 2022, (iv) Consolidated Statements of Equity for the three and six months ended March 31, 2022 and 2021, (v) Consolidated Statements of Cash Flows for the six months ended March 31, 2022 and 2021, and (vi) Notes to Consolidated Financial Statements for the three and six months ended March 31, 2022 and 2021.  


104  Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).    
*
Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. Emerson agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request. Portions of this exhibit have been redacted in compliance with Regulation S-K Item 601(b)(10).






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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
EMERSON ELECTRIC CO.  
     
By /s/ F. J. Dellaquila  
    Frank J. Dellaquila  
    Senior Executive Vice President and Chief Financial Officer  
    (on behalf of the registrant and as Chief Financial Officer)  
May 4, 2022






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