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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 December 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-20221231_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,Missouri63136
(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 classTrading
Symbol(s)
Name of each exchange on which registered
Common Stock of $0.50 par value per shareEMRNew York Stock Exchange
NYSE Chicago
0.375% Notes due 2024EMR 24New York Stock Exchange
1.250% Notes due 2025EMR 25ANew York Stock Exchange
2.000% Notes due 2029EMR 29New 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 filerAccelerated filer
Non-accelerated filerSmaller 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 December 31, 2022: 571.4 million shares.








PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

Consolidated Statements of Earnings
EMERSON ELECTRIC CO. & SUBSIDIARIES

Three months ended December 31, 2021 and 2022
(Dollars in millions, except per share amounts; unaudited)
 
 Three Months Ended
December 31,
 2021 2022 
Net sales$3,156 3,373 
Cost of sales1,741 1,753 
Selling, general and administrative expenses849 1,030 
Gain on subordinated interest(453) 
Other deductions, net38 120 
Interest expense (net of interest income of $3 and $20, respectively)
39 48 
Earnings from continuing operations before income taxes942 422 
Income taxes196 98 
Earnings from continuing operations746 324 
Discontinued operations, net of tax: $84 and $966, respectively
149 2,002 
Net earnings895 2,326 
Less: Noncontrolling interests in subsidiaries(1)(5)
Net earnings common stockholders$896 2,331 
Earnings common stockholders:
Earnings from continuing operations746 329 
Discontinued operations150 2,002 
Net earnings common stockholders$896 2,331 
Basic earnings per share common stockholders:
     Earnings from continuing operations$1.25 0.56 
     Discontinued operations0.26 3.43 
Basic earnings per common share$1.51 3.99 
Diluted earnings per share common stockholders:
Earnings from continuing operations$1.25 0.56 
Discontinued operations0.25 3.41 
Diluted earnings per common share$1.50 3.97 
Weighted average outstanding shares:
Basic594.6 583.6 
Diluted598.1 586.7 

 

See accompanying Notes to Consolidated Financial Statements.





1




Consolidated Statements of Comprehensive Income
EMERSON ELECTRIC CO. & SUBSIDIARIES

Three months ended December 31, 2021 and 2022
(Dollars in millions; unaudited)
 Three Months Ended December 31,
 2021 2022 
Net earnings$895 2,326 
Other comprehensive income (loss), net of tax:
Foreign currency translation(72)241 
Pension and postretirement18 (16)
Cash flow hedges4 10 
        Total other comprehensive income (loss)(50)235 
Comprehensive income845 2,561 
Less: Noncontrolling interests in subsidiaries(1) 
Comprehensive income common stockholders$846 2,561 


































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, 2022Dec 31, 2022
ASSETS  
Current assets  
Cash and equivalents$1,804 2,271 
Receivables, less allowances of $100 and $101, respectively
2,261 2,231 
Inventories1,742 1,999 
Other current assets1,301 1,290 
Current assets held-for-sale1,398 1,209 
Total current assets8,506 9,000 
Property, plant and equipment, net2,239 2,263 
Other assets 
Goodwill13,946 14,087 
Other intangible assets6,572 6,460 
Other2,151 2,268 
Noncurrent assets held-for-sale2,258 2,163 
Total other assets24,927 24,978 
Total assets$35,672 36,241 
LIABILITIES AND EQUITY  
Current liabilities  
Short-term borrowings and current maturities of long-term debt$2,115 1,792 
Accounts payable1,276 1,219 
Accrued expenses3,038 3,949 
Current liabilities held-for-sale1,348 1,200 
Total current liabilities7,777 8,160 
Long-term debt8,259 8,159 
Other liabilities3,153 3,057 
Noncurrent liabilities held-for-sale167 151 
Equity  
Common stock, $0.50 par value; authorized, 1,200.0 shares; issued, 953.4 shares; outstanding, 591.4 shares and 571.4 shares, respectively
477 477 
Additional paid-in-capital57 112 
Retained earnings28,053 30,076 
Accumulated other comprehensive income (loss)(1,485)(1,255)
Cost of common stock in treasury, 362.0 shares and 382.0 shares, respectively
(16,738)(18,683)
Common stockholders’ equity10,364 10,727 
Noncontrolling interests in subsidiaries5,952 5,987 
Total equity16,316 16,714 
Total liabilities and equity$35,672 36,241 


See accompanying Notes to Consolidated Financial Statements.





3




Consolidated Statements of Equity
EMERSON ELECTRIC CO. & SUBSIDIARIES

Three months ended December 31, 2021 and 2022
(Dollars in millions; unaudited)
Three Months Ended December 31,
2021 2022 
Common stock$477 477 
Additional paid-in-capital
     Beginning balance522 57 
     Stock plans42 55 
        Ending balance564 112 
Retained earnings
     Beginning balance26,047 28,053 
     Net earnings common stockholders896 2,331 
Dividends paid (per share: $0.515 and $0.52, respectively)
(307)(308)
        Ending balance26,636 30,076 
Accumulated other comprehensive income (loss)
     Beginning balance(872)(1,485)
     Foreign currency translation(72)236 
     Pension and postretirement18 (16)
     Cash flow hedges4 10 
        Ending balance(922)(1,255)
Treasury stock
     Beginning balance(16,291)(16,738)
     Purchases(258)(2,000)
     Issued under stock plans43 55 
        Ending balance(16,506)(18,683)
Common stockholders' equity10,249 10,727 
Noncontrolling interests in subsidiaries
     Beginning balance40 5,952 
     Net earnings(1)(5)
     Stock plans 35 
     Other comprehensive income 5 
        Ending balance39 5,987 
Total equity$10,288 16,714 










See accompanying Notes to Consolidated Financial Statements.





4




Consolidated Statements of Cash Flows
EMERSON ELECTRIC CO. & SUBSIDIARIES
Three Months Ended December 31, 2021 and 2022
(Dollars in millions; unaudited)
Three Months Ended
December 31,
 2021 2022 
Operating activities  
Net earnings$895 2,326 
Earnings from discontinued operations, net of tax(149)(2,002)
Adjustments to reconcile net earnings to net cash provided by operating activities:
        Depreciation and amortization178 260 
        Stock compensation34 102 
        Changes in operating working capital(125)(289)
        Gain on subordinated interest(453) 
        Other, net(3)(95)
            Cash from continuing operations377 302 
            Cash from discontinued operations146 116 
            Cash provided by operating activities523 418 
Investing activities
Capital expenditures(73)(59)
Purchases of businesses, net of cash and equivalents acquired(39) 
Proceeds from subordinated interest438 15 
Other, net3 (23)
    Cash from continuing operations329 (67)
    Cash from discontinued operations(44)2,953 
    Cash provided by investing activities285 2,886 
Financing activities
Net increase in short-term borrowings(335)(539)
Proceeds from long-term debt2,975  
Payments of long-term debt(501)(9)
Dividends paid(307)(306)
Purchases of common stock(253)(2,000)
Other, net22 (41)
    Cash provided by (used in) financing activities1,601 (2,895)
Effect of exchange rate changes on cash and equivalents(37)58 
Increase in cash and equivalents2,372 467 
Beginning cash and equivalents2,354 1,804 
Ending cash and equivalents$4,726 2,271 
Changes in operating working capital
Receivables$172 78 
Inventories(177)(193)
Other current assets7 14 
Accounts payable(15)(58)
Accrued expenses(112)(130)
Total changes in operating working capital$(125)(289)





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, 2022.

Over the past 18 months, Emerson Electric Co. ("Emerson" or 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. The Company's recent portfolio actions include the combination of its industrial software businesses with Aspen Technology, Inc., with the Company owning 55 percent of the outstanding shares of the combined entity on a fully diluted basis upon closing of the transaction on May 16, 2022, the sale of its Therm-O-Disc business, which was completed on May 31, 2022, the sale of its InSinkErator business, which was completed on October 31, 2022, and the sale of a majority stake in its Climate Technologies business, which was announced on October 31, 2022, and is expected to close in the first half of calendar year 2023, subject to regulatory approvals and customary closing conditions.

Certain prior year amounts have been reclassified to conform to the current year presentation. This includes reporting financial results for Climate Technologies, InSinkErator and Therm-O-Disc as discontinued operations for all periods presented, and the assets and liabilities of Climate Technologies and InSinkErator (prior to completion of the divestiture) as held-for-sale (see Note 5). In addition, as a result of its portfolio transformation, the Company now reports six segments and two business groups (see Note 13).

(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 assets (current and noncurrent), and its customer advances (contract liabilities), which are reported in Accrued expenses and Other liabilities.     
Sept 30, 2022Dec 31, 2022
Unbilled receivables (contract assets)$1,390 1,412 
Customer advances (contract liabilities)(776)(938)
      Net contract assets (liabilities)$614 474 
    
The majority of the Company's contract balances relate to (1) arrangements where revenue is recognized over time and payments from customers are made according to a contractual billing schedule, and (2) revenue from term software license arrangements sold by AspenTech where the license revenue is recognized upfront upon delivery. The decrease in net contract assets was due to customer billings exceeding revenue recognized for performance completed during the period. Revenue recognized for the three months ended December 31, 2022 included $335 that was included in the beginning contract liability balance. Other factors that impacted the change in net contract assets were immaterial. Revenue recognized for the three months ended December 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 December 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 80 percent of its remaining performance obligations as revenue over the next 12 months, with the remainder substantially over the following two years.     

(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
December 31,
 2021 2022 
Basic shares outstanding594.6 583.6 
Dilutive shares3.5 3.1 
Diluted shares outstanding598.1 586.7 
 
(4) ACQUISITIONS AND DIVESTITURES

Aspen Technology

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

The business combination has been accounted for using the acquisition method of accounting with Emerson considered the accounting acquirer of Heritage AspenTech. The net assets of Heritage AspenTech were recorded at their estimated fair value and for the Emerson Industrial Software Business continue at their historical basis. The Company recorded a noncontrolling interest of $5.9 billion for the 45 percent ownership interest of former Heritage AspenTech stockholders in AspenTech. The noncontrolling interest associated with the Heritage AspenTech acquired net assets was recorded at fair value determined using the closing market price per share of Heritage AspenTech as of May 16, 2022, while the portion attributable to the Emerson Industrial Software business was recorded at its historical carrying amount. The impact of recognizing the noncontrolling interest in the Emerson Industrial Software Business resulted in a decrease to additional paid-in-capital of $550.
The following table summarizes the components of the purchase consideration reflected in the acquisition accounting using Heritage AspenTech's shares outstanding and closing market price per share as of May 16, 2022 (in millions except share and per share data):
Heritage AspenTech shares outstanding66,662,482 
Heritage AspenTech share price$166.30 
Purchase price$11,086 
Value of stock-based compensation awards attributable to pre-combination service102 
Total purchase consideration$11,188 










7




The total purchase consideration for Heritage AspenTech was allocated to assets and liabilities as follows.

Cash and equivalents$274 
Receivables43 
Other current assets280 
Property, plant equipment4 
Goodwill ($34 expected to be tax-deductible)
7,225 
Other intangible assets4,390 
Other assets513 
Total assets12,729 
Short-term borrowings27 
Accounts payable8 
Accrued expenses113 
Long-term debt255 
Deferred taxes and other liabilities1,138 
Total purchase consideration$11,188 

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

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

AmountEstimated Weighted Average Life (Years)
Developed technology $1,350 10
Customer relationships 2,300 15
Trade names430 Indefinite-lived
Backlog310 3
Total $4,390 

Results of operations for the first quarter of 2023 attributable to the Heritage AspenTech acquisition include sales of $168 while the impact to GAAP net earnings was not material.

Pro Forma Financial Information

The following unaudited proforma consolidated condensed financial results of operations are presented as if the acquisition of Heritage AspenTech occurred on October 1, 2020. The pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved had the acquisition occurred as of that time ($ in millions, except per share amounts).
 Three Months Ended December 31,
 2021 
Net Sales$3,327 
Net earnings from continuing operations common stockholders$734 
Diluted earnings per share from continuing operations$1.23 






8




The pro forma results for the three months ended December 31, 2021 include $32 of transaction costs which were assumed to be incurred in the first fiscal quarter of 2021. Of these transaction costs, $22 were included in the Company's reported results for the three months ended December 31, 2021, but have been excluded from the fiscal 2022 pro forma results above. In addition, Heritage AspenTech incurred $68 of transaction costs prior to the completion of the acquisition that were not included in Emerson's reported results. The pro forma results for the three months ended December 31, 2021 include estimated interest expense of $37 related to the issuance of $3 billion of term debt and increased commercial paper borrowings to fund the acquisition.

Other Transactions

On July 27, 2022, AspenTech entered into an agreement to acquire Micromine, a global leader in design and operational solutions for the mining industry, for AU$900 (approximately $623 USD based on exchange rates when the transaction was announced). The transaction is expected to close as soon as the remaining regulatory approval is obtained.

On May 4, 2022, Emerson announced its intention to exit business operations in Russia and divest Metran, its Russia-based manufacturing subsidiary, and on September 27, 2022, announced an agreement to sell the business to the local management group. In the first quarter of fiscal 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 transaction will be subject to regulatory and government approvals, and other customary closing conditions. Emerson will work closely with the local Russia management group to help ensure a smooth transition for employees through the sale process.
In the first quarter of fiscal 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, $358 after-tax, $0.60 per share). Based on the terms of the agreement and the current calculation, the Company could receive additional distributions of approximately $75 which are expected to be received over the next two-to-three years. However, the distributions are contingent on the timing and price at which Vertiv shares are sold by the equity holders and therefore, there can be no assurance as to the amount or timing of the remaining distributions to the Company.
(5) DISCONTINUED OPERATIONS

In October 2022, the Board of Directors approved the Company's announced agreement to sell a majority stake in its Climate Technologies business (which constitutes the former Climate Technologies segment, excluding Therm-O-Disc which was divested earlier in fiscal 2022) to private equity funds managed by Blackstone in a $14.0 billion transaction. Emerson will receive upfront, pre-tax cash proceeds of approximately $9.5 billion and a note of $2.25 billion at close (which will accrue 5 percent interest payable in kind by capitalizing interest), while retaining a 45 percent non-controlling interest in a new standalone joint venture between Emerson and Blackstone. The Climate Technologies business, which includes the Copeland compressor business and the entire portfolio of products and services across all residential and commercial HVAC and refrigeration end-markets, had fiscal 2022 net sales of approximately $5.0 billion and pretax earnings of $1.0 billion. The transaction is expected to close in the first half of calendar year 2023, subject to regulatory approvals and customary closing conditions.

On October 31, 2022, the Company completed the divestiture of its InSinkErator business, which manufactures food waste disposers, to Whirlpool Corporation for $3.0 billion. This business had net sales of $630 and pretax earnings of $152 in fiscal 2022. The Company recognized a pretax gain of $2.8 billion (approximately $2.1 billion after-tax) in the first quarter of fiscal 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 the third fiscal quarter of 2022.













9




The financial results of Climate Technologies, InSinkErator ("ISE") and Therm-O-Disc ("TOD") (through the completion of the divestitures), are reported as discontinued operations for the three months ended December 31, 2022 and 2021 and were as follows:

Climate TechnologiesISE and TODTotal
 Three Months Ended December 31,Three Months Ended December 31,Three Months Ended December 31,
 2021 2022 2021 2022 2021 2022 
Net sales $1,079 1,064 238 49 1,317 1,113 
Cost of sales 762 702 148 29 910 731 
SG&A127 142 35 8 162 150 
Gain on sale of business    (2,780) (2,780)
Other deductions, net 6 32 6 12 12 44 
Earnings (Loss) before income taxes 184 188 49 2,780 233 2,968 
Income taxes 39 313 45 653 84 966 
Earnings (Loss), net of tax $145 (125)4 2,127 149 2,002 

Climate Technologies' results for the three months ended December 31, 2022 include lower expense of $27 due to ceasing depreciation and amortization upon the held-for-sale classification. Other deductions, net for Climate Technologies included $27 of transaction-related costs for the three months ended December 31, 2022. Income taxes for the three months ended December 31, 2022 included approximately $275 for Climate Technologies subsidiary restructurings and approximately $660 related to the gain on the InSinkErator divestiture.

The aggregate carrying amounts of the major classes of assets and liabilities classified as held-for-sale as of December 31, 2022 and September 30, 2022 are summarized as follows:

Climate TechnologiesISETotal
 Sept. 30,Dec. 31,Sept. 30,Dec. 31,Sept. 30,Dec. 31,
Assets2022 2022 2022 2022 2022 2022 
   Receivables$747 608 68  815 608 
   Inventories449 541 81  530 541 
   Other current assets49 60 4  53 60 
   Property, plant & equipment, net1,122 1,093 141  1,263 1,093 
   Goodwill716 720 2  718 720 
   Other noncurrent assets265 350 12  277 350 
Total assets held-for-sale$3,348 3,372 308  3,656 3,372 
Liabilities
   Accounts payable$752 733 60  812 733 
   Other current liabilities475 467 61  536 467 
   Deferred taxes and other
     noncurrent liabilities
154 151 13  167 151 
Total liabilities held-for-sale$1,381 1,351 134  1,515 1,351 













10




Net cash from operating and investing activities for Climate Technologies, InSinkErator and Therm-O-Disc for the three months ended December 31, 2022 and 2021 were as follows:

Climate TechnologiesISE and TODTotal
 Three Months Ended December 31,Three Months Ended December 31,Three Months Ended December 31,
 2021 2022 2021 2022 2021 2022 
Cash from operating activities$132 205 14 (89)146 116 
Cash from investing activities$(35)(43)(9)2,996 (44)2,953 

Cash from operating activities reflects the payment of ISE transaction fees and unfavorable working capital. Cash from investing activities for the three months ended December 31, 2022 reflects the proceeds of $3.0 billion related to the InSinkErator divestiture.

(6) PENSION & POSTRETIREMENT PLANS

Total periodic pension and postretirement (income) expense is summarized below:
 Three Months Ended December 31,
 2021 2022 
Service cost$19 12 
Interest cost34 54 
Expected return on plan assets
(78)(71)
Net amortization23 (20)
Total$(2)(25)

(7) OTHER DEDUCTIONS, NET

Other deductions, net are summarized below:
 Three Months Ended
December 31,
 2021 2022 
Amortization of intangibles (intellectual property and
  customer relationships)
$57 118 
Restructuring costs6 10 
Acquisition/divestiture costs23  
Foreign currency transaction (gains) losses(7)(7)
Investment-related gains & gains from sales of capital
  assets
(15)(4)
Russia business exit 47 
Other(26)(44)
Total$38 120 

In the first quarter of fiscal 2023, intangibles amortization for the three months ended December 31, 2022 included $64 related to the Heritage AspenTech acquisition and foreign currency transaction gains included a mark-to-market gain of $35 related to foreign currency forward contracts entered into by AspenTech to mitigate the impact of foreign currency exchange associated with the Micromine purchase price. Other is composed of several items, including pension expense, litigation costs, provision for bad debt and other items, none of which is individually significant.







11




(8) 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. The Company expects fiscal 2023 restructuring expense and related costs to be approximately $90, including costs to complete actions initiated in the first three months of the year.

Restructuring expense by business segment follows:

 Three Months Ended
December 31,
 2021 2022 
Final Control$ (1)
Measurement & Analytical2 1 
Discrete Automation2 1 
Safety & Productivity  
Intelligent Devices4 1 
Control Systems & Software1 1 
AspenTech  
Software and Control 1 1 
Corporate1 8 
Total$6 10 
Details of the change in the liability for restructuring costs during the three months ended December 31, 2022 follow:
 Sept 30, 2022ExpenseUtilized/PaidDec 31, 2022
Severance and benefits$117 (2)1 114 
Other5 12 11 6 
Total$122 10 12 120 
The tables above do not include $8 and $5 of costs related to restructuring actions incurred for the three months ended December 31, 2021 and 2022, respectively, that are required to be reported in cost of sales and selling, general and administrative expenses.
 
(9) TAXES

Income taxes were $98 in the first quarter of fiscal 2023 and $196 in 2022, resulting in effective tax rates of 23 percent and 21 percent, respectively. The current year rate included a 2 percentage point unfavorable impact related to the Russia charge, which had no related tax benefit.
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 and the remainder was paid in December 2022.






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(10) OTHER FINANCIAL INFORMATION

Sept 30, 2022Dec 31, 2022
Inventories
Finished products$417 456 
Raw materials and work in process1,325 1,543 
Total$1,742 1,999 
Property, plant and equipment, net  
Property, plant and equipment, at cost$5,390 5,373 
Less: Accumulated depreciation3,151 3,110 
     Total$2,239 2,263 
Goodwill by business segment
Final Control$2,605 2,659 
Measurement & Analytical1,112 1,131 
Discrete Automation807 839 
Safety & Productivity364 389 
Intelligent Devices4,888 5,018 
Control Systems & Software732 740 
AspenTech8,326 8,329 
Software and Control 9,058 9,069 
     Total$13,946 14,087 
Other intangible assets  
Gross carrying amount$9,671 9,767 
Less: Accumulated amortization3,099 3,307 
     Net carrying amount$6,572 6,460 
Other intangible assets include customer relationships, net, of $3,436 and $3,399 and intellectual property, net, of $2,934 and $2,860 as of September 30, 2022 and December 31, 2022, respectively.
Three Months Ended December 31,
2021 2022 
Depreciation and amortization expense include the following:
Depreciation expense$84 74 
Amortization of intangibles (includes $14 and $49 reported in Cost of Sales, respectively)
71 167 
Amortization of capitalized software23 19 
Total $178 260 
Amortization of intangibles included $99 related to the Heritage AspenTech acquisition for the three months ended December 31, 2022.





13




Sept 30, 2022Dec 31, 2022
Other assets include the following:
Pension assets$865 912 
Unbilled receivables (contract assets)428 516 
Operating lease right-of-use assets439 434 
Deferred income taxes85 73 
Asbestos-related insurance receivables68 68 
Accrued expenses include the following:
Income taxes$125 1,080 
Customer advances (contract liabilities)751 901 
Employee compensation523 372 
Operating lease liabilities (current)128 131 
Product warranty84 89 
The increase in Income taxes was due to taxes of approximately $660 related to the gain on divestiture of InSinkErator and approximately $275 related to subsidiary restructurings at Climate Technologies. See Note 5.

Other liabilities include the following:  
Deferred income taxes$1,714 1,694 
Pension and postretirement liabilities427 441 
Operating lease liabilities (noncurrent)312 306 
Asbestos litigation205 200 
Debt:
On January 17, 2023, AspenTech paid off the outstanding balance of its existing term loan facility of $264, plus accrued interest, which resulted in the long-term portion being reclassified and reported as short-term borrowings as of December 31, 2022.

(11) FINANCIAL INSTRUMENTS
Hedging Activities – As of December 31, 2022, the notional amount of foreign currency hedge positions was approximately $5.2 billion, and commodity hedge contracts totaled approximately $115 (primarily 33 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 December 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.





14




The following gains and losses are included in earnings and other comprehensive income (OCI) for the three months ended December 31, 2021 and 2022: