Financial Instruments

12 Months Ended

Sep. 30, 2023

General Discussion of Derivative Instruments and Hedging Activities [Abstract]

FINANCIAL INSTRUMENTS

Following is a discussion regarding the Company’s use of financial instruments:

Hedging Activities

As of September 30, 2023, the notional amount of foreign currency hedge positions was approximately $2.4 billion. All derivatives receiving hedge accounting are cash flow hedges. The majority of hedging gains and losses deferred as of September 30, 2023 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 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):


		Gain (Loss) to Earnings				Gain (Loss) to OCI
		2021		2022	2023	2021	2022	2023
	Location
Commodity	Cost of sales	$	33	12	(19)	29	(20)	6
Foreign currency	Sales	3		(2)	(3)	3	(9)	—
Foreign currency	Cost of sales	8		31	65	34	53	42
Foreign currency	Other deductions, net	53		48	(128)

Net Investment Hedge
Euro denominated debt					16	21	266	(128)
Total		$	97	89	(69)	87	290	(80)

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.

Equity Investment

The Company had an equity investment in National Instruments Corporation ("NI"), valued at $136 as of September 30, 2023 (reported in Other noncurrent assets), and recognized a mark-to-market gain of $56 in 2023. On April 12, 2023, Emerson announced an agreement to acquire NI for $60 per share in cash for the remaining shares not already owned by Emerson and the transaction closed on October 11, 2023. See Note 23.

Fair Value Measurement

Valuations for all derivatives, the Company's note receivable from Copeland, and the Company's long-term debt fall within Level 2 of the GAAP valuation hierarchy. The fair value of the note receivable as of September 30, 2023 was approximately $1.9 billion, which was lower than the carrying value by approximately $200. See Note 8 for further details. The fair value of long-term debt was $6.9 billion and $7.6 billion, respectively, as of September 30, 2023 and 2022, which was lower than the carrying value by $1,275 and $1,207, respectively. The fair values of commodity and foreign currency contracts were reported in Other current assets and Accrued expenses as summarized below:


	2022				2023
	Assets			Liabilities	Assets	Liabilities
Commodity		$	—	25	—	—
Foreign currency		$	51	80	30	22

Commodity contracts, which related to discontinued operations, were novated to Copeland upon the completion of the transaction and therefore no amounts are reported in the Company's balance sheet as of September 30, 2023. The fair value of the Company's equity investment in National Instruments falls within Level 1 and was based on the most recent quoted closing market price from its principal exchange for the period ended September 30, 2023.