EMERSON ELECTRIC CO

(Dollars in millions, except per share amounts; unaudited)

Consolidated Statements of Comprehensive Income

Consolidated Balance Sheets

(Dollars and shares in millions, except per share amounts; unaudited)

Consolidated Statements of Equity

Consolidated Statements of Cash Flows

Nine Months Ended June 30, 2023 and 2024

Notes to Consolidated Financial Statements

(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, 2023.

Certain prior year amounts have been reclassified to conform to the current year presentation. On June 6, 2024, the Company entered into definitive agreements to sell its 40 percent non-controlling common equity interest in Copeland to private equity funds managed by Blackstone for $1.5 billion and its note receivable to Copeland for $1.9 billion. As a result of the definitive agreements, the equity interest and note receivable are reported as held-for-sale, and the equity method losses related to the Company's non-controlling common equity interest in Copeland, which were reported since May 2023 in Other deductions, net, have been reclassified and are now reported as discontinued operations for all periods presented (see Notes 5 and 10).

(2)REVENUE RECOGNITION

Emerson is a global manufacturer that designs and manufactures products and delivers services that bring technology and engineering together to provide innovative solutions for its customers. The majority of the Company's revenues relate to a broad offering of manufactured products and software which are recognized at the point in time when control transfers, while a smaller portion is recognized over time or relates to sales arrangements with multiple performance obligations. See Note 14 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.

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 where the license revenue is recognized upfront upon delivery. The decrease in net contract assets was primarily due to the acquisition of National Instruments, which increased contract liabilities by approximately $160, while customer billings slightly exceeded revenue recognized for performance completed during the period. Revenue recognized for the three and nine months ended June 30, 2024 included $83 and $605, respectively, 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 and nine months ended June 30, 2024 for performance obligations that were satisfied in previous periods, including cumulative catchup adjustments on the Company's long-term contracts, was immaterial.

As of June 30, 2024, the Company's backlog relating to unsatisfied (or partially unsatisfied) performance obligations in contracts with its customers was approximately $8.7 billion (of which approximately $1.3 billion was attributable to AspenTech and approximately $450 was attributable to National Instruments). The Company expects to recognize appro ximately 75 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

Reconciliations of weighted-average shares for basic and diluted earnings per common share follow. Earnings allocated to participating securities were inconsequential.

(4)ACQUISITIONS AND DIVESTITURES

National Instruments

On October 11, 2023, the Company completed the acquisition of National Instruments Corporation (“NI”). NI, which provides software-connected automated test and measurement systems that enable enterprises to bring products to market faster and at a lower cost, had revenues of approximately $1.7 billion and pretax earnings of approximately $170 for the 12 months ended September 30, 2023. NI is now referred to as Test & Measurement and reported as a new segment in the Software and Control business group, see Note 14.

The following table summarizes the components of the purchase consideration reflected in the acquisition accounting for NI.

The total purchase consideration for NI was allocated to assets and liabilities as follows. Valuations of acquired assets and liabilities are in-process and subject to refinement.

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

Results of operations for the three and nine months ended June 30, 2024 attributable to the NI acquisition include sales of $355 and $1,104, respectively, and a net loss of $86 and $492, respectively. The net loss included the impact of inventory step-up amortization recorded in the first quarter, intangibles amortization, retention bonuses, stock compensation expense and restructuring.

Pro Forma Financial Information

The following unaudited proforma consolidated condensed financial results of operations are presented as if the acquisition of NI occurred on October 1, 2022. 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).

Pro forma Net sales for the three and nine months ended June 30, 2023 include$417 and $1,302, respectively, attributable to NI.

The pro forma results for the three months ended June 30, 2023 include ongoing intangibles amortization of $105 and backlog amortization of $34, and exclude the mark-to-market gain of $12 recognized in the prior year on the Company's equity investment in National Instruments Corporation (see Note 7).

The pro forma results for the nine months ended June 30, 2023 include transaction costs of $198 which were assumed to be incurred in the first quarter of fiscal 2023. These transaction costs include $88 incurred by NI prior to the completion of the transaction and $110 incurred by Emerson in periods subsequent to the first quarter of fiscal 2023. The pro forma results for the nine months ended June 30, 2023 also include $317 of ongoing intangibles amortization, backlog amortization of $102, inventory step-up amortization of $213, and retention bonuses of $51, and exclude the mark-to-market gain of $47 recognized in the prior year on the equity investment in National Instruments Corporation.

Other Transactions

In the second quarter of fiscal 2024, the Company received its final distribution of $79 related to its subordinated interest in Vertiv. In addition, the Company divested a small business in the Final Control segment and recognized a non-cash loss of $39.

In the fourth quarter of fiscal 2023, the Company acquiredtwo businesses, Flexim, which is reported in the Measurement & Analytical segment, and Afag, which is reported in the Discrete Automation segment, for $715, net of cash acquired. The Company recognized goodwill of $424 (none of which is expected to be tax deductible) and other identifiable intangible assets of $323, primarily customer relationships and intellectual property with a weighted-average useful life of approximately 9 years.

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

(5)DISCONTINUED OPERATIONS

On May 31, 2023, the Company completed the sale of a majority stake in its Climate Technologies business (which constitutes the former Climate Technologies segment, excluding Therm-O-Disc which was divested earlier in fiscal 2022) to private equity funds managed by Blackstone in a $14.0 billion transaction. Emerson received upfront, pretax cash proceeds of approximately $9.7 billion and a note receivable with a face value of $2.25 billion (which accrues 5 percent interest payable in kind by capitalizing interest), while retaining a 40 percent non-controlling common equity 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 Company recognized a pretax gain of approximately $10.6 billion in the third quarter of fiscal 2023 (approximately $8.4 billion after-tax including tax expense recognized prior to the completion of the transaction related to subsidiary restructurings). The new standalone business is named Copeland.

On June 6, 2024, the Company entered into a definitive agreement to sell its 40 percent non-controlling common equity interest in Copeland to private equity funds managed by Blackstone for $1.5 billion, and the transaction is expected to close by the end of August 2024. The equity method losses related to the Company's non-controlling common equity interest in Copeland, which were reported since May 2023 in Other deductions, net, have been reclassified and are now reported as discontinued operations for all periods presented and are included within Climate Technologies in Other deductions, net in the tables below. See Note 10 for further details.

On October 31, 2022, the Company completed the divestiture of its InSinkErator business, which manufactures food waste disposers, to Whirlpool Corporation for $3.0 billion. This business had net sales of $630 and pretax earnings of $152 in fiscal 2022. The Company recognized a pretax gain of approximately $2.8 billion (approximately $2.1 billion after-tax) in the first quarter of fiscal 2023.

For the three and nine months ended June 30, 2024, the results of discontinued operations primarily reflect the Company's equity method losses on its non-controlling common equity interest in Copeland, which were $16 ($9 after-tax) and $111 ($82 after-tax), respectively. For the three and nine months ended June 30, 2023, the financial results of Climate Technologies (including equity method losses on the equity interest in Copeland) and InSinkErator ("ISE") are reported as discontinued operations and were as follows:

Climate Technologies' results for the three and nine months ended June 30, 2023 included lower expense of $26 and $96, respectively, due to ceasing depreciation and amortization upon the held-for-sale classification. Other deductions, net for Climate Technologies included $57 of transaction-related costs for the nine months ended June 30, 2023. For the three and nine months ended June 30, 2023, the Company recorded a loss of $61 in Other deductions, net to reflect equity method losses on its non-controlling common equity interest in Copeland. Income taxes for the three and nine months ended June 30, 2023 included a tax benefit of $10 related to Copeland's U.S. business, which is taxed as a partnership. Income taxes for the nine months ended June 30, 2023 included approximately $2.2 billion for the gain on the Climate Technologies subsidiary restructurings and approximately $660 related to the gain on the InSinkErator divestiture.

Net cash from operating and investing activities for Climate Technologies, InSinkErator and Therm-O-Disc for the nine months ended June 30, 2024 and 2023 were as follows:

Cash from operating activities for the nine months ended June 30, 2023 reflects approximately $750 of income taxes paid related to the gain on the InSinkErator divestiture and the Climate Technologies subsidiary restructurings, transaction fees and unfavorable working capital. Cash from investing activities for the nine months ended June 30, 2023 reflects the proceeds of approximately $9.7 billion related to the Copeland transaction and approximately $3.0 billion related to the InSinkErator divestiture.

(6)PENSION & POSTRETIREMENT PLANS

Total periodic pension and postretirement (income) expense is summarized below:

(7)OTHER DEDUCTIONS, NET

Other deductions, net are summarized below:

Intangibles amortization for the three and nine months ended June 30, 2024 included $139 and $419, respectively, related to the NI acquisition. Foreign currency transaction losses for the three and nine months ended June 30, 2023 included a mark-to-market gain of $3 and $24, respectively, related to foreign currency forward contracts that were terminated in June 2023. The Company recognized a mark-to-market gain of $12 and $47 for the three and nine months ended June 30, 2023, respectively, related to its equity investment in National Instruments Corporation. Other is composed of several items, including a portion of pension expense, litigation costs, provision for bad debt and other items, none of which is individually significant.

(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 2024 restructuring expense and related costs to be approximately $250, including costs to complete actions initiated in the first nine months of the year.

Restructuring expense by business segment follows:

Corporate restructuring of $5 and $42 for the three and nine months ended June 30, 2024, respectively, is comprised almost entirely of integration-related stock compensation expense attributable to NI.

Details of the change in the liability for restructuring costs during the nine months ended June 30, 2024 follow:

The tables above do not include $1 and $3 of costs related to restructuring actions incurred for the three months ended June 30, 2023 and 2024, respectively, that are required to be reported in cost of sales and selling, general and administrative expenses; year-to-date amounts are $13 and $10, respectively.

(9)TAXES

Income taxes were $88 in the third quarter of fiscal 2024 and $168 in 2023, resulting in effective tax rates of 19 percent and 21 percent, respectively. The current year rate reflected a 3 percentage point benefit related to the filing of the prior year U.S. tax return, partially offset by other items.

Income taxes were $266 in the first nine of months of fiscal 2024 and $400 in 2023, resulting in effective tax rates of 20 percent and 21 percent, respectively. The current year rate included a $57 ($0.10 per share) benefit related to discrete tax items and the benefit discussed above related to the prior year U.S. tax return, partially offset by unfavorable impacts from inventory step-up amortization and the loss on divestiture (see Note 4), which was nondeductible for tax purposes. In total, the net impact of these items benefited the rate by approximately 2 percentage points, which was partially offset by other items.

(10)EQUITY METHOD INVESTMENT AND NOTE RECEIVABLE

As discussed in Note 5, the Company completed the divestiture of a majority stake in Copeland on May 31, 2023, and received upfront, pretax cash proceeds of approximately $9.7 billion and a note receivable with a face value of $2.25 billion, while retaining a 40 percent non-controlling common equity interest in Copeland.

On June 6, 2024, the Company entered into definitive agreements to sell its 40 percent non-controlling common equity interest in Copeland to private equity funds managed by Blackstone for $1.5 billion and the note receivable to Copeland for $1.9 billion. The equity interest and note receivable, as well as $33 of future indemnity obligations included in Other liabilities (net of tax), are reported as held-for-sale as of June 30, 2024. Subsequent to the end of the quarter, the Company completed the sale of the note receivable on August 2, 2024 and received $1.9 billion of pretax cash proceeds. The sale of the equity interest is expected to close by the end of August 2024.

The Company recognized non-cash interest income on the note receivable (through the date of the agreement) of $24 and $86 for the three and nine months ended June 30, 2024, respectively, which is reported in Interest income from related party within continuing operations and capitalized to the carrying value of the note. Upon entering into the note agreement, the Company recorded a pretax loss of $279 ($217 after-tax, $0.38 per share) to adjust the carrying value of the note to $1.9 billion to reflect the transaction price.

The Company's share of Copeland's income or loss, which will continue to be recorded using the equity method of accounting until the transaction is completed, is now reported in discontinued operations for all periods presented (see Note 5). As of June 30, 2024, the carrying value of the retained equity investment was $1,008. Summarized financial information for Copeland for the three and nine months ended June 30, 2024 is as follows.

(11)OTHER FINANCIAL INFORMATION

Other intangible assets include customer relationships, net, of $3,353 and $6,325 and intellectual property, net, of $2,707 and $4,067 as of September 30, 2023 and June 30, 2024, respectively.

The increase in goodwill and intangibles was primarily due to the NI acquisition. See Note 4.

Amortization of intangibles included $139 and $419 related to the NI acquisition for the three and nine months ended June 30, 2024.

The increase in deferred income tax liabilities reflects the impact of the NI acquisition. See Note 4.

(12)FINANCIAL INSTRUMENTS

Hedging Activities – As of June 30, 2024, the notional amount of foreign currency hedge positions was approximately $3.1 billion. All derivatives receiving hedge accounting are cash flow hedges. The majority of hedging gains and losses deferred as of June 30, 2024 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, of which €500 was repaid in the third quarter of fiscal 2024. 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 nine months ended June 30, 2023 and 2024:

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.

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 June 30, 2024, the fair value of long-term debt was approximately $6.6 billion, which was lower than the carrying value by $1,012. The fair value of foreign currency contracts, which are reported in Other current assets and Accrued expenses, did not materially change since September 30, 2023. Commodity contracts related to discontinued operations and were novated to Copeland upon the completion of the transaction.

Counterparties to derivatives arran gements 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 andnone was held by the Company as of June 30, 2024.

(13)ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

(14)BUSINESS SEGMENTS

As disclosed in Note 4, the Company completed the acquisition of NI on October 11, 2023. NI is now referred to as Test & Measurement and reported as a new segment in the Software and Control business group.

Summarized information about the Company's results of operations by business segment follows:

Stock compensation for the three months and nine months ended June 30, 2024 included $9 and $53 of integration-related stock compensation expense attributable to NI (of which $5 and $41, respectively, was reported as restructuring costs). Corporate and other for the three and nine months ended June 30, 2024 included acquisition/divestiture fees and related costs of $13 and $159, respectively, while year-to-date also includes acquisition-related inventory step-up amortization of $231 and a divestiture loss of $39. Corporate and other for the three and nine months ended June 30, 2023 included acquisition/divestiture costs of $38 and $48, respectively, and a mark-to-market gain of $12 and $47, respectively, related to its equity investment in National Instruments Corporation, while year-to-date also included a loss of $47 related to the Company's exit of business operations in Russia.

Depreciation and amortization (includes intellectual property, customer relationships and capitalized software) by business segment are summarized below:

Test & Measurement depreciation and amortization for the three and nine months ended June 30, 2024 included intangibles amortization of $139 and $419 due to the acquisition.

Sales by geographic destination, Americas, Asia, Middle East & Africa ("AMEA") and Europe, are summarized below:

Items 2 and 3.