EMERSON ELECTRIC CO filed this 10-Q on 04/24/2020
EMERSON ELECTRIC CO (Form: 10-Q, Received: 04/24/2020 13:54:33)
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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, 2020

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-20200331_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
Chicago Stock Exchange
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, 2020: 597,475,300 shares.







PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

Consolidated Statements of Earnings
EMERSON ELECTRIC CO. & SUBSIDIARIES

Three and six months ended March 31, 2019 and 2020
(Dollars in millions, except per share amounts; unaudited)
 
  Three Months Ended
March 31,
Six Months Ended
March 31,
  2019    2020    2019    2020   
Net sales $ 4,570    4,162    8,717    8,313   
Costs and expenses:
Cost of sales 2,645    2,412    5,031    4,804   
Selling, general and administrative expenses 1,145    983    2,222    2,106   
Other deductions, net 57    42    107    220   
Interest expense (net of interest income of $7, $6, $12 and $12, respectively)
48    36    91    71   
Earnings before income taxes 675    689    1,266    1,112   
Income taxes 150    165    274    259   
Net earnings 525    524    992    853   
Less: Noncontrolling interests in earnings of subsidiaries       10   
Net earnings common stockholders $ 520    517    985    843   
Basic earnings per share common stockholders $ 0.85    0.85    1.59    1.38   
Diluted earnings per share common stockholders $ 0.84    0.84    1.58    1.37   
Cash dividends per common share $ 0.49    0.50    0.98    1.00   

 


















See accompanying Notes to Consolidated Financial Statements.
1




Consolidated Statements of Comprehensive Income
EMERSON ELECTRIC CO. & SUBSIDIARIES

Three and six months ended March 31, 2019 and 2020
(Dollars in millions; unaudited)

  Three Months Ended March 31, Six Months Ended March 31,
  2019    2020    2019    2020   
Net earnings    $ 525    524    992    853   
Other comprehensive income (loss), net of tax:
Foreign currency translation    88    (281)   53    (182)  
Pension and postretirement 12    30    25    58   
Cash flow hedges    25    (75)   10    (56)  
        Total other comprehensive income (loss)   125    (326)   88    (180)  
Comprehensive income    650    198    1,080    673   
Less: Noncontrolling interests in comprehensive income of subsidiaries          11   
Comprehensive income common stockholders    644    190    1,072    662   


































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, 2019 Mar 31, 2020
ASSETS    
Current assets    
Cash and equivalents $ 1,494    2,583   
Receivables, less allowances of $112 and $112, respectively
2,985    2,641   
Inventories 1,880    2,058   
Other current assets 780    750   
Total current assets 7,139    8,032   
Property, plant and equipment, net 3,642    3,553   
Other assets  
Goodwill 6,536    6,520   
Other intangible assets 2,615    2,498   
Other 565    1,108   
Total other assets 9,716    10,126   
Total assets $ 20,497    21,711   
LIABILITIES AND EQUITY    
Current liabilities    
Short-term borrowings and current maturities of long-term debt $ 1,444    3,741   
Accounts payable 1,874    1,521   
Accrued expenses 2,658    2,678   
Total current liabilities 5,976    7,940   
Long-term debt 4,277    3,960   
Other liabilities 1,971    2,248   
Equity    
Common stock, $0.50 par value; authorized, 1,200.0 shares; issued, 953.4 shares; outstanding, 611.0 shares and 597.5 shares, respectively
477    477   
Additional paid-in-capital 393    453   
Retained earnings 24,199    24,431   
Accumulated other comprehensive income (loss) (1,722)   (1,903)  
Cost of common stock in treasury, 342.4 shares and 355.9 shares, respectively
(15,114)   (15,941)  
Common stockholders’ equity 8,233    7,517   
Noncontrolling interests in subsidiaries 40    46   
Total equity 8,273    7,563   
Total liabilities and equity $ 20,497    21,711   






See accompanying Notes to Consolidated Financial Statements.
3




Consolidated Statements of Equity
EMERSON ELECTRIC CO. & SUBSIDIARIES

Three and six months ended March 31, 2019 and 2020
(Dollars in millions; unaudited)

Three Months Ended March 31, Six Months Ended March 31,
2019    2020    2019    2020   
Common stock $ 477    477    477    477   
Additional paid-in-capital
     Beginning balance 375    447    348    393   
     Stock plans     32    60   
        Ending balance 380    453    380    453   
Retained earnings
     Beginning balance 23,252    24,220    23,072    24,199   
     Net earnings common stockholders 520    517    985    843   
     Dividends paid (302)   (306)   (607)   (611)  
     Adoption of accounting standard updates   —    25    —   
        Ending balance 23,475    24,431    23,475    24,431   
Accumulated other comprehensive income (loss)
     Beginning balance (1,052)   (1,576)   (1,015)   (1,722)  
     Foreign currency translation 87    (282)   52    (183)  
     Pension and postretirement 12    30    25    58   
     Cash flow hedges 25    (75)   10    (56)  
        Ending balance (928)   (1,903)   (928)   (1,903)  
Treasury stock
     Beginning balance (14,816)   (15,147)   (13,935)   (15,114)  
     Purchases (75)   (813)   (1,000)   (942)  
     Issued under stock plans 13    19    57    115   
        Ending balance (14,878)   (15,941)   (14,878)   (15,941)  
Common stockholders' equity 8,526    7,517    8,526    7,517   
Noncontrolling interests in subsidiaries
     Beginning balance 40    38    43    40   
     Net earnings       10   
     Other comprehensive income        
     Dividends paid —    —    (5)   (5)  
        Ending balance 46    46    46    46   
Total equity $ 8,572    7,563    8,572    7,563   







See accompanying Notes to Consolidated Financial Statements.
4




Consolidated Statements of Cash Flows
EMERSON ELECTRIC CO. & SUBSIDIARIES

Six Months Ended March 31, 2019 and 2020
(Dollars in millions; unaudited)

Six Months Ended
March 31,
  2019    2020   
Operating activities    
Net earnings $ 992    853   
Adjustments to reconcile net earnings to net cash provided by operating activities:
        Depreciation and amortization 406    422   
        Stock compensation 52    18   
        Pension expense —    34   
        Changes in operating working capital (530)   (260)  
        Other, net (64)   (55)  
            Cash provided by operating activities 856    1,012   
Investing activities
Capital expenditures (274)   (225)  
Purchases of businesses, net of cash and equivalents acquired (243)   (96)  
Divestitures of businesses   —   
Other, net (65)   (42)  
    Cash used in investing activities (577)   (363)  
Financing activities
Net increase in short-term borrowings 851    2,076   
Proceeds from short-term borrowings greater than three months —    433   
Proceeds from long-term debt 1,135    —   
Payments of long-term debt (406)   (502)  
Dividends paid (607)   (611)  
Purchases of common stock (1,000)   (942)  
Other, net 29    39   
    Cash provided by financing activities   493   
Effect of exchange rate changes on cash and equivalents 10    (53)  
Increase in cash and equivalents 291    1,089   
Beginning cash and equivalents 1,093    1,494   
Ending cash and equivalents $ 1,384    2,583   
Changes in operating working capital
Receivables $ 175    283   
Inventories (205)   (216)  
Other current assets (82)   32   
Accounts payable (211)   (290)  
Accrued expenses (207)   (69)  
Total changes in operating working capital $ (530)   (260)  






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, 2019. Certain prior year amounts have been reclassified to conform to current year presentation.

On October 1, 2019, the Company adopted ASC 842, Leases, which requires rights and obligations related to lease arrangements to be recognized on the balance sheet, using the optional transition method under which prior periods were not adjusted. The Company elected the package of practical expedients for leases that commenced prior to the adoption date, which included carrying forward the historical lease classification as operating or finance. The adoption of ASC 842 resulted in the recognition of operating lease right-of-use assets and related lease liabilities of approximately $500 as of October 1, 2019, but did not materially impact the Company's earnings or cash flows for the three and six months ended March 31, 2020.

On October 1, 2019, the Company adopted updates to ASC 815, Derivatives and Hedging, which permit hedging certain contractually specified risk components. Additionally, the updates eliminate the requirement to separately measure and report hedge ineffectiveness and simplify hedge documentation and effectiveness assessment requirements. These updates were adopted using a modified retrospective approach and were immaterial to the Company's financial statements for the three and six months ended March 31, 2020.

(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, 2019 Mar 31, 2020
Unbilled receivables (contract assets) $ 456    397   
Customer advances (contract liabilities) (519)   (587)  
      Net contract liabilities $ (63)   (190)  
        
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, 2020 included approximately $56 and $326, respectively, 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 six months ended March 31, 2020 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, 2020, the Company's backlog relating to unsatisfied (or partially unsatisfied) performance obligations in contracts with its customers was approximately $5.7 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) WEIGHTED-AVERAGE COMMON SHARES

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,
  2019    2020    2019    2020   
Basic shares outstanding 614.0    607.4    619.0    608.7   
Dilutive shares 4.1    3.6    3.9    3.9   
Diluted shares outstanding 618.1    611.0    622.9    612.6   
 
(4) ACQUISITIONS AND DIVESTITURES

During the first six months of 2020, the Company's acquisition spending totaled $96, net of cash acquired.

The Company acquired eight businesses in 2019, all in the Automation Solutions segment, for $469, net of cash acquired. These eight businesses had combined annual sales of approximately $300. The Company recognized goodwill of $213 ($158 of which is expected to be tax deductible) and other identifiable intangible assets of $155, primarily customer relationships and intellectual property with a weighted-average life of approximately nine years.

Valuations of certain acquired assets and liabilities are in-process and subject to refinement for transactions completed after March 31, 2019.

(5) PENSION & POSTRETIREMENT PLANS

Total periodic pension and postretirement (income) expense is summarized below:
  Three Months Ended March 31, Six Months Ended March 31,
  2019    2020    2019    2020   
Service cost $ 18    22    $ 36    44   
Interest cost 50    40    100    80   
Expected return on plan assets
(88)   (84)   (176)   (168)  
Net amortization 16    38    33    75   
Total $ (4)   16    $ (7)   31   

7




(6) OTHER DEDUCTIONS, NET

Other deductions, net are summarized below:
  Three Months Ended
March 31,
Six Months Ended
March 31,
  2019    2020    2019    2020   
Amortization of intangibles (intellectual property and customer
relationships)
$ 60    59    $ 117    118   
Restructuring costs 10    31    20    128   
Special advisory fees —    —    —    13   
Other (13)   (48)   (30)   (39)  
Total $ 57    42    $ 107    220   

In the second quarter of fiscal 2020, the change in Other included favorable impacts from foreign currency transactions of $36 and supplemental retirement plans of $16, partially offset by an unfavorable impact from pensions of $16. On a year-to-date basis, the change in Other reflects a favorable impact from foreign currency transactions of $22 and lower litigation costs, partially offset by an unfavorable impact from pensions of $30.

(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. The costs incurred in the first half of fiscal 2020 largely relate to the Company's initiatives to improve operating margins that began in the third quarter of fiscal 2019 and include workforce reductions of approximately 1,800 employees. The Company expects fiscal 2020 restructuring expense and related costs to be approximately $280, an increase of $65 compared to its previous estimate, including costs to complete actions initiated in the first half of the year.

Restructuring expense by business segment follows:
  Three Months Ended
March 31,
Six Months Ended
March 31,
  2019    2020    2019    2020   
Automation Solutions $   23    11    106   
Climate Technologies        
Tools & Home Products        
Commercial & Residential Solutions       17   
Corporate        
Total $ 10    31    20    128   

Details of the change in the liability for restructuring costs during the six months ended March 31, 2020 follow:
  Sept 30, 2019    Expense    Utilized/Paid    Mar 31, 2020   
Severance and benefits $ 62    105    57    110   
Other   23    26     
Total $ 69    128    83    114   

The tables above do not include $9 of costs related to these restructuring actions incurred in the second quarter of fiscal 2020 that U.S. GAAP requires to be reported in cost of sales.  
8




(8) INCOME TAXES

Income taxes were $165 in the second quarter of fiscal 2020 and $150 in 2019, resulting in effective tax rates of 24 percent and 22 percent, respectively. The current year rate included unfavorable discrete items, which increased the rate 1 percentage point, while the prior year rate included favorable discrete tax items, which reduced the rate 2 percentage points.

Income taxes were $259 for the first six months of 2020 and $274 for 2019, resulting in effective tax rates of 23 percent and 22 percent, respectively. The prior year rate included favorable discrete items, which reduced the rate 2 percentage points.

On March 27, 2020, the CARES Act (the "Act") was enacted in response to the COVID-19 pandemic, and among other things, provides tax relief to businesses. Tax provisions of the Act include the deferral of certain payroll taxes, relief for retaining employees, and other provisions. The Company is evaluating the impact of the Act and currently expects to benefit from the deferral of certain payroll taxes through the end of calendar year 2020.

(9) LEASES

The Company leases offices; manufacturing facilities and equipment; and transportation, information technology and office equipment under operating lease arrangements. Finance lease arrangements are immaterial. The Company determines whether an arrangement is, or contains, a lease at contract inception. An arrangement contains a lease if the Company has the right to direct the use of and obtain substantially all of the economic benefits of an identified asset. Right-of-use assets and lease liabilities are recognized at lease commencement based on the present value of lease payments over the lease term. Leases with an initial term of 12 months or less are not recognized on the balance sheet and are recorded as short-term lease expense. The discount rate used to calculate present value is the Company's incremental borrowing rate based on the lease term and the economic environment of the applicable country or region.

Certain leases contain renewal options or options to terminate prior to lease expiration, which are included in the measurement of right-of-use assets and lease liabilities when it is reasonably certain they will be exercised. The Company has elected to account for lease and non-lease components as a single lease component for its offices and manufacturing facilities. Some lease arrangements include payments that are adjusted periodically based on actual charges incurred for common area maintenance, utilities, taxes and insurance, or changes in an index or rate referenced in the lease. The fixed portion of these payments is included in the measurement of right-of-use assets and lease liabilities at lease commencement, while the variable portion is recorded as variable lease expense. The Company's leases typically do not contain material residual value guarantees or restrictive covenants.

The components of lease expense for the three and six months ended March 31, 2020 were as follows:
  Three Months Ended Six Months Ended
March 31, 2020
Operating lease expense $ 53    106   
Variable lease expense $   10   

Short-term lease expense and sublease income were immaterial for the three and six months ended March 31, 2020. Cash paid for operating leases is classified within operating cash flows and was $101 for the six months ended March 31, 2020. Operating lease right-of-use asset additions were $123 for the six months ended March 31, 2020.

The following table summarizes the balances of the Company's operating lease right-of-use assets and operating lease liabilities as of March 31, 2020, the vast majority of which relates to offices and manufacturing facilities:
Mar 31, 2020
Right-of-use assets (Other assets) $ 496   
Current lease liabilities (Accrued expenses) $ 148   
Noncurrent lease liabilities (Other liabilities) $ 353   
9





The weighted-average remaining lease term for operating leases was 5.2 years and the weighted-average discount rate was 2.8 percent as of March 31, 2020.

Future maturities of operating lease liabilities as of March 31, 2020 are summarized below:
Mar 31, 2020
Remainder of 2020 $ 84   
2021 132   
2022 100   
2023 73   
2024 51   
Thereafter 94   
Total lease payments 534   
Less: Interest 33   
Total lease liabilities $ 501   

Lease commitments that have not yet commenced were immaterial as of March 31, 2020.

The future minimum annual rentals under noncancelable long-term leases as of September 30, 2019 were as follows: $159 in 2020, $112 in 2021, $82 in 2022, $57 in 2023, $38 in 2024 and $63 thereafter.

(10) OTHER FINANCIAL INFORMATION

Sept 30, 2019 Mar 31, 2020
Inventories
Finished products $ 578    641   
Raw materials and work in process 1,302    1,417   
Total $ 1,880    2,058   

Property, plant and equipment, net    
Property, plant and equipment, at cost $ 8,671    8,734   
Less: Accumulated depreciation 5,029    5,181   
     Total $ 3,642    3,553   

Goodwill by business segment
Automation Solutions $ 5,467    5,404   
Climate Technologies 668    726   
Tools & Home Products 401    390   
Commercial & Residential Solutions 1,069    1,116   
     Total $ 6,536    6,520   

Other intangible assets    
Gross carrying amount $ 4,872    4,916   
Less: Accumulated amortization 2,257    2,418   
     Net carrying amount $ 2,615    2,498   
Other intangible assets include customer relationships of $1,305 and $1,391 as of March 31, 2020 and September 30, 2019, respectively.
10




Sept 30, 2019 Mar 31, 2020
Other assets include the following:
Operating lease right-of-use assets $ —    496   
Pension assets 164    230   
Asbestos-related insurance receivables 115    105   
Deferred income taxes 97    83   

Accrued expenses include the following:
Customer advances (contract liabilities) $ 519    587   
Employee compensation 606    512   
Operating lease liabilities (current) —    148   
Product warranty 140    134   

Other liabilities include the following:    
Pension and postretirement liabilities $ 775    770   
Operating lease liabilities (noncurrent) —    353   
Deferred income taxes 327    339   
Asbestos litigation 313    305   

(11) FINANCIAL INSTRUMENTS

Following is a discussion regarding the Company’s use of financial instruments:
Hedging Activities – As of March 31, 2020, the notional amount of foreign currency hedge positions was approximately $2.2 billion, and commodity hedge contracts totaled approximately $122 (primarily 50 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, 2020 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, 2020 and 2019:
Into Earnings Into OCI
2nd Quarter Six Months 2nd Quarter Six Months
Gains (Losses) Location 2019    2020    2019    2020    2019    2020    2019    2020   
Commodity Cost of sales $ (3)   (1)   (6)   (4)   10    (23)     (16)  
Foreign currency
Sales
(1)   (1)   (3)   (3)   (1)   (8)   (2)   (5)  
Foreign currency
Cost of sales
      11    23    (66)   12    (49)  
Foreign currency
Other deductions, net
29    13    40    21   
Net Investment Hedges
Euro denominated debt   57      31   
     Total   $ 30    15    $ 40    25    38    (40)   19    (39)  

11




Regardless of whether derivatives and non-derivative financial instruments receive hedge accounting, the Company expects hedging gains or losses to be essentially 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 March 31, 2020, the fair value of long-term debt was $4.5 billion, which exceeded the carrying value by $280. 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, 2019.
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 $53. 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, 2020.

(12) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Activity in Accumulated other comprehensive income (loss) for the three and six months ended March 31, 2020 and 2019 is shown below, net of income taxes:  
Three Months Ended March 31, Six Months Ended March 31,
2019    2020    2019    2020   
Foreign currency translation
   Beginning balance $ (635)   (695)   (600)   (794)  
   Other comprehensive income (loss), net of tax of $(1), $(13), $(1)
     and $(7), respectively
87    (282)   52    (183)  
   Ending balance (548)   (977)   (548)   (977)  
Pension and postretirement
   Beginning balance (407)   (900)   (420)   (928)  
Amortization of deferred actuarial losses into earnings, net of tax
  of $(4), $(8), $(8) and $(17), respectively
12    30    25    58   
   Ending balance (395)   (870)   (395)   (870)  
Cash flow hedges
   Beginning balance (10)   19      —   
Deferral of gains (losses) arising during the period, net of tax
  of $(8), $23, $(3) and $17, respectively
24    (74)   10    (53)  
   Reclassification of realized (gains) losses to sales and cost of
     sales, net of tax of $0, $1, $0 and $1, respectively
  (1)   —    (3)  
   Ending balance 15    (56)   15    (56)  
Accumulated other comprehensive income (loss) $ (928)   (1,903)   (928)   (1,903)  



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
  2019    2020    2019    2020    2019    2020    2019    2020   
Automation Solutions $ 3,010    2,709    444    391    5,809    5,561    851    701   
Climate Technologies 1,092    1,026    226    217    1,972    1,899    372    368   
Tools & Home Products 469    432    102    89    927    862    193    175   
Commercial & Residential Solutions
1,561    1,458    328    306    2,899    2,761    565    543   
Stock compensation
(59)   38    (52)   (18)  
Unallocated pension and
postretirement costs
27    12    54    25   
Corporate and other (17)   (22)   (61)   (68)  
Eliminations/Interest (1)   (5)   (48)   (36)     (9)   (91)   (71)  
     Total $ 4,570    4,162    675    689    8,717    8,313    1,266    1,112   

The decrease in stock compensation expense reflects the decline in the Company's stock price in the current year.

Automation Solutions sales by major product offering are summarized below:
  Three Months Ended March 31, Six Months Ended March 31,
  2019    2020    2019    2020   
Measurement & Analytical Instrumentation $ 927    816    1,785    1,646   
Valves, Actuators & Regulators 937    854    1,811    1,767   
Industrial Solutions 574    494    1,116    1,001   
Process Control Systems & Solutions 572    545    1,097    1,147   
     Automation Solutions $ 3,010    2,709    5,809    5,561   

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,
2019    2020    2019    2020   
Automation Solutions $ 131    138    $ 260    277   
Climate Technologies 45    45    90    89   
Tools & Home Products 17    19    36    38   
Commercial & Residential Solutions 62    64    126    127   
Corporate and other 11      20    18   
     Total $ 204    211    $ 406    422   


13




Sales by geographic destination are summarized below:
Three Months Ended March 31,
2019 2020
  Automation Solutions Commercial & Residential Solutions Total Automation Solutions Commercial & Residential Solutions Total
Americas $ 1,523    1,082    2,605    1,346    1,037    2,383   
Asia, Middle East & Africa 910    285    1,195    830    235    1,065   
Europe 577    194    771    533    186    719   
     Total $ 3,010    1,561    4,571    2,709    1,458    4,167