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


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

For the quarterly period ended March 31, 2022

OR

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

For the transition period from ____________________ to __________________

Commission file number 1-278

EMERSON ELECTRIC CO.
(Exact name of registrant as specified in its charter)
Missouri
emr-20220331_g1.jpg
43-0259330
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
8000 W. Florissant Ave. 
 
P.O. Box 4100
St. Louis,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 March 31, 2022: 594.0 million shares.








PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

Consolidated Statements of Earnings
EMERSON ELECTRIC CO. & SUBSIDIARIES

Three and six months ended March 31, 2021 and 2022
(Dollars in millions, except per share amounts; unaudited)
 
 Three Months Ended
March 31,
Six Months Ended
March 31,
 2021 2022 2021 2022 
Net sales$4,431 4,791 8,592 9,264 
Cost of sales2,569 2,839 5,007 5,490 
Selling, general and administrative expenses1,054 1,049 2,052 2,060 
Gain on subordinated interest   (453)
Other deductions, net33 40 155 91 
Interest expense (net of interest income of $4, $4, $6, and $7, respectively)
38 52 78 90 
Earnings before income taxes737 811 1,300 1,986 
Income taxes169 136 280 416 
Net earnings568 675 1,020 1,570 
Less: Noncontrolling interests in subsidiaries7 1 14  
Net earnings common stockholders$561 674 1,006 1,570 
Earnings per share:
Basic$0.94 1.13 1.68 2.64 
Diluted$0.93 1.13 1.67 2.63 
Weighted average outstanding shares:
Basic599.4 593.3 599.0 593.9 
Diluted602.8 596.5 602.3 597.3 

 















See accompanying Notes to Consolidated Financial Statements.





1




Consolidated Statements of Comprehensive Income
EMERSON ELECTRIC CO. & SUBSIDIARIES

Three and six months ended March 31, 2021 and 2022
(Dollars in millions; unaudited)
 Three Months Ended March 31,Six Months Ended March 31,
 2021 2022 2021 2022 
Net earnings$568 675 1,020 1,570 
Other comprehensive income (loss), net of tax:
Foreign currency translation(21)(60)168 (132)
Pension and postretirement27 18 54 36 
Cash flow hedges1 6 32 10 
        Total other comprehensive income (loss)7 (36)254 (86)
Comprehensive income575 639 1,274 1,484 
Less: Noncontrolling interests in subsidiaries6  13 (1)
Comprehensive income common stockholders$569 639 1,261 1,485 

































See accompanying Notes to Consolidated Financial Statements.





2




Consolidated Balance Sheets
EMERSON ELECTRIC CO. & SUBSIDIARIES

(Dollars and shares in millions, except per share amounts; unaudited)
 Sept 30, 2021Mar 31, 2022
ASSETS  
Current assets  
Cash and equivalents$2,354 6,929 
Receivables, less allowances of $116 and $114, respectively
2,971 2,958 
Inventories2,050 2,399 
Other current assets1,057 1,253 
Total current assets8,432 13,539 
Property, plant and equipment, net3,738 3,567 
Other assets 
Goodwill7,723 7,631 
Other intangible assets2,877 2,699 
Other1,945 2,061 
Total other assets12,545 12,391 
Total assets$24,715 29,497 
LIABILITIES AND EQUITY  
Current liabilities  
Short-term borrowings and current maturities of long-term debt$872 2,762 
Accounts payable2,108 2,049 
Accrued expenses3,266 3,261 
Total current liabilities6,246 8,072 
Long-term debt5,793 8,203 
Other liabilities2,753 2,608 
Equity  
Common stock, $0.50 par value; authorized, 1,200.0 shares; issued, 953.4 shares; outstanding, 595.8 shares and 593.9 shares, respectively
477 477 
Additional paid-in-capital522 579 
Retained earnings26,047 27,003 
Accumulated other comprehensive income (loss)(872)(957)
Cost of common stock in treasury, 357.6 shares and 359.5 shares, respectively
(16,291)(16,527)
Common stockholders’ equity9,883 10,575 
Noncontrolling interests in subsidiaries40 39 
Total equity9,923 10,614 
Total liabilities and equity$24,715 29,497 



See accompanying Notes to Consolidated Financial Statements.





3




Consolidated Statements of Equity
EMERSON ELECTRIC CO. & SUBSIDIARIES

Three and six months ended March 31, 2021 and 2022
(Dollars in millions; unaudited)
Three Months Ended March 31,Six Months Ended March 31,
2021 2022 2021 2022 
Common stock$477 477 477 477 
Additional paid-in-capital
     Beginning balance499 564 470 522 
     Stock plans12 15 41 57 
        Ending balance511 579 511 579 
Retained earnings
     Beginning balance25,096 26,636 24,955 26,047 
     Net earnings common stockholders561 674 1,006 1,570 
Dividends paid (per share: $0.505, $0.515, $1.01 and $1.03, respectively)
(303)(307)(606)(614)
     Adoption of accounting standard  (1) 
        Ending balance25,354 27,003 25,354 27,003 
Accumulated other comprehensive income (loss)
     Beginning balance(1,330)(922)(1,577)(872)
     Foreign currency translation(20)(59)169 (131)
     Pension and postretirement27 18 54 36 
     Cash flow hedges1 6 32 10 
        Ending balance(1,322)(957)(1,322)(957)
Treasury stock
     Beginning balance(15,847)(16,506)(15,920)(16,291)
     Purchases(69)(27)(82)(285)
     Issued under stock plans26 6 112 49 
        Ending balance(15,890)(16,527)(15,890)(16,527)
Common stockholders' equity9,130 10,575 9,130 10,575 
Noncontrolling interests in subsidiaries
     Beginning balance44 39 42 40 
     Net earnings7 1 14  
     Other comprehensive income(1)(1)(1)(1)
     Dividends paid  (5) 
        Ending balance50 39 50 39 
Total equity$9,180 10,614 9,180 10,614 







See accompanying Notes to Consolidated Financial Statements.





4




Consolidated Statements of Cash Flows
EMERSON ELECTRIC CO. & SUBSIDIARIES

Six Months Ended March 31, 2021 and 2022
(Dollars in millions; unaudited)
Six Months Ended
March 31,
 2021 2022 
Operating activities  
Net earnings$1,020 1,570 
Adjustments to reconcile net earnings to net cash provided by operating activities:
        Depreciation and amortization483 452 
        Stock compensation125 91 
        Pension expense16 2 
        Changes in operating working capital66 (588)
        Gain on subordinated interest (453)
        Other, net(95)(109)
            Cash provided by operating activities1,615 965 
Investing activities
Capital expenditures(222)(225)
Purchases of businesses, net of cash and equivalents acquired(1,611)(37)
Proceeds from subordinated interest 438 
Other, net61 (17)
    Cash provided by (used in) investing activities(1,772)159 
Financing activities
Net increase in short-term borrowings60 871 
Proceeds from short-term borrowings greater than three months 1,040 
Proceeds from long-term debt 2,975 
Payments of long-term debt(301)(504)
Dividends paid(606)(613)
Purchases of common stock(78)(285)
Other, net83 15 
    Cash provided by (used in) financing activities(842)3,499 
Effect of exchange rate changes on cash and equivalents26 (48)
Increase (Decrease) in cash and equivalents(973)4,575 
Beginning cash and equivalents3,315 2,354 
Ending cash and equivalents$2,342 6,929 
Changes in operating working capital
Receivables$75 (68)
Inventories(61)(428)
Other current assets(16)(24)
Accounts payable55 18 
Accrued expenses13 (86)
Total changes in operating working capital$66 (588)





See accompanying Notes to Consolidated Financial Statements.





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Notes to Consolidated Financial Statements
EMERSON ELECTRIC CO. & SUBSIDIARIES

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

(1) BASIS OF PRESENTATION

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

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

Updates to ASC 805, Business Combinations, which clarify the accounting for contract assets and liabilities assumed in a business combination. In general, this will result in contract liabilities being recognized at their historical amounts under ASC 606, rather than at fair value in accordance with the general requirements of ASC 805.

Updates to ASC 740, Income Taxes, which require the recognition of a franchise tax that is partially based on income as an income-based tax with any incremental amount as a non-income based tax. These updates also make certain changes to intra-period tax allocation principles and interim tax calculations.

Updates to ASC 321, Equity Securities, ASC 323 Investments - Equity Method and Joint Ventures, and ASC 815, Derivatives and Hedging, which clarify how to account for the transition into and out of the equity method of accounting when evaluating observable transactions.

(2) REVENUE RECOGNITION

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

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





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

(3) COMMON SHARES AND SHARE-BASED COMPENSATION

Reconciliations of weighted-average shares for basic and diluted earnings per common share follow. Earnings allocated to participating securities were inconsequential.
Three Months Ended
March 31,
Six Months Ended
March 31,
 2021 2022 2021 2022 
Basic shares outstanding599.4 593.3 599.0 593.9 
Dilutive shares3.4 3.2 3.3 3.4 
Diluted shares outstanding602.8 596.5 602.3 597.3 
 
The Company changed the terms of its annual performance share awards issued in the first quarter of fiscal 2022. The new terms meet the criteria for equity classification in accordance with ASC 718, Compensation - Stock Compensation, and therefore expense will be recognized on a fixed basis over the three-year performance period. The terms of the performance share awards issued in fiscal 2020 and 2021 are unchanged and will therefore continue to be accounted for as liability awards and marked-to-market each period based on changes in the stock price.

(4) ACQUISITIONS AND DIVESTITURES

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

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

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

As previously disclosed, the Company sold its network power systems business (rebranded as Vertiv, now a publicly traded company, symbol VRT) in 2017 and retained a subordinated interest contingent upon the equity holders first receiving a threshold cash return on their initial investment. In the first quarter of fiscal 2022, the equity holders' cumulative cash return exceeded the threshold and as a result, the Company received a distribution of $438 in November 2021 (in total, a gain of $453 was recognized in the first quarter). Based on the terms of the agreement and the current calculation, the Company could receive additional distributions of approximately $75 which are expected to be received over the next two-to-three years. However, the distributions are contingent on the timing and price at





7




which Vertiv shares are sold by the equity holders and therefore, there can be no assurance as to the amount or timing of the remaining distributions to the Company.

(5) PENSION & POSTRETIREMENT PLANS

Total periodic pension and postretirement (income) expense is summarized below:
 Three Months Ended March 31,Six Months Ended March 31,
 2021 2022 2021 2022 
Service cost$21 19 42 38 
Interest cost32 34 64 68 
Expected return on plan assets
(84)(78)(168)(156)
Net amortization35 23 70 46 
Total$4 (2)8 (4)

(6) OTHER DEDUCTIONS, NET

Other deductions, net are summarized below:
 Three Months Ended
March 31,
Six Months Ended
March 31,
 2021 2022 2021 2022 
Amortization of intangibles (intellectual property and customer relationships)$74 62 152 125 
Restructuring costs17 10 83 19 
Other(58)(32)(80)(53)
Total$33 40 155 91 

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

(7) RESTRUCTURING COSTS

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






8




Restructuring expense by business segment follows:
 Three Months Ended
March 31,
Six Months Ended
March 31,
 2021 2022 2021 2022 
Automation Solutions$12 8 76 13 
Climate Technologies3 1 4 3 
Tools & Home Products1 1 2 2 
Commercial & Residential Solutions4 2 6 5 
Corporate1  1 1 
Total$17 10 83 19 

Details of the change in the liability for restructuring costs during the six months ended March 31, 2022 follow:
 Sept 30, 2021ExpenseUtilized/PaidMar 31, 2022
Severance and benefits$172 5 32 145 
Other4 14 17 1 
Total$176 19 49 146 

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

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

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

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

(9) OTHER FINANCIAL INFORMATION

Sept 30, 2021Mar 31, 2022
Inventories
Finished products$616 764 
Raw materials and work in process1,434 1,635 
Total$2,050 2,399 





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Sept 30, 2021Mar 31, 2022
Property, plant and equipment, net  
Property, plant and equipment, at cost$9,427 9,198 
Less: Accumulated depreciation5,689 5,631 
     Total$3,738 3,567 
Goodwill by business segment
Automation Solutions$6,552 6,504 
Climate Technologies753 723 
Tools & Home Products418 404 
Commercial & Residential Solutions1,171 1,127 
     Total$7,723 7,631 
Other intangible assets  
Gross carrying amount$5,911 5,897 
Less: Accumulated amortization3,034 3,198 
     Net carrying amount$2,877 2,699 
Other intangible assets include customer relationships, net, of $1,495 and $1,401 as of September 30, 2021 and March 31, 2022, respectively.
Three Months Ended March 31,Six Months Ended March 31,
2021 2022 2021 2022 
Depreciation and amortization expense include the following:
Depreciation expense$122 121 246 249 
Amortization of intangibles (includes $14, $14, $28, and $28 reported in Cost of Sales, respectively)
88 76 180 153 
Amortization of capitalized software29 24 57 50 
Total $239 221 483 452 
Amortization of intangibles included backlog amortization of $6 and $17 related to the OSI acquisition for the three and six months ended March 31, 2021, respectively.
Sept 30, 2021Mar 31, 2022
Other assets include the following:
Pension assets$1,015 1,076 
Operating lease right-of-use assets558 523 
Deferred income taxes115 103 
Asbestos-related insurance receivables95 88 
Accrued expenses include the following:
Customer advances (contract liabilities)$730 868 
Employee compensation690 493 
Operating lease liabilities (current)155 151 
Product warranty146 137 





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Sept 30, 2021Mar 31, 2022
Other liabilities include the following:  
Deferred income taxes$711 750 
Pension and postretirement liabilities676 666 
Operating lease liabilities (noncurrent)413 382 
Asbestos litigation256 242 
(10) DEBT
In December 2021, the Company issued $1 billion of 2.0% notes due December 2028, $1 billion of 2.2% notes due December 2031, and $1 billion of 2.8% notes due December 2051. The Company expects to use the net proceeds from the sale of the notes to pay a portion of its contribution of approximately $6.0 billion to existing stockholders of AspenTech as part of the transaction discussed further in Note 4. If the transaction with AspenTech is not completed or is terminated, the Company will be required to redeem the notes at a redemption price equal to 101% of the principal amount plus accrued and unpaid interest.
In the second quarter of fiscal 2022, the Company increased its commercial paper borrowings by approximately $2.2 billion to generate additional cash to fund the AspenTech transaction.

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

(11) FINANCIAL INSTRUMENTS
Hedging Activities – As of March 31, 2022, the notional amount of foreign currency hedge positions was approximately $2.6 billion, and commodity hedge contracts totaled approximately $120 (primarily 32 million pounds of copper and aluminum). All derivatives receiving hedge accounting are cash flow hedges. The majority of hedging gains and losses deferred as of March 31, 2022 are expected to be recognized over the next 12 months as the underlying forecasted transactions occur. Gains and losses on foreign currency derivatives reported in Other deductions, net reflect hedges of balance sheet exposures that do not receive hedge accounting.
Net Investment Hedge – In fiscal 2019, the Company issued euro-denominated debt of €1.5 billion. The euro notes reduce foreign currency risk associated with the Company's international subsidiaries that use the euro as their functional currency and have been designated as a hedge of a portion of the investment in these operations. Foreign currency gains or losses associated with the euro-denominated debt are deferred in accumulated other comprehensive income (loss) and will remain until the hedged investment is sold or substantially liquidated.
The following gains and losses are included in earnings and other comprehensive income (OCI) for the three and six months ended March 31, 2021 and 2022:
Into EarningsInto OCI
2nd QuarterSix Months2nd QuarterSix Months
Gains (Losses)Location2021 2022 2021 2022 2021 2022 2021 2022 
CommodityCost of sales$8 6 11 13 13 10 26 23 
Foreign currency
Sales
1  2 1 (2)(2)3 (2)
Foreign currency
Cost of sales
2 9 2 11  14 27 17 
Foreign currency
Other deductions, net
29 8 25 52 
Net Investment Hedges
Euro denominated debt53 35 (27)79 
     Total $40 23 40 77 64 57 29 117 

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





11




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

(12) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Activity in Accumulated other comprehensive income (loss) for the three and six months ended March 31, 2021 and 2022 is shown below, net of income taxes: 
Three Months Ended March 31,Six Months Ended March 31,
2021 2022 2021 2022 
Foreign currency translation
   Beginning balance$(522)(701)(711)(629)
   Other comprehensive income (loss), net of tax of $(13), $(8), $6 and $(18), respectively
(20)(59)169 (131)
   Ending balance(542)(760)(542)(760)
Pension and postretirement
   Beginning balance(837)(241)(864)(259)
Amortization of deferred actuarial losses into earnings, net of tax of $(8), $(5), $(16) and $(10), respectively
27 18 54 36 
   Ending balance(810)(223)(810)(223)
Cash flow hedges
   Beginning balance29 20 (2)16 
Gains deferred during the period, net of taxes of $(2), $(5), $(13) and $(9), respectively
9 17 43 29 
   Reclassification of realized (gains) losses to sales and cost of sales, net of tax of $3, $4, $4 and $6, respectively
(8)(11)(11)(19)
   Ending balance30 26 30 26