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STOCK-BASED COMPENSATION | 12 Months Ended
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Sep. 30, 2024
Share-Based Payment Arrangement [Abstract] |
STOCK-BASED COMPENSATION | STOCK-BASED COMPENSATION The Company's stock-based compensation plans include performance shares, restricted stock, restricted stock units, and stock options. Although the Company has discretion, shares distributed under these plans are issued from treasury stock. In fiscal 2022, the Company changed the terms of its annual performance share awards that were issued in the first quarter. The terms meet the criteria for equity classification in accordance with ASC 718, Compensation - Stock Compensation, and therefore expense is recognized on a fixed basis over the three-year performance period. AspenTech also has stock-based compensation plans that are settled in its own stock. These plans consist of performance shares, restricted stock units and stock options. As a result of the Company's acquisition of NI, outstanding NI restricted stock units and performance stock units were assumed by Emerson and converted at the time of the acquisition into Emerson time-based restricted stock units, but otherwise subject to the same terms and conditions (including vesting and payment schedule) as the awards originally issued by NI. Total compensation expense and income tax benefits for Emerson and AspenTech stock options and incentive shares follows.
| 2022 |  |  | 2023 |  |  | 2024
Performance shares | $ | 89 |  |  | 165 |  |  | 90 |
Restricted stock and restricted stock units | 23 |  |  | 24 |  |  | 115 |
AspenTech stock-based compensation plans | 32 |  |  | 82 |  |  | 55 |
Total stock compensation expense | 144 |  |  | 271 |  |  | 260 |
Less: discontinued operations | 19 |  |  | 21 |  |  | — |
Stock compensation expense from continuing operations | $ | 125 |  |  | 250 |  |  | 260 |
Income tax benefits recognized | $ | 19 |  |  | 28 |  |  | 32 |
Stock compensation expense for 2024 includes $96 related to NI restricted stock units, which includes $58 of integration-related stock compensation expense (of which $43 was reported as restructuring costs). As of September 30, 2024, total unrecognized compensation expense related to unvested shares awarded under Emerson plans was $190, which is expected to be recognized over a weighted-average period of 1.1 years, while the total future unrecognized compensation cost related to AspenTech stock options, RSUs and performance stock un its was $8, $63 and $23 respectively, which is expected to be recorded over a weighted average period of 2.2 years, 2.2 years and 2.6 years, respectively. Emerson Performance Shares, Restricted Stock and Restricted Stock Units The Company's incentive shares plans include performance shares awards which distribute the value of common stock to key management employees at the conclusion of a three-year period subject to certain operating performance conditions and other terms and restrictions. Dividend equivalents are only paid on earned awards after the performance period has concluded. Compensation expense for performance shares is recognized over the service period based on the number of shares ultimately expected to be earned. Information related to performance share payouts for the years ended September 30, 2023 and 2024 follows (shares in thousands):
| 2023 |  |  | 2024
Performance period | 2020 - 2022 |  | 2021 - 2023
Percent payout | 106 | % |  | 118 | %
Total shares earned | 1,557 |  | 1,733
Shares distributed in cash, primarily for tax withholding | 684 |  | 755
As of September 30, 2024, approximately 919,000 shares awarded primarily in 2022 were outstanding, contingent on the Company achieving its performance objectives through 2024. The objectives for these shares were met at t he 118 percent level and the shares will be distributed in early fiscal 2025. Additionally, the rights to receive approximately 518,000 and 928,000 shares awarded in 2024 and 2023, respectively, are outstanding and contingent upon the Company achieving its performance objectives through 2026 and 2025, respectively. Incentive shares plans also include restricted stock awards and restricted stock units. Restricted stock awards involve distribution of common stock to key management employees subject to cliff vesting at the end of service periods ranging from three to ten years while restricted stock units granted to employees vest over a three-year period. The fair value of restricted stock awards and restricted stock units is determined based on the average of the high and low market prices of the Company's common stock on the date of grant, with compensation expense recognized ratably over the applicable vesting period. In 2024, approximately 55,000 shares of restricted stock and approximately 1,462,000 restricted stock units vested as a result of participants fulfilling the applicable service requirements. Consequently, approximately 38,000 shares and 1,404,000 units were issued while 17,000 shares and 58,000 units were withheld for income taxes in accordance with minimum withholding requirements. As of September 30, 2024, there were approximately 2,269,000 shares of unvested restricted stock and restricted stock units outstanding. In addition to the employee stock option and incentive share plans, in 2024 the Company awarded approximately 19,000 restricted stock units under the restricted stock plan for non-management directors. As of September 30, 2024, approximately 38,000 shares were available for issuance under this plan. As of September 30, 2024, 17.5 million shares remained available for award under incentive shares plans. Changes in shares outstanding but not yet earned under incentive shares plans during the year ended September 30, 2024 follow (shares in thousands; assumes 100 percent payout of unvested awards):
| Shares |  | Average Grant Date Fair Value Per Share
Beginning of year | 4,437 |  |  |  | $ | 82.02 |  |
Granted | 1,257 |  |  |  | $ | 91.88 |  |
Assumed | 2,114 |  |  |  | $ | 96.65 |  |
Earned/vested | (2,986) |  |  |  | $ | 80.83 |  |
Canceled | (188) |  |  |  | $ | 91.01 |  |
End of year | 4,634 |  |  |  | $ | 91.46 |  |
Information related to Emerson incentive shares plans follows:
| 2022 |  |  | 2023 |  |  | 2024 |
Total fair value of shares earned/vested | $ | 158 |  |  | 158 |  |  | 284 |
Share awards distributed in cash, primarily for tax withholding | $ | 69 |  |  | 73 |  |  | 81 |
Emerson Stock Options There were no stock option grants in 2024, 2023 and 2022. The Company's stock option plans expired in 2021. Previously awarded stock options allow key officers and employees to purchase common stock at specified prices, which are equal to 100 percent of the closing market price of the Company's stock on the date of grant. Options generally vest one-third in each of the three years subsequent to grant and expire 10 years from the date of grant. Changes in shares subject to options during the year ended September 30, 2024 follow (shares in thousands):
| Weighted- Average Exercise Price Per Share |  | Shares |  | Total Intrinsic Value of Shares |  | Average Remaining Life (Years)
Beginning of year |  | $ | 53.35 |  |  |  | 589 |  |  |  |  |  |  |  |  |
Options exercised |  | $ | 54.76 |  |  |  | (294) |  |  |  |  |  |  |  |  |
Options canceled |  | $ | 62.47 |  |  |  | (7) |  |  |  |  |  |  |  |  |
End of year |  | $ | 51.71 |  |  |  | 288 |  |  |  | $ | 16 |  |  |  |  | 1.4 |
Exercisable at end of year |  | $ | 51.71 |  |  |  | 289 |  |  |  | $ | 16 |  |  |  |  | 1.4 |
Information related to Emerson stock options follows:
| 2022 |  |  | 2023 |  |  | 2024 |
Cash received for option exercises | $ | 15 |  |  | 49 |  |  | 14 |
Intrinsic value of options exercised | $ | 11 |  |  | 27 |  |  | 15 |
Tax benefits related to option exercises | $ | 7 |  |  | 4 |  |  | 5 |
AspenTech Stock-Based Compensation As discussed in Note 4, Emerson completed the acquisition of Heritage AspenTech in the third quarter of 2022. AspenTech, as defined in Note 4, operates as a separate publicly traded company and has various stock-based compensation plans, including stock options, restricted stock units and performance stock units, which are settled in their own common stock and are accounted for as equity awards. Restricted stock units and performance stock units generally vest over three years. In fiscal 2023 and 2024, the Company granted performance stock units with both a performance and service condition. The performance condition relates to the attainment of predefined goals based on annual contract value and free cash flows. On a quarterly basis, management evaluates the probability that the threshold performance goals will be achieved, if at all, and the anticipated level of attainment to determine the amount of compensation expense to record in the condensed consolidated financial statements. Option awards have been granted with an exercise price equal to the market closing price of AspenTech's stock on the trading day prior to the grant date. These options generally vest over four years and expire within seven years or ten years of grant. AspenTech's policy is to issue new shares upon the exercise of vested stock awards. Pursuant to the terms of the transaction agreement between Emerson and Heritage AspenTech, each outstanding option to purchase shares of Heritage AspenTech common stock, whether vested or unvested, that was unexercised as of immediately prior to the closing date was converted into an option to acquire shares of AspenTech. Each converted option is subject to the same terms and conditions as applied to the original option. In addition, each outstanding award of restricted stock units with respect to shares of Heritage AspenTech common stock that were unvested as of immediately prior to the closing date was converted into an award of restricted stock units with respect to shares of AspenTech. Each converted restricted stock unit is also subject to the same terms and conditions as applied to the original restricted stock unit. ASC 805 required the Company to determine the fair value of the AspenTech share-based payment awards related to the replacement of the Heritage AspenTech share-based payment awards, and allocate the total fair value based on the services that are attributable to the pre- and post-combination service periods, respectively. The portion that is attributable to the pre-combination service period was considered part of the consideration transferred for Heritage AspenTech and included as part of the purchase price. The portion that is attributable to the post-combination service period is recognized as stock-based compensation expense in the post-combination consolidated financial statements over the remaining requisite service period. AspenTech Stock Options AspenTech utilizes the Black-Scholes option valuation model for estimating the fair value of options granted. The Black-Scholes option valuation model incorporates assumptions regarding expected stock price volatility, the expected life of the option, the risk-free interest rate, dividend yield and the market value of AspenTech's common stock. The expected stock price volatility is determined based on AspenTech's stock’s historic prices over a period commensurate with the expected life of the award. The expected life of an option represents the period for which options are expected to be outstanding as determined by historic option exercises and cancellations. The risk-free interest rate is based on the U.S. Treasury yield curve for notes with terms approximating the expected life of the options g ranted. The expected dividend yield is zero, based on AspenTech's history and expectation of not paying dividends on common shares. Stoc k-based compensation expense is recognized on a straight-line basis, net of forfeitures as they occur, over the requisite service period for time-vested awards. There were no stock option grants in 2024. A summary of AspenTech stock option activity in 2024 is as follows (shares in thousands):
| Weighted- Average Exercise Price Per Share |  | Shares |  | Total Intrinsic Value of Shares |  | Average Remaining Contractual Term (Years)
Beginning of year |  | $ | 161.26 |  |  |  | 974 |  |  |  |  |  |  |  |  |
Granted |  | $ | — |  |  |  | — |  |  |  |  |  |  |  |  |
Exercised |  | $ | 104.86 |  |  |  | (217) |  |  |  |  |  |  |  |  |
Canceled / Forfeited |  | $ | 118.38 |  |  |  | (76) |  |  |  |  |  |  |  |  |
End of year |  | $ | 159.47 |  |  |  | 681 |  |  |  | $ | 66 |  |  |  |  | 5.6 |
Exercisable at end of year |  | $ | 133.36 |  |  |  | 563 |  |  |  | $ | 59 |  |  |  |  | 5.2 |
Vested and expected to vest at September 30, 2024 |  | $ | 142.10 |  |  |  | 676 |  |  |  | $ | 65 |  |  |  |  | 5.6 |
The total intrinsic value of options exercised during 2024 was $15. Cash proceeds of $25 from issuances of shares of AspenTech common stock were received during 2024. AspenTech Restricted Stock Units and Performance Stock Units A summary of AspenTech restricted stock unit and performance stock unit activity in 2024 is as follows (shares in thousands):
| Weighted- Average Grant Date Fair Value |  | Shares
Beginning of year |  | $ | 193.17 |  |  |  | 653 |
Granted |  | $ | 230.22 |  |  |  | 263 |
Settled |  | $ | 192.52 |  |  |  | (306) |
Canceled / Forfeited |  | $ | 196.48 |  |  |  | (95) |
End of year |  | $ | 212.13 |  |  |  | 515 |
Vested and expected to vest at September 30, 2024 |  | $ | 213.47 |  |  |  | 471 |
In 2024, AspenTech granted additional performance stock units with a performance condition and service condition. The 2024 performance stock units vest on a cliff basis in three years based upon the achievement of predefined performance goals, with no ability for the awards to vest on an accelerated basis. The performance goal relates to (i) growth in annual contract value over the performance period and (ii) cumulative free cash flow over the performance period. Up to 150 percent of the performance stock units could vest upon achievement of the performance goals. Conversely, if a minimum performance goal is not met, none of the performance stock units will vest. During 2024, the total fair value of vested shares from AspenTech RSU grants amounted to $62. Withholding taxes of $21 were paid on vested RSUs during 2024. On a quarterly basis, management evaluates the probability that the threshold performance goals will be achieved, if at all, and the anticipated level of attainment to determine the amount of compensation expense to record in the condensed consolidated financial statements. In 2023, AspenTech granted performance stock units with a performance condition and service condition. These performance stock units vest on a cliff basis in three years based upon the achievement of predefined performance goals, with the ability for 25 percent of granted awards to vest on an accelerated basis in each of the first two years. The performance goal relates to the sum of (i) annual contract value growth and (ii) free cash flow margin over the performance period. Up to 175 percent of the performance stock units could vest upon achievement of the performance goals. Conversely, if a minimum performance goal is not met, none of the performance stock units will vest. At September 30, 2024, common stock reserved for future issuance under all AspenTech equity compensation plans was 4 million shares.

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