Emerson 2004 Annual Report Download

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Emerson
World Headquarters
8000 W. Florissant Ave.
P.O. Box 4100
St. Louis, MO 63136
www.gotoemerson.com
2004 Annual Report
What does it mean to be Emerson?

Table of contents

  • Page 1
    2004 Annual Report What does it mean to be Emerson?

  • Page 2
    ... process businesses increase plant uptime, improve productivity, and identify and eliminate problems before they occur. Emerson offers intelligent control systems and software, measurement instruments, valves, and expertise in engineering, project management, and consulting. Climate Technologies...

  • Page 3
    ... processes. Appliance and Tools Professional contractors use our quality tools to do their jobs more efficiently. Our storage solutions organize space in homes and businesses. And our innovative motors, digital controls, and customized technologies power everything from household appliances...

  • Page 4
    ... markets of Asia-Pacific, Eastern Europe, Latin America, and the David N. Farr, Chairman and Chief Executive Officer Middle East. Earnings per share from continuing What does it mean to be Emerson? It means unwavering dedication to excellence in all we do. It means solving problems for customers...

  • Page 5
    ... position in the process control business with the acquisition of Metran Industrial Group, one of the top suppliers of measurement instrumentation and services for the process industry in Russia and Eastern Europe. process emphasizes intensive current and long-term planning, disciplined control...

  • Page 6
    ...ficant progress transforming Emerson to a company with a more intense customer focus. Combining industry-leading products with comprehensive solutions and services enables our customers to differentiate themselves in their markets. Listening to our customers and to their end customers allows us to...

  • Page 7
    ... Management, Network Power, Climate Technologies, Industrial Automation, and Appliance and Tools - that generate unique competitive advantages for our customers and value for shareholders. in our "Statement of Corporate Governance Principles and Practices," which is accessible on the company's Web...

  • Page 8
    ... leaders enjoy competitive advantage and market leadership, built upon products and solutions that competitors simply can't match. At Emerson, we've increased our technology velocity by creating engineering centers around the world to speed innovation through around-the-clock collaboration. In...

  • Page 9
    ... of its kind, SECCO chose Emerson's PlantWeb® digital architecture to give it a complete solution, including measurement, valves, and services. This technology will help the facility maximize efficiency and speed to market, enabling SECCO to seize opportunity ahead of the competition. velocity

  • Page 10
    8 Emerson 2004

  • Page 11
    ..., so maintaining optimum food storage temperatures as low as -30oF pushes most compressors to their limits, until now. Thermo King chose Emerson's digital Copeland Scrollâ„¢ compressor - the only one that can easily maintain optimum temperatures in such extreme environments. It also reduces energy...

  • Page 12
    ..., we've placed our product development, manufacturing, and service facilities close to them. This approach lowers costs for us as well as for our customers, and it is fundamental to our success in serving high-growth, emerging markets such as Eastern Europe, Russia, and China. Just as important, our...

  • Page 13
    ...goals when Poland became a free country in the early 1990s: stabilize the transmission grid to connect to the European Union, and reduce coal plant emissions. The major power generators turned to Emerson Process Management for industryleading software, systems, and solutions to help meet these goals...

  • Page 14
    12 Emerson 2004

  • Page 15
    ...market, China Mobile tapped its long-time relationship with Emerson. Emerson provides about 35 percent of the network power products and services that support telecommunications networks in China. Emerson's technology, training, and service facilities, located throughout China, will help the network...

  • Page 16
    .... Our product-development process starts by talking with our customers to understand their needs and responding with innovative solutions, such as Web-based customer service and product support. This helps our customers better serve their customers. That's why our customers believe us when we say...

  • Page 17
    ... discovered that contractors wanted a line of wet/dry vacs with increased versatility in a quieter, more rugged design. With additional input from The Home Depot, Emerson created the new RIDGID® Pro line wet/dry vacs with features such as unique filter sensor technology, powerful suction, and...

  • Page 18
    16 Emerson 2004

  • Page 19
    ... also provided remote monitoring capabilities that continually analyze system performance at 50 of the chain's stores, allowing ASDA to quickly and easily identify problems before they result in expensive losses. Altogether, Emerson has helped ASDA reduce energy and maintenance costs by nearly...

  • Page 20
    ... in dividends and buying back $157 million in stock. We also improved our capital efficiency by reducing operating working capital to 11 percent of sales from 13 percent of sales in 2003, and return on total capital Walter J. Galvin, Senior Executive Vice President and Chief Financial Officer...

  • Page 21
    ... Committee also meets periodically with the independent auditors who have free access to the Audit Committee and the Board of Directors to discuss the quality and acceptability of the Company's financial reporting, internal controls, as well as non-audit-related services. The independent auditors...

  • Page 22
    .... The climate technologies and appliance and tools businesses drove U.S. sales gains, while the process management, industrial automation and network power businesses drove international sales growth. Strong growth in Asia, the United States and Latin America, moderate gains in Europe and favorable...

  • Page 23
    ...-Line business would be sold and its other businesses would be retained by Emerson. Discontinued operations of $76 million, or $0.18 per share, in 2003 included a net gain of $83 million (including income tax benefit of $170 million), or $0.20 per share, related to the sale of Jordan stock including...

  • Page 24
    ..., compared with $330 million in the prior year, reflecting benefits from prior cost reduction efforts and increased volume and leverage from higher sales, partially offset by higher litigation costs related to the electrical products business. Network Power (dollars in millions) 2003 2004 Change...

  • Page 25
    ... Emerson Network Power China (Avansys) acquisition by increasing the Company's penetration in China and Asia, and leveraging its engineering resources to design next generation products. Improvements in capital spending in nearly all of this segment's served markets also helped drive increased sales...

  • Page 26
    ... continued to expand in Asia during the year, particularly in China, which showed strength in the fourth quarter, to capitalize on market opportunities and further improve the Company's cost position. European markets served by Emerson showed signs of recovery, with sales improving in the second...

  • Page 27
    ...Ltd., a provider of network power products to the telecommunications industry in China, for approximately $750 million in cash. The Company also divested the Chromalox industrial heating solutions business and the Daniel Valve business. Also in 2002, Emerson exchanged its ENI semiconductor equipment...

  • Page 28
    ... by 4 percent growth in Europe and 7 percent growth in Asia. Process management continued its market penetration and geographic expansion despite the ongoing weakness in the U.S. market. Systems, services and solutions businesses continued growing with strong new project activity and displacement of...

  • Page 29
    ... United States and the European commercial market. The combination of new wins, market dynamics, and higher efficiency regulations worldwide is driving long-term scroll technology penetration and growth. In addition, energy management and site monitoring services are growing, particularly by helping...

  • Page 30
    ...in debt securities, preferred stock, common stock, warrants, share purchase contracts and share purchase units under the shelf registration with the Securities and Exchange Commission. The Company's long-term debt is rated A2 by Moody's Investors Service and A by Standard and Poor's. 28 Emerson 2004

  • Page 31
    ... to market risk related to changes in interest rates, copper and other commodity prices and European and other foreign currency exchange rates, and selectively uses derivative financial instruments, including forwards, swaps and purchased options, to manage these risks. The Company does not hold...

  • Page 32
    ... related to the network power segment was recorded. Fair value is generally measured based on a discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the Company's current business model. The estimates of cash flows and discount rate...

  • Page 33
    Consolidated Statements of Earnings EMERSON ELECTRIC CO. AND SUBSIDIARIES Years ended September 30 (Dollars in millions except per share amounts) 2002 2003 2004 Net sales Costs and expenses: Cost of sales Selling, general and administrative expenses Other deductions, net Interest expense (net of ...

  • Page 34
    ... Inventories: Finished products Raw materials and work in process Total inventories Other current assets Total current assets $ 2003 2004 696) 2,650) 628) 930) 1,558) 596) 5,500) 1,346) 2,932) 693) 1,012) 1,705) 433) 6,416) Property, plant and equipment Land Buildings Machinery and equipment...

  • Page 35
    LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Short-term borrowings and current maturities of long-term debt Accounts payable Accrued expenses Income taxes Total current liabilities Long-term debt Other liabilities Stockholders' equity Preferred stock of $2.50 par value per share. ...

  • Page 36
    ...' Equity EMERSON ELECTRIC CO. AND SUBSIDIARIES Years ended September 30 (Dollars in millions except per share amounts) 2002 2003 2004 Common stock Additional paid-in capital Beginning balance Stock plans and other Ending balance Retained earnings Beginning balance Net earnings Cash dividends (per...

  • Page 37
    ... activities Financing activities Net decrease in short-term borrowings Proceeds from long-term debt Principal payments on long-term debt Net (purchases) issuances of treasury stock Dividends paid Net cash used in financing activities Effect of exchange rate changes on cash and equivalents Increase...

  • Page 38
    ... requires the purchase method of accounting and eliminates the pooling-of-interests method. Assets and liabilities related to business combinations accounted for as purchase transactions are recorded at their respective fair values. Effective October 1, 2001, Emerson adopted Statement of Financial...

  • Page 39
    Stock-Based Compensation Effective October 1, 2002, Emerson adopted the fair value method provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123). Under the Standard's prospective method of adoption, options granted, modified or settled ...

  • Page 40
    ... outside plant and power systems business of Marconi Corporation PLC, a leading provider of DC power products and engineering and installation services to major telecommunication carriers throughout North America, which is included in the Network Power segment. Marconi (renamed Emerson Network Power...

  • Page 41
    ...23 37 135 23 18 - 3 2 46 Rationalization of operations by segment is summarized as follows: 2002 2003 2004 Process Management Industrial Automation Network Power Climate Technologies Appliance and Tools Corporate Discontinued operations Total (a) (a) $ 27 33 71 26 49 1 (17) $190 36 20 39 20 36...

  • Page 42
    .... Network Power segment includes severance and lease termination costs related to certain power systems operations in Western Europe shifting to China and Eastern Europe in order to leverage product platforms and lower production and engineering costs to remain competitive on a global basis. Climate...

  • Page 43
    ... uses derivative financial instruments to manage interest costs, commodity prices and currency exchange risk. The Company does not hold derivatives for trading purposes. No credit loss is anticipated as the counterparties to these agreements are major financial institutions with high credit ratings...

  • Page 44
    ... general corporate purposes, which may include, but are not limited to, working capital, capital expenditures, financing acquisitions and the repayment of short or long-term borrowings. The net proceeds may be invested temporarily until they are used for their stated purpose. (10) RETIREMENT PLANS...

  • Page 45
    ...value of the projected benefit obligations and of the fair value of plan assets for defined benefit pension plans follow: U.S. Plans 2003 2004 2003 Non-U.S. Plans 2004 Benefit obligation, beginning Service cost Interest cost Actuarial loss (gain) Benefits paid Acquisitions/divestitures, net Foreign...

  • Page 46
    ... $100 to the retirement plans. (11) POSTRETIREMENT PLANS The Company sponsors unfunded postretirement benefit plans (primarily health care) for U.S. retirees and their dependents. Net postretirement plan expense for the years ended September 30, 2002, 2003 and 2004, follows: 2002 2003 2004 Service...

  • Page 47
    ...(including guarantees, pending litigation, taxes and other claims) that management believes will be material in relation to the Company's financial statements, nor were there any material commitments outside the normal course of business. (13) INCOME TAXES Earnings from continuing operations before...

  • Page 48
    ...credits to prior years (see Note 3). (14) COMMON STOCK The Company has various stock option plans that permit key officers and employees to purchase common stock at specified prices. Options are granted at 100 percent of the market value of the Company's common stock on the date of grant, generally...

  • Page 49
    ..., site monitoring and connectivity systems. The Climate Technologies segment consists of compressors, temperature sensors and controls, thermostats, flow controls, and remote monitoring services. The Appliance and Tools segment includes general and special purpose motors and controls, appliances and...

  • Page 50
    ... follows: Business Segments (See Notes 3, 4, 5 and 6) Sales 2002 2003 2004 2002 Earnings 2003 2004 2002 Total Assets 2003 2004 Process Management Industrial Automation Network Power Climate Technologies Appliance and Tools Discontinued operations (a) Differences in accounting methods Corporate and...

  • Page 51
    ... and development Rent expense $457 $ 84 $474 $216 463 71 464 227 478 79 486 233 The Company leases computers, transportation equipment and various other property under operating lease agreements. The minimum annual rentals under noncancelable long-term leases, exclusive of maintenance, taxes...

  • Page 52
    ... of Dura-Line are classified as discontinued operations for 2003. See Note 3 for information regarding the Company's acquisition and divestiture activities. Emerson Electric Co. common stock (symbol EMR) is listed on the New York Stock Exchange and the Chicago Stock Exchange. 50 Emerson 2004

  • Page 53
    ... of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the...

  • Page 54
    ...-End Financial Position Operating working capital Percent of net sales Property, plant and equipment, net Total assets Long-term debt Stockholders' equity Total debt to total capital Net debt to net capital Other Data Capital expenditures Depreciation Total taxes, including income taxes Salaries...

  • Page 55
    ... 111,800 37,200 444,121 2.50 2.50 2.69 1.08 12.30 2,098 17.1% 2,735 11,463 571 5,421 27.1% 24.9% 575 369 1,034 2,771 100,700 35,900 449,501 2.25 2.25 2.42 .98 11.96 1,984 17.8% 2,451 10,481 773 5,353 24.5% 22.9% 514 339 963 2,569 86...

  • Page 56
    ... St. Louis, Missouri, Retired Chairman and Chief Executive Officer, The May Department Stores Company E.L. Monser Chief Operating Officer John B. Menzer Bentonville, Arkansas President and CEO, Wal-Mart International, and Executive Vice President of Wal-Mart Stores, Inc. Compensation and Human...

  • Page 57
    ... and Chief Executive Officer Corporate Management C.W. Ashmore Senior Vice PresidentPlanning and Development S.C. Hassell Vice President and Chief Information Officer J.E. Rhodes Assistant Treasurer and DirectorInvestor Relations J.G. Berges President L.C. Barrett PresidentEmerson Canada...

  • Page 58
    ... Services Attention: Emerson Electric Co. P.O. Box 3315 South Hackensack, NJ 07606 By Phone: Toll-Free (888) 213-0970 By Internet: www.melloninvestor.com All other inquiries should be addressed to: Investor Relations Department, Station 2197 Emerson 8000 W. Florissant Ave. P.O. Box 4100 St. Louis...

  • Page 59
    Emerson World Headquarters 8000 W. Florissant Ave. P.O. Box 4100 St. Louis, MO 63136 www.gotoemerson.com