Emerson 2007 Annual Report Download

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Table of contents

  • Page 1
    2007 a N N U a L R E P o R T

  • Page 2
    aT E M E R so N , WE C H a L L E N GE o UR s E LVE s To P UsH E V E RY I D E a f URTH E R aN D N E VE R B E saT Is f I ED W ITH THE E xPEC T E D. W E C aN PRo UDLY T E L L o U R C Us To ME R s aN D T H E Wo R L D T H aT W IT H E ME R so N , T H E Y C aN a LWaYs co NSi d E R it So lv E d . tM

  • Page 3
    ... 30 Dollars in millions, except per share amounts 2006 $20,133 $ $ 2.24 0.89 2007 $22,572 $ $ 2.66 1.05 peRCent ChAnGe sales Earnings per share Dividends per share operating cash flow Return on total capital Return on equity 12.1% 18.8% 18.0% 20.1% $ 2,512 18.4% 23.7% $ 3,016 20.1% 25...

  • Page 4
    ... year in 2007. The company's performance over the last several years reinforces our belief that we have been pursuing the right core strategies. We made many tough decisions during the downturn of 2001 and 2002, including significant restructuring to improve our underlying cost position. another key...

  • Page 5
    ... C u t i v e o f f i C e R , And pResident [f r o m l e f t t o r i g h t] edwa r d l . m o n s er Chief opeR AtinG offiCeR w a lt e r j . g a lv i n s e n i o R e x e C u t i v e v i C e p R e s i d e n t And Chief finAnCiAl offiCeR charles a. peters senioR exeCutive viCe pResident

  • Page 6
    ...h t] jim lindemann emeRson AppliAnCe solutions john berr a emeRson pRoCess mAnAGement tom bet tcher emeR son Clim Ate teChnoloGie s j ay g e l d m a c h e r emeRson netwoRk poweR j e a n - pau l m o n t u p e t emeR son indus tR i A l Au tom Ation p at s ly emeRson tools And stoRAGe ed feeney...

  • Page 7
    ... serve our customers and help them achieve success, and (4) managing our asset base more efficiently to achieve high cash flow and returns on capital, which is the ultimate measure of how much value we are creating for shareholders. These are Emerson's strategic imperatives. We annually benchmark...

  • Page 8
    ... s TaT E s, aN IMPoRTaNT MILEsToNE THaT HIGHLIGHTs THE INCREasINGLY GLo Ba L sCo PE o f EMER so N ." operating cash flow exceeded $3.0 billion in 2007, also a new record. We often say at Emerson that we control our own destiny, and focusing on cash generation is a big part of enabling us to do just...

  • Page 9
    ... IN bILLIONS) $22.6 10.4% C AGR Progress on key financial metrics has been significant $13.7 52% I N T E R N AT I O N A L S A L E S 15.3% C AGR over the last five years, with strong sales, cash 42% U.S. SALES 6.3% C AGR generation, and return on total capital performance. 2002 2007

  • Page 10
    ... customers and shareholders alike. I would like to thank our employees, shareholders and the board of directors for their support and insights. In particular, I want to thank Gerald "Jerry" Lodge for more than 32 years of service on Emerson's board of directors. Jerry retired from the board in 2007...

  • Page 11
    innovation conscience motivation anticipation confidence

  • Page 12
    Tankers play an important role in delivering much of the world's oil where it's needed, and require exciting new applications of Emerson technology.

  • Page 13
    ... 35 percent of our sales. In 2007, we spent $874 million on developing new products, improving existing products, and providing engineered solutions to our customers. By listening to customers and investing in engineering and development, Emerson can identify emerging trends and meet them head-on...

  • Page 14
    ... applications. These were designed to operate with new chlorine-free refrigerants, and as the use of these refrigerants is mandated around the world, Emerson is ready. Beyond high-efficiency compressors, motors and electronic controls, Emerson is developing solutions for the supermarket, foodservice...

  • Page 15
    Providing innovative solutions in the home, the workplace and the world around us, Emerson has the answers for customers faced with the challenge of reducing energy consumption.

  • Page 16
    Qatargas will use Emerson's PlantWeb® digital plant architecture to automate the two largest liquefied natural gas production facilities ever built.

  • Page 17
    ...of liquefied natural gas annually by the end of the decade. To help them reach that goal, Emerson designed a digital automation system that works together with more than 10,000 digital intelligent field devices to make the plant as efficient, reliable and safe as possible. oUR CUsToMERs' sUCCEss Is...

  • Page 18
    ... voice and data networks. at the same time both natural and manmade forces can disrupt that power. Technology is extending further into the developing world, with new power applications like cellular towers requiring electricity many miles from the nearest power grid. Generator sets, or gensets, act...

  • Page 19
    Emerson alternators deliver reliable and efficient power wherever it's needed, from remote locations to densely populated urban areas.

  • Page 20
    Customers around the world depend on Emerson power, cooling, and computing technologies to operate at peak efficiency and to provide mission-critical information without interruption.

  • Page 21
    ... Emerson Network Power supports hundreds of data centers around the world that route, manage, store, and process untold amounts of information. This information makes our work easier and our lives better, from web searches to weather forecasting. Each of those data centers has enormous power...

  • Page 22
    .... The audit 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...

  • Page 23
    ... higher sales volume and benefits derived from previous rationalization actions. Emerson's financial position remains strong and the Company generated substantial operating cash flow in 2007 of $3.0 billion, an increase of 20 percent, and free cash flow (operating cash flow less capital expeditures...

  • Page 24
    ... products. Total cash paid for these businesses (net of cash and equivalents acquired of approximately $40 million, and debt assumed of approximately $56 million) was 23 approximately $295 million. annualized sales for acquired businesses were $240 million in 2007. n United States n Europe...

  • Page 25
    ...more than offset by higher costs for wages and benefits (pension), negative product mix, as well as the lower profit margin on recent acquisitions. sales price increases initiated over the past year, together with the benefits received from commodity hedging of approximately $130 million, offset the...

  • Page 26
    ..., and higher sales prices, partially offset by higher raw material, wage and benefit costs. 2002* *before accounting change 2007 Earnings per share were a record $2.66 in 2007, a 19 percent increase over the prior year. NEt EaRNiNgS, REtuRN oN Equity aNd REtuRN oN total capital Net earnings...

  • Page 27
    ... of the businesses reported higher earnings. The margin increase was primarily due to leverage on higher sales volume. The earnings increase was also aided by an approximate $24 million payment received by the power transmission business from dumping duties related to the offset act in the current...

  • Page 28
    ... the United states, a 37 percent increase in asia (primarily China) and a 3 percent increase in Europe. The Company continues to build upon its Emerson Network Power 22 n Process Management n Industrial Automation n Network Power n Climate Technologies n Appliance and Tools 2006 vs. 2005 - sales...

  • Page 29
    ... the margin decline. continued its capacity expansion begun last year in Mexico where the next generation scroll compressor design and hermetic motors for the North american market will be produced. 2006 vs. 2005 - sales in the Climate Technologies segment were $3.4 billion in 2006, an increase of...

  • Page 30
    ... costs related to plant shutdown and ramp up of Mexican capacity in the tools and motors businesses. overall, increases in sales prices were offset by higher raw material (particularly copper, steel and plastics), wage and benefit (pension) costs and negative product mix, diluting the profit margin...

  • Page 31
    ... in the Process Management and Climate Technologies segments, while the increase in 2006 compared with 2005 was primarily due to capacity expansion and acquisitions in the Network Power segment. In 2008, the Company is targeting capital spending of approximately 3 percent of net sales. Cash paid in...

  • Page 32
    ... exposed 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 30% derivative financial instruments, including forwards, swaps and purchased options, to manage these risks. The Company does...

  • Page 33
    ... caSh floW to total dEbt 80% 60% 40% 20% 2002 0% 2007 REtiREMENt plaNS Defined benefit plan expense and obligations are dependent on assumptions used in calculating such amounts. These assumptions include discount rate, rate of compensation increases and expected return on plan assets...

  • Page 34
    ... increases. NEW accouNtiNg pRoNouNcEMENtS In June 2006, the financial accounting standards Board issued Interpretation No. 48, "accounting for Uncertainty in Income Taxes - an Interpretation of fasB statement 109" (fIN 48). fIN 48 addresses the accounting for uncertain tax positions that a company...

  • Page 35
    ... E a R NINGs EMERSoN ElEctRic co. & SubSidiaRiES Years ended September 30 | Dollars in millions, except per share amounts 2005 $17,305 11,122 3,595 230 209 2,149 727 $ 1,422 2006 20,133 12,965 4,099 178 207 2,684 839 1,845 2007 22,572 14,461 4,593 183 228 3,107 971 2,136 Net sales Costs and...

  • Page 36
    ... and $86 in 2007 Inventories: finished products Raw materials and work in process Total inventories other current assets Total current assets 887 1,335 2,222 582 7,330 884 1,343 2,227 570 8,065 $ 810 3,716 1,008 4,260 2006 2007 property, plant and equipment Land Buildings Machinery and equipment...

  • Page 37
    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 2006 2007 $ 898 2,305 1,933 238 5,374 3,128 2,016 404 2,501 2,...

  • Page 38
    ... EQ U IT Y EMERSoN ElEctRic co. & SubSidiaRiES Years ended September 30 | Dollars in millions, except per share amounts 2005 2006 2007 common stock Beginning balance adjustment for stock split Ending balance additional paid-in capital Beginning balance stock plans and other adjustment for...

  • Page 39
    ... acquired other Net cash used in investing activities financing activities Net increase (decrease) in short-term borrowings Proceeds from long-term debt Principal payments on long-term debt Dividends paid Purchases of treasury stock other Net cash used in financing activities Effect of exchange...

  • Page 40
    ... of reporting units are estimated using discounted cash flows and market multiples. all of the Company's intangible assets (other than goodwill) are subject to amortization. Intangibles consist of intellectual property (such as patents and trademarks), customer relationships and capitalized software...

  • Page 41
    ... shares of common stock and was accounted for by the transfer of approximately $161 from additional paid-in capital and $77 from retained earnings to common stock. all share and per share data have been retroactively restated to reflect this split. Effective september 30, 2007, Emerson adopted the...

  • Page 42
    ... designer and manufacturer of radio-frequency and microwave interconnect products and is included in the Network Power segment. In addition to Damcos and stratos, the Company acquired several smaller businesses during 2007 mainly in the Process Management and appliance and Tools segments. Total cash...

  • Page 43
    ... to Do+able and Numatics, the Company acquired several smaller businesses during 2005, mainly in the Process Management and appliance and Tools segments. Total cash paid (including assumed debt of approximately $100, which was repaid in october 2005) and annualized sales for these businesses were...

  • Page 44
    ...production in Western Europe to Eastern Europe, China and Mexico to leverage costs and remain competitive on a global basis and to serve these markets. Network Power included severance related to the closure of certain power conversion facilities acquired with artesyn, severance, start-up and vacant...

  • Page 45
    ...implied fair value of the goodwill. fair values of reporting units are estimated using discounted cash flows and market multiples. The change in goodwill by business segment follows: pRoCess mAnAGement industRiAl AutomAtion netwoRk poweR ClimAte teChnoloGies AppliAnCe And...

  • Page 46
    ..., the Company utilizes purchased option and forward exchange contracts and commodity swaps as cash flow or fair value hedges to minimize the impact of currency and commodity price fluctuations on transactions, cash flows, fair values and firm commitments. Hedge ineffectiveness during 2007, 2006...

  • Page 47
    .... Total interest paid related to short-term borrowings and long-term debt was approximately $242, $214 and $247 in 2007, 2006 and 2005, respectively. as of september 30, 2007, the Company could issue up to $1.75 billion in debt securities, preferred stock, common stock, warrants, share purchase...

  • Page 48
    ...16 35 25 60 2007 21 38 (38) 11 32 27 59 Defined benefit plans: service cost (benefits earned during the period) Interest cost Expected return on plan assets Net amortization Net periodic pension expense Defined contribution and multiemployer plans Total retirement plan expense The reconciliations...

  • Page 49
    ...% 100% The Company estimates that future benefit payments for the U.s. plans will be as follows: $133 in 2008, $139 in 2009, $146 in 2010, $153 in 2011, $161 in 2012 and $935 in total over the five years 2013 through 2017. Using foreign exchange rates as of september 30, 2007, the Company estimates...

  • Page 50
    ... year would increase or decrease the obligation as of september 30, 2007 and the 2007 postretirement plan expense by less than 5 percent. The Company estimates that future benefit payments will be as follows: $44 in 2008, $46 in 2009, $47 in 2010, $54 in 2011, $54 in 2012 and $238 in total over the...

  • Page 51
    ..., the Company has not made significant payments for these obligations. at september 30, 2007, there were no known contingent liabilities (including guarantees, pending litigation, taxes and other claims) that management believes will be material in relation to the Company's financial statements, nor...

  • Page 52
    ... plans include stock options and incentive shares. StocK optioNS The Company's stock option Plans 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 vest...

  • Page 53
    ...the Company's common stock to key management personnel subject to service periods ranging from three to ten years. The fair value of these awards is determined by the market price of the Company's stock at the date of grant. Compensation cost is recognized over the applicable service period. In 2007...

  • Page 54
    ..., electrical switching equipment, and site monitoring 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...

  • Page 55
    ... 2006 101 87 103 148 149 13 601 2007 125 107 111 160 131 47 681 Process Management Industrial automation Network Power Climate Technologies appliance and Tools Corporate and other Total $503 gEogRaphic sAles by destinAtion pRopeRty, plAnt And equipment 2005 $ 9,126 3,890 2,370 670 1,249...

  • Page 56
    ... Common stock prices: High $ 38.70 Low $ 33.97 all per share data reflect the 2007 two-for-one stock split. see Notes 3 and 4 for information regarding the Company's acquisition and divestiture activities and non-recurring items. Emerson Electric Co. common stock (symbol EMR) is listed on the New...

  • Page 57
    ... of the Public Company accounting oversight Board (United states). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was...

  • Page 58
    ... operating cash flow Return on average stockholders' equity per Share of common Stock Diluted: Earnings from continuing operations Net earnings Cash dividends Book value year-End financial position operating working capital Percent of net sales Property, plant and equipment, net Total assets Long...

  • Page 59
    ... 1,093 3,003 111,800 37,200 888,242 1.25 1.25 0.54 6.15 2,098 17.1% 2,735 11,463 571 5,421 27.1% 24.9% 575 369 1,034 2,771 100,700 35,900 899,002 57

  • Page 60
    ...of DIR EC ToR s august a. busch iii st. Louis, Missouri Director and former Chairman of the Board, anheuser-Busch Companies, Inc. vernon R. loucks Jr. Chicago, Illinois Chairman of the Board, The aethena Group, LLC chaiRMaN EMERituS c.f. Knight Retired Chairman and Chief Executive officer Emerson...

  • Page 61
    ...President coRpoRatE MaNagEMENt J.l. bansch Vice President Benefits S.c. hassell Vice President and Chief Information officer d.J. Rabe Vice President and Treasurer l.a. Rodriguez PresidentEmerson Latin america W.J. galvin senior Executive Vice President and Chief financial officer l.c. barrett...

  • Page 62
    ... electronically deposited into a checking or savings account at a bank, savings and loan institution, or credit union. for details, contact the Registrar and Transfer agent. aNNual MEEtiNg REgiStRaR aNd tRaNSfER agENt by Mail: Mellon Investor services LLC attention: Emerson Electric Co. P.o. Box...

  • Page 63
    ... automation; Emerson Process Management; Emerson Climate Technologies; Emerson appliance solutions; Emerson Tools & storage; Emerson storage solutions; TankRadar; PlantWeb; asCo; Liebert; and their related designs and logotypes are trademarks, service marks, and/or trade names of Emerson, its...

  • Page 64
    EMERSoN World Headquarters 8000 W. florissant ave. P.o. Box 4100 st. Louis, Mo 63136 www.emerson.com