Emerson 2008 Annual Report Download

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2008
A n n u A l R e p o R t

Table of contents

  • Page 1
    AnnuAl RepoRt 2008

  • Page 2
    ... anticipate world trends and innate passion for progress enable Emerson's employees to integrate the many resources across our businesses to deliver innovative solutions to customers worldwide. This is what has fueled Emerson's strong financial results over the years and will help drive the company...

  • Page 3
    ... 30 Dollars in millions, except per share amounts 2007 2008 peRCent ChAnGe _ $2.75 Sales Net earnings per share Earnings from continuing operations per share Dividends per share Operating cash flow Return on total capital Return on equity $22,131 $ $ $ 2.66 2.65 1.05 $24,807 $ $ $ 3.06 3.11...

  • Page 4
    ... Our operating team executed well across the board, identifying and solving important problems for global customers, creating rewarding opportunities for employees and delivering strong results for shareholders. I am very proud of the Emerson team and what we accomplished. Net sales reached a record...

  • Page 5
    ... driving future growth with strategic technology and new product investments as the company has done consistently and successfully in the past. Our operating team executed well across the board, identifying and solving important problems for customers, creating rewarding opportunities for employees...

  • Page 6
    ... as Emerson is a powerful force for innovation, and that's our competitive edge. Our global work force is remarkably talented. The company has a management process and a culture that inspire and reward initiative, innovation, discipline and accomplishment. We have deep industry and product expertise...

  • Page 7
    ... managing our portfolio to transform businesses and industries - and drive growth for investors. Emerson has intensified the focus on delivering new-to-the-business and newto-the-world solutions that open worlds of opportunities for customers and industries. The results are leading market positions...

  • Page 8
    ... borders, divisions, industries and platforms, Emerson engineers new-to-the-business and new-to-the-world solutions. Solutions that not only lead customers and industries through change but actually transform them in unique and unexpected ways. Learn more about how Emerson puts innovation to work at...

  • Page 9
    [ 06 ] Emerson 2008 Emerson's ability to apply wireless technology in a process operating environment is a great example of new-to-the-world solutions. Emerson Process Management engineers understood that being wireless is not just about replacing wires - it is something much bigger. Freed from the...

  • Page 10
    Emerson's Smart Wireless technology is a game-changer for the process industry, eliminating physical, economic and technical obstacles that engineers had encountered on a daily basis. From our perspective, wireless is not just about replacing wires ...

  • Page 11
    ... Before. Like all breakthroughs, Emerson Smart Wireless began small. In reading about new wireless sensor technology the U.S. military was deploying to find enemy troops in battle, our engineers became intrigued with the potential application in process environments. Their imagination and insight...

  • Page 12
    ... equate to the power generated by 17 one-gigawatt power plants. As we continue to drive forward, Emerson Climate Technologies is partnering with refrigeration and air conditioning manufacturers to phase out ozone-depleting, chlorine-based refrigerants for new systems in the United States by 2010...

  • Page 13
    ... for that country. We are also supplying the Chinese market with a wide range of energy-responsible solutions. Emerson engineers in Suzhou, China, for example, are designing and building nextgeneration Copeland Digital Scroll solutions to transform the Asian air conditioning market. At the same time...

  • Page 14
    ... the innovators in Emerson Climate Technologies continue their quest for heating and cooling solutions that require less electricity and reduce global warming, they collaborate with engineers in other Emerson businesses to understand how motors, flow devices and controls impact the total system. At...

  • Page 15
    ... cooling costs for data centers through increased efficiency is a clear and critical need, and Liebert Xtreme Density cooling systems provide an excellent solution. But Emerson Network Power engineers saw even more fundamental issues. They understood that the demand for cooling corresponds directly...

  • Page 16
    Following Energy Logic strategies can cut a data center's energy consumption by 50%. It also can free up two-thirds of valuable raised floor space, one-third of uninterruptible power supply capacity and 40% of cooling capacity. Emerson's engineers fuel our innovation ...

  • Page 17
    ... Network Power technologies are at work throughout the world to help customers operate their data centers more efficiently and effectively. In 2009, Emerson will put these solutions to work in our own new global data center. The 35,000-square-foot facility will enable Emerson to consolidate 100...

  • Page 18
    ... of technology platforms and products that enable customers around the world to shift electrical power generation to other sources that reduce carbon emissions, including solar, nuclear, hydro and natural gas. What drives Emerson's success is that our passion and disciplined processes translate...

  • Page 19
    ... where the company does business, we understand and respect our customers. We understand their businesses and the pressures they face. And we share their culture and opportunity. This is a significant advantage for Emerson. I thank each of our 140,000 employees around the world for fueling our...

  • Page 20
    ... the Emerson Design Engineering Center (EDEC), which Emerson opened in Pune, India, in 2003, more than 500 engineers collaborate to design products and solutions for Emerson's worldwide platforms while also creating technologies to meet the growing demand from local customers in India and throughout...

  • Page 21
    ...'s past growth and performance, and will drive the company's future success. It is what enables us, after hearing a customer describe a problem or need, to respond with conviction: "You can consider it solved." David N. Farr Chairman, Chief Executive Officer, and President [from left] edward...

  • Page 22
    A Powerful Force for Innovation [ 15 ]

  • Page 23
    ... Audit Committee meets with management and the internal auditors periodically to review the work of each and to monitor the discharge by each of its responsibilities. The Audit Committee also meets periodically with the independent auditors who have free access to the Audit Committee and the Board...

  • Page 24
    ..., or 12 percent, over fiscal 2007, with international sales leading the overall growth. The Network Power, Process Management and Industrial Automation businesses drove sales growth, while the Appliance and Tools and Climate Technologies businesses continued to be impacted by the U.S. consumer...

  • Page 25
    ... with 2007, reflecting strong growth in the Network Power, Process Management and Climate Technologies businesses aided by the weaker U.S. dollar, as well as the benefit from acquisitions. International subsidiary sales, including shipments to the United States, were $12.0 billion in 2008, up...

  • Page 26
    ...impairment charge related to the North American appliance control business due to a slow economic environment for consumer appliance and residential end-markets and a major customer's strategy to diversify suppliers and transition to and internalize the production of electronic controls. As a result...

  • Page 27
    ... discontinued operations of $42 million, or $0.05 per share, related to the divestitures of the Brooks unit and the European appliance motor and pump business. The 15 percent increase in earnings per share also reflects the purchase of treasury shares. Return on stockholders' equity (net earnings...

  • Page 28
    ... results reflect the Company's continued investment in next-generation technologies and expanding the global reach of the solutions and services businesses, as well as the strong worldwide growth in energy and power markets. All of the businesses reported higher sales, with sales particularly strong...

  • Page 29
    .... Sales price increases were offset by higher material and wage costs, as well as unfavorable product mix. sales By segment sales By segment '* sal &. &* )+ '+ &* n Process Management n Industrial Automation n Network Power n Climate Technologies n Appliance and Tools netWorK poWer...

  • Page 30
    ... was diluted as higher sales prices were more than offset by material inflation and higher restructuring costs of $13 million. The Company continued its capacity expansion begun in 2006 in Mexico where the next generation scroll compressor design and hermetic motors for the North American market...

  • Page 31
    ... success of new product launches. The volume declines in the appliance controls and certain motors and storage businesses were primarily caused by the downturn in U.S. residential construction. International underlying sales increased 13 percent in total, while underlying sales in the United States...

  • Page 32
    ...35 billion in debt securities, preferred stock, common stock, warrants, share purchase contracts and share purchase units under the shelf registration statement filed with the Securities and Exchange Commission. The Company intends to file a new shelf registration statement prior to the expiration...

  • Page 33
    ... 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 34
    ... by which the carrying value of the long-lived asset exceeds its fair value. 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...

  • Page 35
    ... Payment Transactions Are Participating Securities" (FSP EITF 03-6-1). FSP EITF 03-6-1 clarifies whether instruments granted in share-based payment transactions should be included in the computation of EPS using the two-class method prior to vesting. The Company is in the process of analyzing the...

  • Page 36
    A Powerful Force for Innovation [ 29 ] CONSOLIDATED S TATEMENTS O F E A R NINGS emerson electric co. & suBsidiaries Years ended September 30 | Dollars in millions, except per share amounts 2006 $19,734 2007 22,131 2008 24,807 net sales Costs and expenses: Cost of sales Selling, general and ...

  • Page 37
    ... SHEE TS emerson electric co. & suBsidiaries September 30 | Dollars in millions, except per share amounts Assets current assets Cash and equivalents Receivables, less allowances of $86 in 2007 and $90 in 2008 Inventories: Finished products Raw materials and work in process Total inventories Other...

  • Page 38
    A Powerful Force for Innovation [ 31 ] 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 2007 2008 $ 404 2,501 2,...

  • Page 39
    ...S' EQ U IT Y emerson electric co. & suBsidiaries Years ended September 30 | Dollars in millions, except per share amounts 2006 2007 2008 common stock Beginning balance Adjustment for stock split Ending balance additional paid-in capital Beginning balance Stock plans and other Adjustment for...

  • Page 40
    ... 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 41
    ... between inventories and cost of sales. property, plant and equipment The Company records investments in land, buildings, and machinery and equipment at cost. Depreciation is computed principally using the straight-line method over estimated service lives. Service lives for principal assets are 30...

  • Page 42
    ... accounting principles requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. On December 11, 2006, a two-for-one split of the Company's common stock was effected in the form of a 100 percent stock...

  • Page 43
    ...Stratos is a 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...

  • Page 44
    ... to and internalize the production of electronic controls. The customer's strategy will result in a reduction of volume and potential elimination of the appliance control business as a supplier. As a result, sales and profits for this business are forecasted to decline. The Company considered the...

  • Page 45
    .... Network Power included severance and start-up and moving costs related to the consolidation of certain production in North America to remain competitive on a global basis and start-up and moving costs related to the transfer of certain embedded computing production in Asia. Climate Technologies...

  • Page 46
    ... operational synergies. Climate Technologies included severance related to the movement of temperature sensors and controls production from Western Europe to China and start-up and moving costs related to a new plant in Eastern Europe in order to improve profitability. Appliance and Tools included...

  • Page 47
    ...in 2013. (7) financial instruments The Company selectively 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...

  • Page 48
    ..., common stock, warrants, share purchase contracts and share purchase units under the shelf registration statement filed with the Securities and Exchange Commission. The Company may sell securities in one or more separate offerings with the size, price and terms to be determined at the time of sale...

  • Page 49
    ...2008 2006 2007 2008 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 $ 58 145 (202) 100 101 85 $ 186...

  • Page 50
    ... 3.5% 5.9% 3.5% The discount rate for the U.S. retirement plans was 6.50 percent as of June 30, 2008. Defined benefit pension plan expense is expected to decline slightly in 2009. The primary objective for the investment of plan assets is to secure participant retirement benefits, while earning...

  • Page 51
    ... fees and expenses) will be incurred and such costs can be reasonably estimated. Such accruals are based on developments to date, management's estimates of the outcomes of these matters, the Company's experience in contesting, litigating and settling other similar matters, and any related insurance...

  • Page 52
    ...Powerful... The federal corporate statutory rate is reconciled to the Company's effective income...Employee compensation and benefits Postretirement and postemployment benefits NOL and tax credits Capital loss benefit Other Total Valuation allowance Deferred tax liabilities: Intangibles Property, plant...

  • Page 53
    ... 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 average of the high and low prices of the Company's common stock on the date of grant, generally vest one-third...

  • Page 54
    ...from three to ten years. The fair value of these awards is determined based on the average of the high and low prices of the Company's stock on the date of grant. Compensation cost is recognized over the applicable service period. In 2008, 668,554 shares of restricted stock vested as a result of the...

  • Page 55
    ..., embedded power supplies, precision cooling systems, electrical switching equipment, and site monitoring systems for telecommunications networks, data centers and other critical applications. The Climate Technologies segment consists of compressors, temperature sensors and controls, thermostats...

  • Page 56
    ... 111 160 131 47 681 2008 144 129 127 128 107 79 714 Process Management Industrial Automation Network Power Climate Technologies Appliance and Tools Corporate and other Total $596 geographic sAles by destinAtion pRopeRty, plAnt And equipment 2006 $10,567 4,000 2,880 855 1,432 $19,734 2007...

  • Page 57
    ...-for-one stock split. Earnings per share amounts are computed independently each period; as a result, the sum of the quarter amounts may not equal the total for the respective year. The operating results of the European appliance motor and pump business for all periods presented and Brooks for first...

  • Page 58
    ... examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial...

  • Page 59
    ...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 and wages Average number of employees...

  • Page 60
    A Powerful Force for Innovation [ 53 ] 2005 16,902 6,136 243 1,413 (a) 8.4% 1,422 (a) 2,187 19.4% 2004 15,226 5,515 233 1,246 8.2% 1,257 2,216 18.4% 2003 13,635 4,...

  • Page 61
    ... Bentonville, Arkansas Retired Vice Chairman and Chief Administrative Officer, Wal-Mart Stores, Inc. david c. farrell St. Louis, Missouri, Retired Chairman and Chief Executive Officer, The May Department Stores Company advisory directors J.m. Berra Chairman, Emerson Process Management A.A. Busch...

  • Page 62
    ... Chairman, Emerson Climate Technologies m.g. rohret Vice PresidentEmployee Relations J.r. carius Vice President and Chief Employment Counsel v.a. lazzaretti Vice President and Deputy General Counsel e.K. feeney Executive Vice President r.J. schlueter Vice President and Chief Accounting Officer...

  • Page 63
    ...'s World Headquarters Building, 8000 W. Florissant Ave., St. Louis, Missouri 63136. Notice of the meeting, proxy statement, and proxy were sent to stockholders with this annual report. registrar and transfer agent By mail: BNY Mellon Shareowner Services LLC Attention: Emerson Electric Co. P.O. Box...

  • Page 64
    ...$200 _ $150 ; Emerson; Emerson Network Power; Emerson Industrial Automation; Emerson Process Management; Emerson Climate Technologies; Emerson Appliance Solutions; Emerson Tools & Storage; Emerson Storage Solutions; PlantWeb; Copeland Scroll; Copeland Digital Scroll; Liebert; Liebert Xtreme Density...

  • Page 65
    emerson World Headquarters 8000 W. Florissant Ave. P.O. Box 4100 St. Louis, MO 63136 Emerson.com