Emerson 2009 Annual Report Download

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2009 Annual Report

Table of contents

  • Page 1
    2009 Annual Report

  • Page 2
    Contents Dear Shareholders It's Never Been Done Before Financial Highlights Financial Review 1 7 9 10 Our ability to help people solve problems in ways that have never been done before will remain at the core of our future growth and success.

  • Page 3
    ...: infrastructure projects in the developing world, power generation and distribution, enhancing energy efficiency, and network integrity and data center connectivity. We also took rapid steps to reposition our operations for greater efficiency in a long-term, best-cost structure. These quick actions...

  • Page 4
    .... Strong cash flow remains a high priority, enabling us to pursue acquisitions, develop new technologies, and return cash to shareholders through stock repurchases and dividends. I am pleased to note that 2009 marked Emerson's 53rd consecutive annual dividend increase, and the board of directors has...

  • Page 5
    ... Roxar in Emerson Process Management strengthened our ability to meet customer needs in offshore energy recovery. Already in fiscal 2010 we have announced three additional acquisitions: Avocent (data center infrastructure management), EIM (electric valve actuation) and SSB (electrical pitch control...

  • Page 6
    .... We are also introducing significant new ways to apply wireless technology to process monitoring and control. We continue to globalize assets, generating 55 percent of revenue outside the United States in 2009. We launched new shared services, engineering and technology centers in China, Japan, the...

  • Page 7
    ... of Emerson solutions totaling $4 billion by 2013. These trends were a driving force behind our recently announced acquisition of Avocent. When Avocent is joined with Emerson Network Power's extensive product breadth, technology leadership and experience, we will bring new solutions to data center...

  • Page 8
    ...begin to rebound from the recession, we are well positioned, especially with our unique position in emerging markets. Thank you for your support. I look forward to reporting on our continued progress and value creation. David N. Farr Chairman, Chief Executive Officer, and President 6 Emerson 2009

  • Page 9
    ... reduce our world's dependence on nonrenewable fossil fuels. 3 Milwaukee In Milwaukee, Wisconsin, people are urged to put more food waste down their garbage disposals. The reason is simple: Households using disposals, such as Emerson's newest line of InSinkErator disposals that can grind virtually...

  • Page 10
    ... Financial Statements Report of Independent Registered Public Accounting Firm Eleven-Year Summary Board of Directors & Management Stockholders Information 9 10 23 28 47 48 50 52 Down cycles always create opportunities, and we invested $1 billion in excellent acquisitions in fiscal 2009. 8 Emerson...

  • Page 11
    ...RETURN ON TOTAL C A P I T A L (percent) 21.8% 20.1% 18.4% $2.27 Earnings Per Share 14.2% 15.5% 16.2% $1.32 Dividends Per Share 1956 1969 1979 1989 1999 2009 2004 2009 2002 earnings per share is before the $1.12 per share cumulative effect of a change in accounting principle. Annual...

  • Page 12
    ... registered public accounting firm, has issued an audit report on the effectiveness of the Company's internal control over financial reporting. David N. Farr Chairman of the Board, Chief Executive Officer, and President Walter J. Galvin Vice Chairman and Chief Financial Officer 10 Emerson 2009

  • Page 13
    ... primarily because of deleverage on lower sales volume and higher rationalization expense. Despite the economic environment, Emerson's financial position remains strong and in 2009 the Company generated cash near the same level as the prior year with operating cash flow of $3.1 billion and free cash...

  • Page 14
    ..., enhanced oil and gas recovery and flow assurance. Trident Power manufactures and supplies power generating alternators and associated products. System Plast manufactures engineered modular belts and custom conveyer components for food processing and packaging industries. Total cash paid for these...

  • Page 15
    ... and increase availability of critical information technology environments via integrated, centralized software. Avocent products complement the Network Power segment's power systems, energy management and precision cooling solutions. The transaction is expected to be completed in December 2009 and...

  • Page 16
    ...unfavorable product mix, partially offset by savings from cost reduction actions and materials cost containment. Earnings declined $373 million in Industrial Automation, $238 million in Process Management, $227 million in Network Power, $162 million in Appliance and Tools and $154 million in Climate...

  • Page 17
    ... 2007, and the Company realized a 2008 return on total capital of 21.8 percent compared with 20.1 percent in 2007. n Process Management n Industrial Automation n Network Power n Climate Technologies n Appliance and Tools process management (dollARs in millions) Sales Earnings Margin 2007...

  • Page 18
    ... in nextgeneration 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 Process businesses reported higher revenues, with sales particularly strong for the valves, measurement and...

  • Page 19
    ...from penetration gains. The underlying sales increase was led by the water-heater controls business, which primarily reflects penetration in the U.S. water-heater market. The compressors business grew modestly, primarily in the refrigeration and the U.S. and Asian air-conditioning Annual Report 17

  • Page 20
    ... and other commodities) and wage costs. The 2007 sale of the consumer hand tools product line favorably impacted the margin. financial position, capital resources and liquidity The Company continues to generate substantial cash from operations, is in a strong financial position with total assets of...

  • Page 21
    ...worldwide business, while the increase in 2008 compared with 2007 was primarily due to capacity expansion in the Process Management and Industrial Automation segments and construction of a corporate data center. In 2010, the Company...2002 authorization. Purchases of Emerson common stock totaled $695 ...

  • Page 22
    ...exposed to market risk related to changes in interest rates, commodity prices and 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 derivatives for trading purposes...

  • Page 23
    ... rates in the credit markets, expected equity market returns and volatility of markets served, particularly if the current recessionary economic environment continues for an extended period of time. At the end of fiscal 2009, Emerson's total market value based on its exchange traded stock price...

  • Page 24
    ...whether instruments granted in share-based payment transactions should be included in the computation of EPS using the two-class method prior to vesting. Adoption is not expected to have a material impact on the Company's financial statements. In December 2008, the FASB issued Staff Position No. FAS...

  • Page 25
    ...emerson electric co. & suBsidiaries Years ended September 30 | Dollars in millions, except per share amounts 2007 $22,131 2008 24,807 2009 20,915 net sales Costs and expenses: Cost of sales Selling, general...2.27 See accompanying Notes to Consolidated Financial Statements. Annual Report 23

  • Page 26
    ... 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 $90 in 2008 and $93 in 2009 Inventories: Finished products Raw materials and work in process Total inventories Other...

  • Page 27
    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 28
    ... 477 477 - 477 comprehensive income Net earnings Foreign currency translation Pension and postretirement Cash flow hedges and other Total $ 2,136 459 2 (56) $ 2,541 2,412 (30) (144) (67) 2,171 1,724 (104) (568) 35 1,087 See accompanying Notes to Consolidated Financial Statements. 26 Emerson 2009

  • Page 29
    ...-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 rate changes on cash and equivalents increase (decrease) in cash and equivalents Beginning cash and equivalents...

  • Page 30
    ... of significant accounting policies financial statement presentation The preparation of the financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect reported amounts and related disclosures, and...

  • Page 31
    ... course of business, the Company is exposed to changes in interest rates, foreign currency exchange rates and commodity prices due to its worldwide presence and diverse business profile. As part of the Company's risk management strategy, derivative instruments are selectively used in an effort to...

  • Page 32
    ... $528 and cash flow hedges and other credits of $6 and charges of $29, respectively, at September 30, 2009 and 2008. retirement plans Effective September 30, 2009, the Company adopted the measurement provision of FAS 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement...

  • Page 33
    ... the food processing and packaging industries and is included in the Industrial Automation segment. In addition to Roxar, Trident Power and System Plast, the Company acquired other smaller businesses during 2009, mainly in the Climate Technologies, Appliance and Tools and Process Management segments...

  • Page 34
    ...the Embedded Computing acquisition and a $31 goodwill 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 internalize the production...

  • Page 35
    ... Process Management expanding capacity in China and consolidating European production facilities; Industrial Automation consolidating power transmission and valve facilities in North America; Network Power consolidating production in North America and transferring other production in Asia; Climate...

  • Page 36
    ... other intangibles Acquisitions are accounted for under the purchase method, with substantially all goodwill assigned to the reporting unit that acquires the business. Under the annual impairment test, if a reporting unit's carrying amount exceeds its estimated fair value, a goodwill impairment is...

  • Page 37
    ...GAin (loss) ReCoGnized in eARninGs loCAtion Sales Cost of sales Cost of sales $(18) (40) (40) $(98) derivatives not receiving deferral accounting Foreign currency Commodity $ (67) (11) $ (78) Other income (deductions) Cost of sales fair value measurements Fair values of derivative contracts...

  • Page 38
    ... Total interest paid related to short-term borrowings and long-term debt was approximately $230, $235 and $242 in 2009, 2008 and 2007, respectively. The Company has a universal shelf registration statement on file with the SEC under which it could issue debt securities, preferred stock, common stock...

  • Page 39
    ... 2008 2009 2007 2008 2009 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 $ 43 159 (211) 87...

  • Page 40
    ...25-35% 15-20% 100% The Company estimates that future benefit payments for the U.S. plans will be as follows: $147 in 2010, $155 in 2011, $163 in 2012, $171 in 2013, $180 in 2014 and $1,041 in total over the five years 2015 through 2019. Using foreign currency exchange rates as of September 30, 2009...

  • Page 41
    ... than 5 percent. The Company estimates that future health care benefit payments will be as follows: $43 in 2010, $47 in 2011, $48 in 2012, $47 in 2013, $46 in 2014 and $208 in total over the five years 2015 through 2019. (12) contingent liabilities and commitments Emerson is a party to a number of...

  • Page 42
    ...Non-U.S. Total pretax ...rate to the Company's effective tax rate follow: 2007 35.0% 0.9 (4.1) (1.3) (0.4) (0.2) 1.3 31.2% 2008 35.0% 0.8 (4.2) (0.9) (0.8) - 1.8 31.7% 2009 35.0% 0.9 (5.1) (2.0) (0.9) - 0.8 28.7% Federal rate State and local taxes, net of federal tax benefit Non-U.S. rate...

  • Page 43
    ... which the Company files income tax returns. Examinations by the U.S. Internal Revenue Service are substantially complete through fiscal 2007. The status of state and non-U.S. tax examinations varies by the numerous legal entities and jurisdictions in which the Company operates. Annual Report 41

  • Page 44
    ... and restricted stock. 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...

  • Page 45
    ..., 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, flow controls, and remote monitoring services provided...

  • Page 46
    ...100 91 100 83 72 85 531 Process Management Industrial Automation Network Power Climate Technologies Appliance and Tools Corporate and other Total $607 geographic sAles by destinAtion pRopeRty...Europe Asia (including China) Latin America Other regions Total Sales in China were $2,335, ...

  • Page 47
    ... advanced payments Product warranty Other liabilities are summarized as follows: 2008 $ 325 417 533 188 594 $2,057 2009 613 460 406 151 624 2,254 Pension plans Postretirement plans, excluding current portion Deferred income taxes Minority interest Other Total Annual Report 45

  • Page 48
    ... of the European appliance motor and pump business for 2008 and Brooks for first quarter 2008 are classified as discontinued operations. 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...

  • Page 49
    ... statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect...

  • Page 50
    ...) Note: All share and per share data reflect the 2007 two-for-one stock split. See Note 3 for information regarding the Company's acquisition and divestiture activities. Discontinued operations include: European appliance motor and pump business for 1999-2008, Brooks for 2008 only and Dura-Line for...

  • Page 51
    ... 862,790 1.48 1.50 0.65 7.14 2,222 15.6% 3,154 13,624 1,317 6,181 34.6% 32.7% 592 447 1,126 3,171 116,900 36,300 876,794 Annual Report 49

  • Page 52
    ...-Busch Companies, Inc. vernon r. loucks Jr. Chicago, Illinois Chairman of the Board, The Aethena Group, LLC audit committee John B. menzer Irving, Texas Chief Executive Officer, Michaels Stores, Inc. advisory directors J.m. Berra Chairman, Emerson Process Management david n. farr St. Louis...

  • Page 53
    ... Chairman, Emerson Climate Technologies K. Button Bell Vice President and Chief Marketing Officer s.c. roemer Vice PresidentFinancial Planning v.a. lazzaretti Vice President and Deputy General Counsel e.K. feeney Executive Vice President J.r. carius Vice President and Chief Employment Counsel...

  • Page 54
    ...'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 55
    ...Network Power; Emerson Industrial Automation; Emerson Process Management; Emerson Climate Technologies; Emerson Appliance and Tools; Copeland Scroll; Copeland Digital Scroll; Dixell; Vilter; Roxar; Roxar ASA; DeltaV; Emerson Smart Wireless; EIM; SSB; Energy Logic; Trident Powercraft Private, Limited...

  • Page 56
    Emerson World Headquarters 8000 W. Florissant Ave. P.O. Box 4100 St. Louis, MO 63136 Emerson.com