Emerson 2011 Annual Report Download

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2011
2011 ANNUAL REPORT
55 YEARS OF INCREASED DIVIDENDS

Table of contents

  • Page 1
    2011 ANNUAL REPORT 5 5 Y EA R s O F IN CREAS ED DIV I D E N D S 2011

  • Page 2
    ...GMonserGPresident and Chief fjperating fjfficer contEnts To Our Shareholders Financial Highlights Financial Review Financial Statements Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Eleven-Year Summary Board of Directors & Management Stockholders...

  • Page 3
    ...2011 was a terrific year at Emerson, with performance records set in several key areas. Our recent strategic investments and repositioning efforts are delivering value to our customers and shareholders. We are better positioned around the world... strategic planning process. Annual Report | 01

  • Page 4
    ... the 55th consecutive year, Emerson increased its annual dividend to shareholders. The Board of Directors acted on October 31, 2011, to further increase the quarterly dividend by 16 percent to an annual rate of $1.60, reflecting compound annual growth of 11 percent since 1956. Sales in 2011 were $24...

  • Page 5
    ..., pursuing technology leadership, strengthening our business platforms, and driving business efficiency. Globalize Assets. Emerson is a business without geographic borders. With 59 percent of 2011 sales in international markets, our products and services solve problems for and meet the needs of...

  • Page 6
    ...our employees working in these markets, our assets are wellpositioned to maintain growth and to serve our customers regardless of their location. Increased investment in our global fixed asset base of sales offices, engineering centers, and configuration and manufacturing sites will allow Emerson to...

  • Page 7
    ... Senior Executive Vice President to globalize and serve our customers well around the world. Technology Leadership. Maintaining our edge through technology leadership is at the core of how Emerson does business. We work to develop more game-changing products and technologies than our competition...

  • Page 8
    ... Ashmore Executive Vice President Planning and Development the spirit of Emerson's technology leadership. Our customers have identified a need for a solution that enables better visibility into and control of data center technologies. The Trellis program is delivering a new-to-the-world technology...

  • Page 9
    ...strategic assets that no longer meet our expectations for growth and return. The Chloride and Avocent acquisitions are significant additions to Emerson and are prime examples of our focus at work. Both businesses have brought tremendous technologies and engineering capabilities to the Network Power...

  • Page 10
    ... ON EFFICIENCY AND PRODUCTIVITY ENABLES US TO CONSISTENTLY RETURN CASH TO OUR SHAREHOLDERS. THIS PROCESS IS AT THE FOUNDATION OF OUR BUSINESS CULTURE." VIDEO MESSAGE FROM FRANK J. DELLAQUILA Drive Business Efficiency. Emerson's disciplined and proven management process identifies and prioritizes...

  • Page 11
    ... conditions. Emerson is well-positioned for this type of challenging business environment - we are ready. n Operating margin of 15 to 19+ percent through the cycle n Free cash flow of 10 to 14 percent of sales Return on total capital of 15 to 25 percent n In 2012 we expect underlying sales to...

  • Page 12
    ... navigate an ever-changing and complicated global business environment. I also thank the shareholders and Board of Directors for their support as we follow a promising course to consistent long-term growth and value creation. David N. Farr Chairman and Chief Executive Officer 10 | 2011 Emerson

  • Page 13
    ...mmerson's dividend has increased at a compound annual rate of 11 percent since 1956. EARNINGS PER SHARE $1.38 DIVIDENDS PER SHARE 1956 - 2011 2002 earnings per share is before the $1.12 per share cumulative effect of a change in accounting principle. O NE-Y EAR P ERFORMANCE Years ended September...

  • Page 14
    ... is recorded, processed, summarized and communicated to management and reported within the required time periods. In meeting its responsibility for the reliability of the financial statements, management relies on a system of internal accounting control. This system is designed to provide reasonable...

  • Page 15
    ... declined in the Network Power segment on weakness in Asia and the embedded computing and power business, and the impact of higher amortization and other costs related to the Chloride and Avocent acquisitions. Fourth quarter sales and earnings growth were strong for Process Management and Industrial...

  • Page 16
    ... 2010, the Company acquired Chloride Group PLC and Avocent Corporation. Chloride provides commercial and industrial uninterruptible power supply systems and services, which significantly strengthened the Company's network power systems business in Europe. Avocent is a leader in delivering solutions...

  • Page 17
    ... manufactures electrical pitch systems and controls used in wind turbine generators for the alternative energy market. Total cash paid for all businesses in 2010 was approximately $2,843 million. Additionally, the Company assumed debt of $169 million. Annualized sales for businesses acquired in 2010...

  • Page 18
    ... $221 million in Network Power, $121 million in Industrial Automation, $81 million in Tools and Storage and $33 million in Process Management. Earnings per share were negatively impacted $0.10 per share by the Avocent and Chloride acquisitions, including acquisition accounting charges, the expensing...

  • Page 19
    ...16% 28% 18.1% 20.0% 2011 vs. 2010 - Process Management sales were $7.0 billion in 2011, an increase of $978 million as all businesses reported higher sales, led by very strong results for the measurement and flow business, valves business and systems and solutions business as a result of growth in...

  • Page 20
    ... materials costs were substantially offset by higher selling prices. 2011 vs. 2010 - Sales for Network Power increased $983 million to $6.8 billion, on underlying sales growth of 6 percent, a positive contribution from the Chloride and Avocent acquisitions of 10 percent ($598 million) and favorable...

  • Page 21
    ... in 2010, primarily from the Avocent acquisition, a strong increase in the embedded power business and a moderate increase in the network power systems business in Asia, partially offset by decreases in the uninterruptible power supply and precision cooling, energy systems, embedded computing and...

  • Page 22
    .... Free cash flow increased in 2010 from $2.6 billion in 2009, reflecting higher net earnings in 2010. In 2012, the Company is targeting capital spending of approximately $700 million, including $100 million already authorized by the Board of Directors to build, expand or renovate 20 | 2011 Emerson

  • Page 23
    ... in 2011, 2010 or 2009. The credit facility contains no financial covenants and is not subject to termination based on a change in credit ratings or material adverse changes. The Company also maintains a universal shelf registration statement on file with the U.S. Securities and Exchange Commission...

  • Page 24
    ... is 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...

  • Page 25
    ... for its pension-related assets, the calculations of defined benefit plan expense and obligations are dependent on assumptions made regarding the expected annual return on plan assets, the discount rate and rate of annual compensation increases. In accordance with U.S. generally accepted accounting...

  • Page 26
    ... and disclosure requirements for U.S. GAAP and International Financial Reporting Standards. These updates are effective January 1, 2012 for quarterly and annual reporting. Adoption of this update is not expected to have a material impact on the Company's financial statements. In June 2011, the FASB...

  • Page 27
    ...2009 Net sales Costs and expenses: Cost of sales selling, general and administrative expenses other deductions, net interest expense, net of interest income: 2009, $24; 2010, $19; 2011, $23...2.60 0.24 2.84 3.24 0.03 3.27 See accompanying Notes to Consolidated Financial Statements. Annual Report | 25

  • Page 28
    ... and equivalents Receivables, less allowances of $98 in 2010 and $104 in 2011 inventories: finished products Raw materials and work in process total inventories other current assets total current assets Property, plant and equipment land Buildings machinery and equipment Construction in progress 213...

  • Page 29
    ...payable occrued expenses income taxes total current liabilities Long-term debt Other liabilities Equity Preferred stock, $2.50 par value per share; outhorized, 5,400,000 shares; issued, none Common stock... common stock in treasury, 200,663,206 shares in 2010 and 214,476,244 shares in 2011 Common ...

  • Page 30
    ...Pension and postretirement, net of tax: 2009, $334; 2010, $(6); 2011, $47 Cash flow hedges and other, net of tax: 2009, $(29); 2010, $(16); 2011, $60 ending balance Treasury stock Beginning balance Purchases issued under stock plans... (695) 51 (6,297) 8,555 (6,297) (100) 77 (6,320) 9,792 (6,320) (958)...

  • Page 31
    ... 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 rate changes on cash and equivalents Increase (decrease...

  • Page 32
    ... nt P r e s e ntati on the preparation of the financial statements in conformity with U.s. generally accepted accounting principles (U.s. GooP) requires management to make estimates and assumptions that affect reported amounts and related disclosures. octual results could differ from these estimates...

  • Page 33
    ... when products are shipped or delivered, and title passes to the customer with collection reasonably assured. in certain limited circumstances, revenue is recognized using the percentage-of-completion method, as performance occurs, or in accordance with osm 985-605 related to software. management...

  • Page 34
    ...commodity exposures are price fluctuations on forecasted purchases of copper and aluminum and related products. os part of the mompany's risk management strategy, derivative instruments are selectively used in an effort to minimize the impact of these exposures. Foreign exchange forwards and options...

  • Page 35
    ... uninterruptible power supply systems and services, which significantly strengthened the mompany's Network Power business in Europe, and is included in the Network Power segment. ovocent products enhance companies' integrated data center management capabilities, which strongly positions Emerson for...

  • Page 36
    ...the industrial outomation segment. in addition to Roxar, trident Power and system Plast, the mompany acquired other smaller businesses during 2009, mainly in the mlimate technologies, tools and storage and Process management segments. total cash paid for all businesses was approximately $776, net of...

  • Page 37
    ...Process management industrial outomation Network Power mlimate technologies tools and storage total $ 55 47 118 48 16 $284 2010 35 48 25 13 5 126 2011 11 32 20 11 7 81 during 2011, the mompany's business segments incurred start-up and moving costs related to relocating assets to best cost locations...

  • Page 38
    ... storage consolidating and downsizing production in North omerica. (6) Goodwill and other intangibles Purchases of businesses are accounted for under the acquisition method, with substantially all goodwill assigned to the reporting unit that acquires the business. Under an impairment test performed...

  • Page 39
    ... 30, 2011. the maximum collateral the mompany could have been required to post as of september 30, 2011 was $116. the fair value of long-term debt was $5,276 and $5,292, respectively, as of september 30, 2011 and 2010, which exceeded the carrying value by $673 and $635, respectively. onnual Report...

  • Page 40
    ... in 2011, 2010 and 2009, respectively. the mompany maintains a universal shelf registration statement on file with the sEm under which it could issue debt securities, preferred stock, common stock, warrants, share purchase contracts and share purchase units without a predetermined limit. securities...

  • Page 41
    ...components: u.s. plans non-u.s. plans 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 plans total retirement plans expense 2010 2011 2009 2010 2011 $ 46...

  • Page 42
    ...in 2012, the mompany expects to contribute approximately $150 to its retirement plans. the weighted-average assumptions used in the valuations of pension benefits were as follows: u.s. plans non-u.s. plans 2009 ossumptions used to determine net pension expense: discount rate Expected return on plan...

  • Page 43
    ..., recent transactions, transferability restrictions, prevailing discount rates, volatilities, credit ratings and other factors. in the other class, interests in mixed assets funds are level 2 and U.s. life insurance contracts and non-U.s. general fund investments and insurance arrangements are level...

  • Page 44
    ...30, 2011 less than 5 percent. the mompany estimates that future health care benefit payments will be $37 in 2012, $37 in 2013, $36 in 2014, $36 in 2015, $34 in 2016 and $156 in total over the five years 2017 through 2021. (12) uontingent liabilities and uommitments Emerson is a party to a number of...

  • Page 45
    ... tax benefit Non-U.s. rate differential Non-U.s. tax holidays U.s. manufacturing deduction other Effective income tax rate 35.0% 0.9 (4.6) (2.0) (0.8) (0.4) 28.1% 2010 35.0% 0.7 (4.5) (2.2) (0.6) 1.0 29.4% 2011 35.0% 0.7 (3.5) (1.0) (1.1) 0.9 31.0% Non-U.s. tax holidays reduce tax rates in certain...

  • Page 46
    .... st ou K o P t i o ns the mompany's stock option plans permit key officers and employees to purchase common stock at specified prices. outstanding options were granted at 100 percent of the average of the high and low market prices of the mompany's common stock on the date of grant, generally vest...

  • Page 47
    ... prices of the mompany's common stock on the date of grant, with compensation expense recognized ratably over the applicable service period. in 2011, 520,000 shares of restricted stock vested as a result of participants fulfilling the applicable service requirements and, accordingly, 299,990 shares...

  • Page 48
    ... the products and services they sell. the Process management segment provides systems and software, measurement and analytical instrumentation, valves, actuators and regulators, and services and solutions that provide precision control, monitoring and asset optimization for plants that produce power...

  • Page 49
    ...of maintenance, taxes, insurance and other operating costs, will approximate $245 in 2012, $179 in 2013, $118 in 2014, $78 in 2015 and $54 in 2016. items reported in accrued expenses include the following: 2010 Employee compensation mustomer advanced payments Product warranty $683 $385 $224 2011 640...

  • Page 50
    ... computed independently each period; as a result, the quarterly amounts may not sum to the calculated annual figure. Results include discontinued operations, see Note 3. Emerson Electric mo. common stock (symbol EmR) is listed on the New York stock Exchange and the mhicago stock Exchange. 48 | 2011...

  • Page 51
    ..., the financial position of Emerson Electric mo. and subsidiaries as of september 30, 2011 and 2010, and the results of its operations and its cash flows for each of the years in the three-year period ended september 30, 2011, in conformity with U.s. generally accepted accounting principles. olso in...

  • Page 52
    ...-for-one stock sulit. See Note 3 for information regarding the Comuany's acquisition and divestiture activities. Discontinued ouerations include: heating elements unit for 2011 only, auuliance motors and U.S. commercial and industrial motors businesses for 20012010, LANDesk for 2010 only, Eurouean...

  • Page 53
    ... 16.5% 1.15 (d) 1.20 (d) 0.77 7.29 2,033 13.1% 3,288 15,046 2,256 6,114 43.5% 41.5% 554 462 982 3,389 124,500 33,700 858,904 onnual Report | 51

  • Page 54
    ... I S OR Y DI R EC TOR S E.K. Feeney chairman, Emerson Network Power systems Audit Committee a.a. Busch iii, chair H. Green J.B. Menzer r.L. ridgway David N. Farr st. Louis, Missouri chairman and chief Executive officer, Emerson Joseph W. Prueher Virginia Beach, Virginia admiral, UsN (ret) former...

  • Page 55
    ..., controller and chief accounting officer E.K. Feeney chairman, Emerson Network Power systems V.A. Lazzaretti Vice President and deputy General counsel K. Button Bell Vice President and chief Marketing officer J.L. Geldmacher Executive Vice President P. Sen PresidentEmerson india, Middle...

  • Page 56
    ... at a bank, savings and loan institution, or credit union. for details, contact the registrar and transfer agent. ANNUAL MEETI NG the annual meeting of stockholders will be held at 10 a.m. cst, tuesday, february 7, 2012 in Emerson's World Headquarters Building, 8000 W. florissant ave., st. Louis...

  • Page 57
    ...Electrical Components & Equipment Index 100 100 130 116 102 91 104 85 141 93 113 2.5 % 94 (1.2)% ; Emerson; Emerson Network Power; Emerson Industrial Automation; Emerson Process Management; Emerson Climate Technologies; Emerson Tools and Storage; Avocent; Chloride; Trellis; and their related designs...

  • Page 58
    Emerson World Headquarters 8000 W. Florissant Ave. P.O. Box 4100 St. Louis, MO 63136 Emerson.com