Emerson 2013 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ... 2 Perfect Execution 6 Financial Review 18 31 Financial Statements Notes to Consolidated Financial Statements 36 Report of Independent Registered Public Accounting Firm 55 Eleven-Year Summary 56 Board of Directors & Management 58 Stockholders Information 60 > LinkedIn: linkedin.com/company/emerson...

  • Page 3
    ... performance 2012 2013 percent change Years ended September 30 Dollars in millions, except per share amounts 2008 2013 five-year cagr Sales Net earnings Diluted earnings per share Diluted earnings per share excluding charges* Dividends per share Operating cash flow Return on total capital Return...

  • Page 4
    ... with Emerson, I've seen clearly how we're confronted every day with new challenges and tremendous opportunities. It is in how we understand, design, plan and execute in a dynamic world that makes the difference, drives growth and delivers success for our shareholders, customers and employees. More...

  • Page 5
    ... and Chief Operating Officer growth, maintaining strategic investment programs, advancing portfolio repositioning objectives and generating record cash flow, much of which was allocated to directly supporting shareholder returns through dividends and share repurchase. Sales in 2013 were $24...

  • Page 6
    ... ourselves to rigorously integrate that information in designing our own processes. From technologies and services to order processing and support calls to quality and delivery, we are rethinking every customer interaction to identify ways we can transform Emerson into a more valuable partner. We...

  • Page 7
    ... Emerson. We also welcomed new director Jim Turley, who recently retired after an impressive career at Ernst & Young, where he had served as Chairman and Chief Executive Officer. Jim brings tremendous management experience, integrity and business insight to the Board that I know will benefit Emerson...

  • Page 8
    ... solution that incorporated wireless instrumentation, power systems and communications infrastructure that linked the remote platforms with the main facility. This provided a continuous flow of data to enable the operational efficiency previously unavailable. 6 Emerson > 2013 Annual Report

  • Page 9
    ...all of our processes - from a holistic standpoint - to help redefine how we approach our business to better meet customer needs. For example, a team of operations, marketing and engineering experts from Industrial Automation was able to substantially increase fill rates and improve part availability...

  • Page 10
    ... bringing differing points of view together, something that wasn't traditionally part of our model. Perfect Execution has helped us realize that by involving other functions, we create valuable solutions for our customers' businesses. > Wa r r E n M a Beijing, China 8 Emerson > 2013 Annual Report

  • Page 11
    ... their promises when it counted most. Emerson Network Power, already recognized as an industry-leading service provider, demonstrated this on a new level in the wake of Hurricane Sandy. Flexible and responsive disaster recovery plans framed around Perfect Execution concepts were put into action for...

  • Page 12
    ... the development of the next generation of variable speed drives, Emerson Industrial Automation wanted to take full advantage of its global network to deliver the best technology to its customers. From supply chain to production to final distribution, a Perfect Execution team from Control Techniques...

  • Page 13
    ...how we can improve our processes to better work with them. This is not a question companies always want to ask, but Perfect Execution has taught us asking the question is critical to knowing what our customers truly need. > W i L L i a M vaU g h a n Hanover, Maryland Emerson > 2013 Annual Report 11

  • Page 14
    ... from hiring to benefits and compensation. It's helping to change the way we think and act so that working within the Perfect Execution model isn't something that we have to do deliberately, it is something that we simply do. > K aT i T E E r Budapest, Hungary We 12 Emerson > 2013 Annual Report

  • Page 15
    ...allowed Network Power to slash lead times in half and dramatically improve customer satisfaction. A fresh perspective and openness to change applied through Perfect Execution demonstrated our commitment to continuously improve our practices to better serve customers. Emerson > 2013 Annual Report 13

  • Page 16
    ... meeting customer expectations. Erratic order fluctuations can jeopardize relationships and create business disruptions, which Emerson Climate Technologies was experiencing with its European heat pump business. To tackle this, a cross-functional Perfect Execution team worked to identify a solution...

  • Page 17
    ..., helped improve customer service metrics by driving on-time delivery of popular models to almost 100 percent, while reducing lead time from 15 to less than five days. We worked with our customers to address demand spikes and, importantly, to understand the spikes to inform our inventory process and...

  • Page 18
    ... and creative thinking as we each approach challenges from different perspectives. Perfect Execution is helping us better understand our colleagues' unique challenges, which puts us all in a position to help each other find solutions. > KErrY nEdiC Chicago, Illinois 16 Emerson > 2013 Annual Report

  • Page 19
    ... technologies and solutions. Emerson Process Management's automation technologies, engineering, ongoing support services and demonstrated execution capabilities made it the only choice to deliver such a highly complex project, which will include more than 100,000 measurement and control points...

  • Page 20
    ...the Audit Committee and the Board of Directors, to discuss the quality and acceptability of the Company's financial reporting and internal controls, as well as nonaudit-related services. The independent auditors are engaged to express an opinion on the Company's consolidated financial statements and...

  • Page 21
    ... information. Process Management reported strong sales and earnings growth on continued demand in global energy and chemical end markets. Climate Technologies sales and earnings increased on solid demand in the compressors business worldwide. Strong demand in U.S. residential end markets supported...

  • Page 22
    ... markets in Asia, Latin America, Eastern Europe and Middle East/Africa. International destination sales increased 2 percent in 2013, to $14.7 billion, reflecting increases in Process Management and Climate Technologies, offset by decreases in Network Power, Industrial Automation and Commercial...

  • Page 23
    ...and a marine controls and software solutions business in Climate Technologies. Two smaller businesses were also acquired during 2012 in Process Management and Network Power. Total cash paid for acquisitions in 2012 was approximately $187 million. to post-65 supplemental retiree medical benefits had...

  • Page 24
    ... Process Management, $41 million in Industrial Automation and $21 million in Commercial & Residential Solutions. Earnings decreased $132 million in Network Power and $41 million in Climate Technologies. n et e a R nI nG S (Dollars in billions) $2.6* BIllIOn net eaRnInGS In 2013 *Excludes charges...

  • Page 25
    ...2012 - Process Management reported sales of $8.6 billion in 2013, an increase of $711 million or 9 percent, on strong growth in the measurement devices, final control and systems and solutions businesses, reflecting continued global oil and gas investment and demand in chemical and power end markets...

  • Page 26
    ...e nt Earnings Margin COntInUOUS PORtFOlIO ManaGeMent DRIveS GROwtH 8% 15% 34% n n n n n Process Management Industrial Automation Network Power Climate Technologies Commercial & Residential Solutions 24% 19% America and 6 percent in Middle East/Africa. Sales in Asia were flat. Earnings of $777...

  • Page 27
    ... information technology end markets and product rationalization in the embedded computing and power business. A modest sales decrease in the network power systems business reflected weak demand in Europe and North America uninterruptible power supplies, data center infrastructure management products...

  • Page 28
    ...from the divested heating elements business. 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 $25 billion and common stockholders' equity of 26 Emerson > 2013 Annual Report

  • Page 29
    ...statement on file with the U.S. Securities and Exchange Commission (SEC). The net proceeds from the sale of the notes were used for general corporate purposes and to repay commercial paper borrowings. The total debt-to-capital ratio increased primarily due to higher average borrowings in the current...

  • Page 30
    ... nS t R U M e nt S The Company 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...

  • Page 31
    ..., changes in estimates due to variance from assumptions could materially affect the evaluations. At the end of 2013, Emerson's total market value based on its exchange-traded stock price was approximately $46 billion while its common stockholders' equity was $11 billion.The European network power...

  • Page 32
    ... 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. n ew a C C O Unt I nG P R O nO U nCeMentS In January 2013, the FASB issued updates to ASC 210, Balance Sheet, requiring entities...

  • Page 33
    ...| Dollars in millions, except per share amounts 2011 Net baleb Costs and expenses: Cost of sales Selling, general and administrative expenses Goodwill impairment Other deductions, net Interest expense, net of interest income: 2011, $23; 2012, $17; 2013, $16 Earnhngb from conthnuhng operathonb before...

  • Page 34
    ... income of subsidiaries Comprehenbhve hncome common btockholderb 26 (102) (56) (132) 2,398 54 $2,344 (206) 85 (49) (170) 1,854 55 1,799 32 (17) 521 536 2,602 56 2,546 $2,530 2012 2,024 2013 2,066 See accompanying Notes to Consolidated Financial Statements. 32 Emerson > 2013 Annual Report

  • Page 35
    ... Accounts payable Accrued expenses Income taxes Total current liabilities long-term debt other lhabhlhtheb Equhty Common stock, $0.50 par value; authorized, 1,200,000,000 shares; issued 953,354,012 shares; outstanding, 724,113,291 shares in 2012; 706,660,259 shares in 2013 Additional paid-in-capital...

  • Page 36
    ... currency translation Pension and postretirement, net of tax: 2011, $47; 2012, $19; 2013, $(318) Cash flow hedges and other, net of tax: 2011, $60; 2012, $(50); 2013, $10 Ending balance Treabury btock Beginning balance Purchases Issued under stock plans and other Ending balance Common btockholderb...

  • Page 37
    ... Other current assets Accounts payable Accrued expenses Income taxes Total changes in operating working capital $ (475) 12 41 194 (54) (19) $ (301) (536) (49) 19 143 91 (8) (340) (84) 83 (32) 14 64 (3) 42 See accompanying Notes to Consolidated Financial Statements. Emerson > 2013 Annual Report 35

  • Page 38
    ...'s financial instruments fall within Level 2. The fair value of the Company's long-term debt is Level 2, estimated using current interest rates and pricing from financial institutions and other market sources for debt with similar maturities and characteristics. 36 Emerson > 2013 Annual Report

  • Page 39
    .... A reporting unit is an operating segment as defined in ASC 280, Segment Reuorting, or a business one level below an operating segment if discrete financial information for that business unit is prepared and regularly reviewed by the segment manager. The Company conducts annual impairment tests of...

  • Page 40
    ... In the normal 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. Emerson's foreign currency exposures primarily relate to transactions denominated in euros, Mexican...

  • Page 41
    ...market approach (option pricing model). Assets and liabilities for embedded computing and power are classified as held-for-sale in the consolidated balance sheet at September 30, 2013 as follows: other current assets, $408 (accounts receivable, inventories, other); other assets, $190 (property plant...

  • Page 42
    ... customer relationships and patents and technology with a weighted-average life of approximately 12 years, were recognized from these transactions. In the fourth quarter of 2011, the Company sold its heating elements unit, which was previously included in the Commercial & Residential Solutions...

  • Page 43
    ... Process Management Industrial Automation Network Power Climate Technologies Commercial & Residential Solutions Total $11 32 20 11 7 $81 2012 19 27 53 11 9 119 2013 15 27 25 3 8 78 Expenses incurred during 2013, 2012 and 2011 include actions to exit 13, 20 and 18 production, distribution or office...

  • Page 44
    ... charges in Network Power total $1.1 billion. commercial & process management industrial automation network power climate technologies residential solutions total Balance, September 30, 2011 Acquisitions Divestitures Impairment Foreign currency translation and other Balance, September 30, 2012...

  • Page 45
    ...: 2012 Current maturities of long-term debt Commercial paper Payable to banks Total Weighted-average short-term borrowing interest rate at year end $ 560 936 10 $1,506 0.2% 2013 267 1,304 16 1,587 0.2% The Company periodically issues commercial paper as a source of short-term financing. To support...

  • Page 46
    .... Total interest paid related to short-term borrowings and long-term debt was approximately $226, $234 and $239 in 2013, 2012 and 2011, respectively. The Company maintains a universal shelf registration statement on file with the SEC under which it can issue debt securities, preferred stock, common...

  • Page 47
    ... 2019 through 2023. The Company expects to contribute approximately $145 to its retirement plans in 2014. The weighted-average assumptions used in the valuation of pension benefits were as follows: u.s. plans non-u.s. plans 2011 Net pension expense: Discount rate Expected return on plan assets Rate...

  • Page 48
    ... a diverse group of developed market issuers. Other includes cash, interests in mixed asset funds investing in commodities, natural resources, agriculture and exchange-traded real estate funds, life insurance contracts (U.S.), and shares in certain general investment funds of financial institutions...

  • Page 49
    ... amounts. The Company estimates that future health care benefit payments will be $26 in 2014, $26 in 2015, $25 in 2016, $25 in 2017, $25 in 2018 and $113 in total over the five years 2019 through 2023. (12) uontingent liabilities and uommitments Emerson is a party to a number of pending legal...

  • Page 50
    ...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 Pretax earnings from continuing operations consist of the following: 2011 United States Non-U.S. Total pretax...

  • Page 51
    ... stock. st ouK oPt ion s The Company's stock option plans permit key officers and employees to purchase common stock at specified prices. Awards are granted at 100 percent of the closing market price of the Company's common stock on the date of grant. Awards made prior to 2011 were granted at 100...

  • Page 52
    ... s tou K and r es tr i u ted s tou K uni ts The Company's incentive shares plans include performance shares awards which distribute the value of common stock to key management employees subject to certain operating performance conditions and other restrictions. Distribution is primarily in shares of...

  • Page 53
    ... AC and DC power supplies, precision cooling systems, electrical switching equipment, integrated data center infrastructure monitoring, management systems, and embedded power supplies and computing systems. The ulimate technologies segment supplies compressors, temperature sensors and controls...

  • Page 54
    ... 6). depreciation and intersegment sales amortization expense capital expenditures 2011 Process Management Industrial Automation Network Power Climate Technologies Commercial & Residential Solutions Corporate and other Total $ 7 640 24 42 2 2012 13 619 38 45 2 2013 6 631 39 44 2 2011 198 148 286...

  • Page 55
    ... $408 of current assets of embedded computing and power classified as held-for-sale, while other assets includes $438 of pension assets and $190 of noncurrent embedded computing and power assets. Items reported in accrued expenses include the following: 2012 Employee compensation Customer advanced...

  • Page 56
    ... totaling $58 or $0.08 per share in the fourth quarter of 2013 and a goodwill impairment charge of $528 or $0.72 per share in the fourth quarter of 2012. Emerson Electric Co. common stock (symbol EMR) is listed on the New York Stock Exchange and the Chicago Stock Exchange. 54 Emerson > 2013 Annual...

  • 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
    ...67 a Common Stock Diluted EPS - 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-term debt Common stockholders' equity Total debt to total capital Net debt to net capital Other Data...

  • Page 59
    2010 21,039 8,326 280 1,978 9.4% 2,164 3,292 23.6% 2.60 2.84 1.34 13.01 1,402 6.7% 3,287 22,843 4,586 9,792 34.1% 26.2% 524 562 1,416 4,330 ... 1,731 17.9% 1.14 1.29 0.79 7.67 1,778 12.7% 2,962 15,194 3,733 6,460 39.0% 34.5% 337 463 843 3,153 106,700 31,800 841,836 Emerson > 2013 Annual Report 57

  • Page 60
    ..., Emerson Network Power Audit Committee A.A. Busch III, Chair J.B. Bolten H. Green M.S. Levatich J.S. Turley August A. Busch III St. Louis, Missouri Retired Chairman of the Board, Anheuser-Busch Companies, Inc. M.J. Bulanda Executive Vice President, Emerson Industrial Automation Compensation...

  • Page 61
    ... Trade Compliance T.D. Buzbee Group Vice President M.J. Cousineau PresidentEmerson Canada T.M. Volk Vice PresidentGlobal Human Resources L.W. Flatt Group Vice President V.L. Dawkins Vice PresidentGlobal Supply Chain Operations K.D. McElligott Vice President and Chief Information Officer...

  • Page 62
    ... 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 4, 2014 in Emerson's World Headquarters Building, 8000 W. Florissant Ave., St. Louis, Missouri 63136. Notice of the meeting, proxy...

  • Page 63
    ... $100 invested on 9/30/08 in stock or index, including reinvestment of dividends. Fiscal year ending September 30. Copyright© 2013 Standard & Poor's, a division of The McGraw-Hill Companies Inc. All rights reserved. (www.researchdatagroup.com/ standards-poors) Copyright© 2013 Dow Jones & Company...

  • Page 64
    Emerson World Headquarters 8000 W. Florissant Ave. P.O. Box 4100 St. Louis, MO 63136 Emerson.com