Emerson 2014 Annual Report Download

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125 2014 ANNUAL REPORT
Celebrate. Challenge. Consider It Solved.

Table of contents

  • Page 1
    125 Celebrate. Challenge. Consider It Solved. 2014 ANNUAL REPORT

  • Page 2
    1890 CONSECUTIVE YEARS OF DIVIDEND INCREASES THE SMART DIFFERENCE MILLION SCROLL COMPRESSORS W.R. "BUCK" PERSONS CEO 1954-1973

  • Page 3
    1973 CHARLES F. KNIGHT CEO 1973-2000 SALES IN BILLIONS $20 $15 $10 $5 87 95 00 2006 MILLION FOOD WASTE $1 1979 DISPOSERS Smsrt Wireless 3B PORE THAN 3 BILLION HOURS OF OPERATION

  • Page 4
    ... PER SHARE 1956 - 2014 *2014, 2013, and 2012 earnings per share exclude $0.72, $0.78 and $0.72, respectively, of goodwill impairment and income tax charges. 2002 earnings per share is before the $1.12 per share cumulative effect of a change in accounting principle. 1890 - 2015 125 WHAT'S NEXT?

  • Page 5
    ... time to accelerate positive change and define a new and even brighter future. We have the unusual opportunity to honor a vast legacy of human talent and financial durability. It is a time to outwardly appreciate the unmatched breadth and depth of our expertise and experience in our industries...

  • Page 6
    DAV I D N . FA R R Chairman and Chief Executive Officer 2014 Emerson > 02

  • Page 7
    ... a national manufacturer of market-leading technologies, to a global engineering and solutions provider that drives innovation across the world's most complex industries. In a bygone era, Emerson helped consumers live and work more comfortably. Today, Emerson enables the production and processing of...

  • Page 8
    .... In November, the Board of Directors increased the first quarter dividend by 9 percent to an annual rate of $1.88. Emerson's foresight and willingness during the past 125 years to adapt and remake itself to meet the changing needs of customers, markets and investors are remarkable. The ability...

  • Page 9
    ... its shareholders for years to come. On behalf of the Board of Directors and all of Emerson's employees around the world, we invite you to join us as we celebrate our milestone next year, and we thank you for your confidence and trust. Sincerely, The Office of the Chief Executive (from left): Frsnk...

  • Page 10
    Celebrste. Chsllenge. Consider It Solved. To toughest solve our customers' challenges. 2014 Emerson > 06 Rendering courtesy Photographic Services, Shell International Ltd.

  • Page 11
    ... gss extrsction plstform designed to remsin on-site st ses for st lesst 20 yesrs - Emerson Process Management deployed a multidisciplinary team to design a fully automated solution. Combining a comprehensive suite of technologies that provide industry-leading control, monitoring, measurement and...

  • Page 12
    Celebrste. Chsllenge. Consider It Solved. To inspire and engage. 2014 Emerson > 08

  • Page 13
    .... Emerson Network Power built on innovations in modular deployment to deliver over 250 shippable modules, including power skids, evaporative air handlers, a water treatment plant, data center superstructure solutions and the controls to optimize the entire suite. This new-to-the-world data center...

  • Page 14
    Celebrste. Chsllenge. Consider It Solved. To think and act differently. 2014 Emerson > 10

  • Page 15
    ...'t live without. With one of the broadest portfolios of automation solutions, we solve our customers' most complex challenges with customized solutions driven by ingenuity and industry-leading products. As Emerson Industrial Automation continues to evolve, so does our technology as we find new ways...

  • Page 16
    Celebrste. Chsllenge. Consider It Solved. To look forward, not back. 2014 Emerson > 12

  • Page 17
    ... academic researchers and industry professionals can test ideas and concepts in real-world environments. Featuring fully controllable testing environments such as a model supermarket; a commercial kitchen; a fully functional two-story, three bedroom home; and a data center, The Helix will challenge...

  • Page 18
    POTENTIAL ANNUAL COST SAVINGS WITH PROCESS INDUSTRY RELIABILITY OPTIPIZATION >$1.5 TRILLION INVESTPENT IN NORTH APERICA UNCONVENTIONAL OIL AND GAS EXPECTED IN THE NEXT DECADE

  • Page 19
    ... our world a better place than we found it. Through solving our customers' most complex challenges, to supporting the communities in which we live and work, Emerson will continue to tackle the phallenge, pelebrate our successes and ponsider It Solved for another 125 years. ANNUAL INTERNET TRAFFIC...

  • Page 20
    .... 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 and internal controls, as well as nonaudit-related services. The...

  • Page 21
    ..., and acquisitions. Climate Technologies reported sales growth of 6 percent on demand in the refrigeration and air conditioning businesses. Slowly recovering industrial goods end markets led to a 2 percent sales increase in Industrial Automation, while improvement in U.S. residential and commercial...

  • Page 22
    ... East/Africa. International destination sales, including U.S. exports, decreased 3 percent, to $14.2 billion in 2014, primarily reflecting the divestitures in Network Power, partially offset by increases in Process Management, Climate Technologies and Commercial & Residential Solutions. U.S. exports...

  • Page 23
    ... Network Power segment includes sales in 2014 of $63 million for this business through the closing date. On November 22, 2013, the Company completed the divestiture of a 51 percent controlling interest in Artesyn and received proceeds of $264 million, net of working capital adjustments. The Company...

  • Page 24
    ... 2014. The charge *Excludes charges of $508 million in 2014, was not deductible for tax $566 million in 2013, $528 million in 2012 and $19 million in 2011. purposes. This business provides uninterruptible power supplies, thermal management products, and data center services and solutions for Europe...

  • Page 25
    ... earnings increased $210 million in Process Management, $48 million in Climate Technologies and $8 million in Commercial & Residential Solutions. Earnings decreased $94 million in Industrial Automation and $70 million in Network Power. Return on common stockholders' equity (net earnings attributable...

  • Page 26
    ... Commercial & electrical distribution, fluid Residential Solutions automation and hermetic 8% Climate motors businesses. Power Technologies Process generating alternators and 16% Management motors and drives were flat, 36% and power transmission decreased slightly. Network Underlying sales increased...

  • Page 27
    ... residential demand will accelerate into the next quarter and then slow in mid-year 2015 as customers work through inventory purchased ahead of regulatory changes. Other market conditions are expected to remain favorable in North America and Asia. 2013 vs. 2012 - Sales for Climate Technologies...

  • Page 28
    ... in 2013 and 2012, respectively. Operating cash flow funded capital expenditures, dividends, purchases of common stock and acquisitions in all years presented. Contributions to pension plans were $130 million in 2014, $160 million in 2013 and $163 million in 2012. The Company has returned over...

  • Page 29
    ... credit facility is maintained to support general corporate purposes, including commercial paper borrowing. The Company has not incurred any borrowings under this or previous facilities. The credit facility contains no financial covenants and is not subject to termination based on a change of credit...

  • Page 30
    ...Emerson > 26 The Company is exposed to market risk related to changes in interest rates, commodity prices and foreign currency 10 11 12 13 14 exchange rates, and selectively uses derivative DEBT AS A PERCENT financial instruments, OF CAPITAL including forwards, swaps and purchased options to manage...

  • Page 31
    ... plans totaling $218 million. The Company contributed a total of $130 million to defined benefit plans in 2014 and expects to contribute approximately $60 million in 2015. At year-end 2014, the discount rate for U.S. plans was 4.25 percent, and was 4.75 percent in 2013. The assumed investment return...

  • Page 32
    ... and the potential power transmission divestiture deducting 2 percent each. Reported sales are expected to change 0 to 1 percent. Profitability is expected to continue to improve modestly. NEW ACCOUNTING PRONOUNCEMENTS In April 2014, the Financial Accounting Standards Board (FASB) issued updates...

  • Page 33
    CONSOLIDATED STATEMENTS OF EARNINGS E MERSON EL ECTR I C C O . & S U BS I D I A R I E S Years ended September 30 | Dollars in millions, except per share amounts 2012 Net sales Costs and expenses: Cost of sales Selling, general and administrative expenses Goodwill impairment Other deductions, net ...

  • Page 34
    ... in comprehensive income of subsidiaries Comprehensive income common stockholders (206) (49) 85 (170) 1,854 55 $1,799 32 521 (17) 536 2,602 56 2,546 (344) (54) 1 (397) 1,787 34 1,753 $2,024 2013 2,066 2014 2,184 2014 Emerson > 30 See accompanying Notes to Consolidated Financial Statements.

  • Page 35
    ...Accounts payable Accrued expenses Income taxes Total current liabilities Long-term debt Other liabilities Equity Common stock, $0.50 par value; authorized, 1,200,000,000 shares; issued, 953,354,012 shares; outstanding, 706,660,259 shares in 2013; 696,605,222 shares in 2014 Additional paid-in-capital...

  • Page 36
    CONSOLIDATED STATEMENTS OF EQUITY EM E R S O N E L E C T R I C C O . & S U B S I DI AR I ES Years ended September 30 | Dollars in millions, except per share amounts 2012 Common stock Additional paid-in-capital Beginning balance Stock plans Purchase of noncontrolling interests Ending balance Retained...

  • Page 37
    ... Receivables Inventories Other current assets Accounts payable Accrued expenses Income taxes Total changes in operating working capital See accompanying Notes to Consolidated Financial Statements. $ (536) (49) 19 143 91 (8) $ (340) (84) 83 (32) 14 64 (3) 42 (263) (132) 59 294 35 114 2014 Emerson...

  • Page 38
    ... of the financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from these estimates. Certain prior year amounts have...

  • Page 39
    ... be recoverable. See Note 6. PRODUCT WARRANTY Warranties vary by product line and are competitive for the markets in which the Company operates. Warranties generally extend for a period of one to two years from the date of sale or installation. Provisions for warranty are determined primarily based...

  • Page 40
    ...fluctuations on forecasted purchases of copper and aluminum and related products. As part of the Company's risk management strategy, derivative instruments are selectively used in an effort to minimize the impact of these exposures. Foreign exchange forwards and options are utilized to hedge foreign...

  • Page 41
    ...100 percent of Virgo Valves and Controls Limited and Enardo Holdings, both in the Process Management final control business, during the first quarter of 2014. Virgo is a manufacturer of engineered valves and automation systems and Enardo is a manufacturer of tank and terminal safety equipment. Total...

  • Page 42
    ... marine controls business supplies controls and software solutions for optimal operation of refrigerated sea containers and marine boilers and is included in Climate Technologies. In addition, the Company acquired two smaller businesses during 2012 in Process Management and Network Power. Total cash...

  • Page 43
    ...: 2012 Process Management Industrial Automation Network Power Climate Technologies Commercial & Residential Solutions Total $ 19 27 53 11 9 $119 2013 15 27 25 3 8 78 2014 17 7 15 14 2 55 2014 Emerson U 39 Expenses incurred during 2014, 2013 and 2012 include actions to exit 14, 13 and 20 production...

  • Page 44
    ... follows. Cumulative pretax impairment charges in Network Power total $646 as of September 30, 2014. commercial & process management industrial automation network power climate technologies residential solutions total Balance, September 30, 2012 Acquisitions Divestitures Impairment Foreign currency...

  • Page 45
    ... balance sheet exposures that do not receive deferral accounting. Amounts included in earnings and other comprehensive income follow: gain (loss) to gain (loss) to earnings other comprehensiVe income 2012 Commodity Foreign currency Foreign currency Total Location Cost of sales Sales, cost of sales...

  • Page 46
    ... credit facility is maintained to support general corporate purposes, including commercial paper borrowing. The Company has not incurred any borrowings under this or previous facilities. The credit facility contains no financial covenants and is not subject to termination based on a change of credit...

  • Page 47
    ... benefit plans: Service cost (benefits earned during the period) Interest cost Expected return on plan assets Net amortization and other Net periodic pension expense Defined contribution plans Total retirement plans expense $ 55 172 (275) 168 120 103 $ 223 2013 70 167 (280) 226 183 113 296 2014...

  • Page 48
    ... the five years 2020 through 2024. The Company expects to contribute approximately $60 to its retirement plans in 2015. The weighted-average assumptions used in the valuation of pension benefits follow: u.s. plans non-u.s. plans 2012 Net pension expense: Discount rate Expected return on plan assets...

  • Page 49
    ... mixed asset funds investing in commodities, natural resources, agriculture, real estate and infrastructure funds, life insurance contracts (U.S.), and shares in certain general investment funds of financial institutions or insurance arrangements (non-U.S.) that typically ensure no market losses or...

  • Page 50
    ... future health care benefit payments will be $22 per year for 2015 through 2019 and $94 in total over the five years 2020 through 2024. (12) Contingent Liabilities and Commitments Emerson is a party to a number of pending legal proceedings and claims, including those involving general and product...

  • Page 51
    ... have been inconsequential. At September 30, 2014, 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 were there any material commitments...

  • Page 52
    ... 2014, 2013 and 2012, respectively. As of September 30, 2014 and 2013, total accrued interest and penalties were $25 and $27, respectively. The U.S. is the major jurisdiction for which the Company files income tax returns. Examinations by the U.S. Internal Revenue Service are substantially complete...

  • Page 53
    ... stock. STOCK OPTIONS The Company's stock option plans permit key officers and employees to purchase common stock at specified prices, which are equal to 100 percent of the closing market price of the Company's stock on the date of grant. Options generally vest one-third in each of the three years...

  • Page 54
    ... incentive shares plans. Total compensation expense for stock options and incentive shares was $143, $221 and $100, for 2014, 2013 and 2012, respectively. The decrease in expense for 2014 is due to a reduced impact from performance shares plans overlap in the current year and the comparative benefit...

  • Page 55
    ... power systems, integrated data center control devices, software, monitoring and 24-hour service. The Climate Technologies segment supplies compressors, temperature sensors and controls, thermostats, flow controls and remote monitoring technology and services to all elements of the climate control...

  • Page 56
    ... Note 14. depreciation and intersegment sales amortization expense capital expenditures 2012 Process Management Industrial Automation Network Power Climate Technologies Commercial & Residential Solutions Corporate and other Total $ 13 619 38 45 2 $717 2013 6 631 39 44 2 722 2014 8 664 27 47 2 748...

  • Page 57
    ... Financial Data Items reported in earnings during the years ended September 30 include the following: 2012 Research and development expense Depreciation expense Rent expense $547 $505 $395 2013 576 521 414 2014 541 518 411 The Company leases certain facilities, transportation and office equipment...

  • Page 58
    ... goodwill impairment and income tax charges of $508 and $0.70 per share in the third quarter of 2013 and $58 and $0.08 per share in the fourth quarter of 2013. Emerson Electric Co. common stock (symbol EMR) is listed on the New York Stock Exchange and the Chicago Stock Exchange. 2014 Emerson U 54

  • Page 59
    Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders Emerson Electric Co.: We have audited the accompanying consolidated balance sheets of Emerson Electric Co. and subsidiaries as of September 30, 2014 and 2013, and the related consolidated statements of ...

  • Page 60
    ... uer share data reflect the 2007 two-for-one stock sulit. See Note 3 for information regarding the Comuany's acquisition and divestiture activities for the last three years. In 2010, the Comuany acquired Chloride Grouu PLC and Avocent Coruoration. At acquisition, the combined annual sales for these...

  • Page 61
    2011 24,222 9,557 246 2,454 10.1% 2,480 3,233 24.6% 3.24 3.27 1.38 14.07 1,705 7.0% 3,437 23,861 4,324 10,399 33.3% 23.2% 647 522 1,... 2,216 18.4% 1.42 1.49 0.80 8.63 1,633 10.5% 2,937 16,361 3,136 7,238 35.8% 27.0% 400 478 1,044 3,320 107,800 30,200 844,390 2014 Emerson U 57

  • Page 62
    ..., Emerson Industrial Automation J.J. Lindemann Executive Vice President, Emerson E.L. Monser President and Chief Operating Officer, Emerson E.M. Purvis Jr. Executive Vice President, Emerson Climate Technologies S.A. Sonnenberg Executive Vice President, Emerson Process Management 2014 Emerson...

  • Page 63
    ...Security T.M. Volk Vice PresidentGlobal Human Resources S.E. Von Gruben Vice PresidentAviation 2014 Emerson U 59 CORPORATE MANAGEMENT J.L. Bansch Vice PresidentBenefits C.D. Bersaglini Vice PresidentPlanning E.M. Boone Vice PresidentAsia Pacific Supply Chain S.Y. Bosco PresidentEmerson Asia Pacific...

  • Page 64
    ... 3, 2015 in Emerson'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: Computershare, Inc. Attention: Emerson Electric Co...

  • Page 65
    ...; Emerson Network Power; Chloride; Emerson Process Management; Emerson Industrial Automation; Emerson Climate Technologies; Emerson Commercial & Residential Molutions; and their related designs and logotypes are trademarks, service marks and/or trade names of Emerson, its subsidiaries, affiliates...

  • Page 66
    Emerson World Headquarters 8000 W. Florissant Ave. P.O. Box 4100 Mt. Louis, MO 63136 Emerson.com