Emerson 2015 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ... September 30 Dollars in millions, except per share amounts 2014 2010 2015 FIVE-YEAR CAGR Sales Net earnings Diluted earnings per share Adjusted diluted earnings per share* Dividends per share Operating cash ï¬,ow Return on total capital Return on equity $24,537 $22,304 $ 2,147 $ 2,710 $ 3.03...

  • Page 3
    Earnings and Dividends *2015 earnings per share exclude divestiture gains of $0.90 and costs related to the planned spinoff of the network power systems business of $(0.08). 2014, 2013 and 2012 earnings per share exclude $0.72, $0.78 and $0.72, respectively, of goodwill impairment and income tax ...

  • Page 4
    ...of $221 million as we aggressively managed our cost structure. The restructuring programs completed in 2015 and those planned for completion in the first half of fiscal 2016 will allow us to generate improved earnings and cash ï¬,ow in a continually challenging environment. 2 | 2015 Annual Report

  • Page 5
    ... in fiscal 2015 and shifting end market dynamics brought into focus for the management team and the Board that we had reached an inï¬,ection point and serious strategic action was needed to best serve our customers and shareholders. Throughout the Company's 125-year history, we have periodically...

  • Page 6
    ..., innovative products and we will continue to lead in this way. However, as we anticipate the changes in our customers' worlds, we see growing demand for complete solutions-based and information-based technologies, systems and services. In Emerson, customers have a single trusted partner to help...

  • Page 7
    ..., a space where Emerson has excelled for years. Solutions built on reliable data and combined with our extensive experience are more efficient, more effective and deliver exactly what customers need. We highlight several of these solutions in this annual report. As calendar 2015 draws to a close...

  • Page 8
    .... Climate Technologies Commercial & Residential Solutions $1.9B $4.0B Automation Solutions $10.1B Network Power $4.4B $22.3B $8.5B $15.4B $5.3B $4.1B Process Management Commercial & Residential Solutions Industrial Automation Emerson 2015 1 Emerson 2015 Post Strategic Actions...

  • Page 9
    ...• Pervasive Sensing • Digitalization of Installed Base • Enriched Business Models to Improve Energy Management, Reliability and Safety Commercial & Residential Solutions • Residential Solutions • Retail Solutions • Transportation Solutions • Food Waste to Energy 2015 Annual Report | 7

  • Page 10
    ... is the world's leading producer of natural gas and Emerson Process Management is helping energy companies and utilities take advantage of this abundance with new, more efficient gas-fired, combined-cycle plants. These plants generate electricity from natural gas and then use the heat produced...

  • Page 11
    ... by Emerson automation solutions 50% improvement in startup reliability (gas-fired, simple-cycle plant) 80 - 90% improvement in a plant's ability to quickly and consistently reach full load as required by the regional transmission organization (gas-fired, simple-cycle plant) 2015 Annual Report...

  • Page 12
    70% installation cost savings using Emerson wireless technology for tank level measurements Remote monitoring of essential assets reduces downtime and increases focus on operations 30% faster order processing with Emerson Terminal Management Systems 10 | 2015 Annual Report

  • Page 13
    ...In 2015, Emerson Process Management acquired Energy Solutions International (ESI), a leading software company with globally recognized pipeline applications, to provide customers with the only application suite that covers assets across the logistics supply chain and end-to-end workflow support. ESI...

  • Page 14
    ... equipment, providing unprecedented production ï¬,exibility. Such ï¬,exible manufacturing also requires an automation system with industry-leading control, recipe management and software adaptability. Several biotech companies have selected Emerson Process Management's DeltaVâ„¢ automation system...

  • Page 15
    ... initial system configuration and reduce equipment footprint 80% reduction in complexity for steps where CIP/SIP can be eliminated By designing in reliability, Emerson is challenging convention and increasing production while simultaneously reducing maintenance cost 2015 Annual Report | 13

  • Page 16
    ... government's initiatives, Emerson Climate Technologies invested in a cold-chain distribution center in Chakan, Pune. The Emerson facility develops and builds the latest coldchain equipment and provides project design and planning, training, and aftermarket service support. The facility also helps...

  • Page 17
    ... order to remain competitive. Working with Madrid, Spain-based DIA, one of the world's leading discount supermarket chains with stores throughout China, Emerson Climate Technologies demonstrates how its intelligent store concept could change the game. Using real-time monitoring and control equipment...

  • Page 18
    ... grow, Emerson Climate Technologies Retail Solutions ProActâ„¢ Services brings an Internet-of-Things (IoT) solution that utilizes a live data stream from the store to Emerson, enabling constant monitoring and remote leak detection. The Emerson ProAct Service Center combines advanced analytics and...

  • Page 19
    2M+ pieces of Internet-connected equipment are monitored globally by Retail Solutions in support of grocery, convenience, foodservice and other stores IoT Intelligent StoreTM can save an average of 24% on energy with Emerson's real-time monitoring and control equipment Remote monitoring can detect...

  • Page 20
    ... disclosed 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...

  • Page 21
    ...72 per share, related to the network power systems business in Europe. These items collectively benefited 2015 net earnings and earnings per share growth 45 and 47 percentage points, respectively. Sales declined in four of the Company's five operating segments. Process Management sales decreased...

  • Page 22
    ... ($628 million) and acquisitions added $29 million. Underlying sales decreased 2 percent in both the U.S. and internationally. Sales in Process Management decreased $673 million, Industrial Automation decreased $869 million, Network Power decreased $632 million and Climate Technologies decreased $98...

  • Page 23
    ..., in Process Management and Network Power. Combined annualized sales for all businesses acquired in 2014 were approximately $376 million. The Company also acquired the remaining 44.5 percent noncontrolling interest in the Appleton Group electrical distribution business, in the Industrial Automation...

  • Page 24
    ... networks and data centers, an expansion of industrial capital spending, and improving economic conditions in Europe and Asia. In 2014, the Company recognized a noncash goodwill impairment charge of $508 million ($0.72 per share) related to the network power systems business in Europe...

  • Page 25
    ...ted from the purchase of common stock for treasury. Segment earnings in 2015 decreased $425 million in Process Management, $228 million in Network Power, $202 million in Industrial Automation, partially due to the power transmission solutions divestiture, $39 million in Climate Technologies and $21...

  • Page 26
    ... 8% Climate Technologies 18% Process Management 37% Industrial Automation 18% Network Power 19% 2014 vs. 2013 - Process Management reported sales of $9.2 billion in 2014, an increase of $579 million, or 7 percent on solid demand in energy and chemicals end markets and supported by acquisitions...

  • Page 27
    ... growth in both data center infrastructure and telecommunications power products over the course of the year. 2014 vs. 2013 - Sales for Network Power were $5.1 billion in 2014, a decrease of $1,082 million or 18 percent due to the Artesyn and connectivity solutions divestitures, which subtracted 19...

  • Page 28
    ...commercial storage businesses decreased. Underlying sales were up 3 percent in the U.S. and 1 percent internationally. Earnings of 26 | 2015 Annual Report $2.5 61% 11 12 13 14 15 * Reï¬,ects use of proceeds from the power transmission solutions divestiture for common stock share repurchases.

  • Page 29
    ... quarterly cash dividend 1 percent, to an annualized rate of $1.90 per share. Purchases of Emerson common stock totaled $2,487 million, $971 million and $1,189 million in 2015, 2014 and 2013, respectively, at average per share prices of $57.68, $65.54 and $58.51. The Board of Directors authorized...

  • Page 30
    ... income taxes. FINANCIAL INSTRUMENTS 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...

  • Page 31
    ... statements are described below. Actual results in these areas could differ materially from management's estimates under different assumptions or conditions. REVENUE RECOGNITION The Company recognizes nearly all revenue through the sale of manufactured products and records the sale when products...

  • Page 32
    ... $3.17 in 2015. The Company currently estimates it would incur expenses of $300 to $400 million (approximately $0.40 to $0.55 per share) related to the planned network power systems spinoff and potential sales of the power generation and motors, and drives businesses. Reported earnings per share...

  • Page 33
    ..., except per share amounts 2013 Net sales Costs and expenses: Cost of sales Selling, general and administrative expenses Gains on divestitures of businesses Goodwill impairment Other deductions, net Interest expense, net of interest income of: 2013, $16; 2014, $24; 2015, $29 Earnings before income...

  • Page 34
    ... Comprehensive income common stockholders 32 521 (17) 536 2,602 56 $2,546 (344) (54) 1 (397) 1,787 34 1,753 (794) (206) (43) (1,043) 1,690 22 1,668 $2,066 2014 2,184 2015 2,733 See accompanying Notes to Consolidated Financial Statements. 32 | 2015 Annual Report

  • Page 35
    ... | Dollars in millions, except per share amounts 2014 ASSETS Current assets Cash and equivalents Receivables, less allowances of $114 in 2014 and $128 in 2015 Inventories Other current assets Total current assets Property, plant and equipment, net Other assets Goodwill Other intangible assets Other...

  • Page 36
    ... amounts 2013 Common stock Additional paid-in-capital Beginning balance Stock plans Purchase of noncontrolling interests Ending balance Retained earnings Beginning balance Net earnings common stockholders Dividends paid (per share: 2013, $1.64; 2014, $1.72; 2015, $1.88) Ending balance Accumulated...

  • Page 37
    ... borrowings greater than three months Proceeds from long-term debt Payments of long-term debt Dividends paid Purchases of common stock Purchase of noncontrolling interests Other, net Net cash used by financing activities Effect of exchange rate changes on cash and equivalents Increase (Decrease) in...

  • Page 38
    .... Actual results could differ from these estimates. Certain prior year amounts have been reclassified to conform with current year presentation. In the first quarter of 2015, the Company adopted updates to ASC 205, Presentation of Financial Statements, and ASC 360, Property, Plant and Equipment...

  • Page 39
    ... 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, which for principal assets are 30 to 40 years for buildings and 8 to 12 years for...

  • Page 40
    ... 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 currency exposures impacting sales or cost of...

  • Page 41
    ... are in-process and subject to refinement. In June 2015, the Company announced plans to spin off its network power systems business through a tax-free distribution to shareholders and to explore strategic alternatives, including potential sale, for its power generation and motors, drives, and...

  • Page 42
    ... food service, commercial products and health care industries. In the first quarter of 2014, the Company acquired 100 percent of Virgo Valves and Controls Limited and Enardo Holdings, both in the Process Management final control business. Virgo is a manufacturer of engineered valves and automation...

  • Page 43
    ... 112 174 3 3 12 19 211 2013 Severance and benefits Lease and other contract terminations Asset write-downs Vacant facility and other shutdown costs Start-up and moving costs Total $27 3 - 1 1 $32 EXPENSE PAID / UTILIZED 34 5 2 6 18 65 2014 20 1 - - 1 22 27 3 2 5 18 55 2015 Annual Report | 41

  • Page 44
    ... Process Management Industrial Automation Network Power Climate Technologies Commercial & Residential Solutions Corporate Total $15 27 25 3 8 - $78 2014 17 7 15 14 2 - 55 2015 89 22 64 20 11 5 211 Costs incurred in 2015 primarily relate to the reduction and selective repositioning of the Company...

  • Page 45
    ... in 2014. See Note 3. The change in the carrying value of goodwill by business segment follows: COMMERCIAL & PROCESS MANAGEMENT INDUSTRIAL AUTOMATION NETWORK POWER CLIMATE TECHNOLOGIES RESIDENTIAL SOLUTIONS TOTAL Gross goodwill Accumulated impairment Balance, September 30, 2013 Acquisitions...

  • Page 46
    ... Foreign currency Total Location Cost of sales Sales, cost of sales Other deductions, net $(15) 24 (5) $ 4 2014 (12) 10 (3) (5) 2015 (24) (12) 14 (22) 2013 (22) 4 (18) 2014 (16) 15 (1) 2015 (43) (61) (104) Regardless of whether derivatives receive deferral accounting, the Company expects...

  • Page 47
    ... $501, respectively. Total interest paid on all debt was approximately $196, $210 and $226 in 2015, 2014 and 2013, respectively. During the year, the Company repaid $250 of 5.0% notes that matured in December 2014 and $250 of 4.125% notes that matured in April 2015. In 2014, the Company repaid $250...

  • Page 48
    ... from defined benefit to defined contribution retirement plans in 2016. The principal U.S. defined benefit pension plan has been closed to employees hired after January 1, 2016, and current employees not meeting combined age and years of service criteria will cease accruing benefits effective...

  • Page 49
    ...as of September 30, 2015. An actuarially developed, company-specific yield curve is used to determine the discount rate. The expected return on plan assets assumption is determined by reviewing the investment returns of the plans for the past 10 years plus longer-term historical returns of an asset...

  • Page 50
    ... in the U.S., including multinational companies. International equities are comprised of companies domiciled in developed nations outside the U.S. Emerging market equities are comprised of companies domiciled in portions of Asia, Eastern Europe and Latin America. Corporate bonds represent investment...

  • Page 51
    ...accumulated postretirement benefit obligations follow: 2014 Benefit obligation, beginning Service cost Interest cost Actuarial (gain) loss Benefits paid Plan amendments Divestitures Benefit obligation, ending (recognized in balance sheet) $278 1 11 (12) (17) (13) - $248 2015 248 1 9 (12) (18) - (15...

  • Page 52
    ... rate to the Company's effective tax rate follow: 2013 Federal statutory rate State and local taxes, net of federal tax benefit Non-U.S. rate differential Non-U.S. tax holidays U.S. manufacturing deduction Gains on divestitures Spinoff-related Goodwill impairment Artesyn repatriation Other Effective...

  • Page 53
    ... 2013, respectively. As of September 30, 2015 and 2014, total accrued interest and penalties were $20 and $25, 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 through 2011...

  • Page 54
    ... during 2015, 2014 and 2013 were $2, $39 and $68, respectively. As of September 30, 2015, total unrecognized compensation expense related to unvested shares awarded under these plans was $125, which is expected to be recognized over a weighted-average period of 1.5 years. 52 | 2015 Annual Report

  • Page 55
    ... and drives, ï¬,uid power and control mechanisms, electrical distribution equipment, and materials joining and precision cleaning products which are used in a wide variety of manufacturing operations to provide integrated manufacturing solutions to customers. The Network Power 2015 Annual Report...

  • Page 56
    .... Corporate and other also includes stock compensation expense, which decreased $113 and $78 in 2015 and 2014, respectively. See Note 14. DEPRECIATION AND INTERSEGMENT SALES AMORTIZATION EXPENSE CAPITAL EXPENDITURES 2013 Process Management Industrial Automation Network Power Climate Technologies...

  • Page 57
    GEOGRAPHIC INFORMATION SALES BY DESTINATION PROPERTY, PLANT AND EQUIPMENT 2013 United States and Canada Asia Europe Latin America Middle East/Africa Total 2014 2015 2013 $1,969 518 772 308 38 $3,605 2014 2,036 602 803 306 55 3,802 2015 1,979 564 733 254 55 3,585 $10,964 11,262 10,673 5,888 5,...

  • Page 58
    ... and costs related to the planned network power systems spinoff of $52 and ($0.08) in the fourth quarter of 2015; and a goodwill impairment charge of $508 and $0.72 in the fourth quarter of 2014. Emerson Electric Co. common stock (symbol EMR) is listed on the New York Stock Exchange and the Chicago...

  • 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, 2015 and 2014, and the related consolidated statements of ...

  • Page 60
    ... per share data reï¬,ect the 2007 two-for-one stock split. See Note 3 for information regarding the Company's acquisition and divestiture activities for the last three years. In 2010, the Company acquired Chloride Group PLC and Avocent Corporation. At acquisition, the combined annual sales for these...

  • Page 61
    2012 24,412 9,768 241 1,968 b 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 1,774 4,583 133,200 23,765 753,489 2010 21,... 3,787 10,295 34.0% 22.1% 665 505 1,745 4,856 134,900 22,960 734,618 2015 Annual Report | 59

  • Page 62
    ...of Columbia Managing Director, Rock Creek Global Advisors LLC August A. Busch III St. Louis, Missouri Retired Chairman of the Board, Anheuser-Busch Companies, Inc. David N. Farr St. Louis, Missouri Chairman and Chief Executive Officer, Emerson Arthur F. Golden New York, New York Partner, Davis Polk...

  • Page 63
    ... Affairs and Real Estate P.G. Conrad Vice PresidentTax Planning M.J. Cousineau PresidentEmerson Canada V.L. Dawkins Vice PresidentGlobal Supply Chain Operations S.M. Evans Vice PresidentPerfect Execution L.A. Flavin Vice PresidentAudit and Chief Compliance Officer OPERATING MANAGEMENT D.S. Barbour...

  • Page 64
    ...be addressed to: Emerson Investor Relations Department 8000 W. Florissant Ave. St. Louis, MO 63136-8506 Telephone: (314) 553-2197 ANNUAL MEETING The annual meeting of stockholders will be held at 10 a.m. CST, Tuesday, February 2, 2016 in Emerson's World Headquarters Building, 8000 W. Florissant Ave...

  • Page 65
    ... % ; Emerson; Emerson Process Management; Emerson Industrial Automation; Emerson Network Power; Emerson Climate Technologies; Emerson Commercial & Residential Solutions; Ovation; DeltaV; Emerson Climate Technologies Retail Solutions; ProAct Services; Intelligent Store; and their related designs and...

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