Emerson provides a full range of heating and air-conditioning products that help reduce operational and energy costs and create comfortable environments in all types of buildings. These products include reciprocating and scroll air-conditioning compressors, including an ultra-efficient residential scroll compressor with two stages of cooling capacity which runs at full capacity only during the hottest time periods; standard and programmable thermostats; monitoring equipment and electronic controls for gas and electric heating systems; gas valves for furnaces and water heaters; nitride ignition systems for furnaces; sensors and thermistors for home appliances; and temperature sensors and controls.
Emerson’s technology is incorporated into equipment to refrigerate food and beverages in supermarkets, convenience stores, food service operations and refrigerated trucks and transport containers. Our refrigeration products are also used in industrial applications, such as environmental test chambers, and in medical applications, such as magnetic resonance imaging (MRI) machines. These products include compressors; precision flow controls; system diagnostics and controls that provide precise temperature management; and environmental control systems.
Emerson’s services in this segment assist customers in improving their climate control systems for better control and efficiency relating to new refrigerants, energy efficiency standards, indoor air quality and food safety. We also provide remote monitoring of food refrigeration control systems, 24-hour energy supervision and service dispatch, and a process that audits food store mechanical systems to identify potential energy savings.
Climate Technologies segment sales, primarily to original equipment manufacturers and end users, are made predominately through worldwide direct sales force networks. The remaining sales are primarily through independent distributor networks throughout the world.
Service/trademarks and trade names within the Climate Technologies segment include Emerson Climate Technologies, Alco Controls, Clive Samuels & Associates, Computer Process Controls, Copeland, Design Services Network, Emerson Climate Technologies Distribution Services, Emerson Climate Technologies Educational Services, Emerson Climate Technologies Flow Controls, Emerson Climate Technologies Retail Services, Fusite, Therm-O-Disc and White-Rodgers.
APPLIANCE AND TOOLS
Emerson’s Appliance and Tools segment includes a broad range of products and solutions in motors, appliances and components, tools and storage. In 2008, sales by geographic destination for this segment were United States 82 percent, Europe 5 percent, Asia 3 percent and other regions 10 percent.
Motors
Emerson provides a broad range of electric motors, controls and assemblies from fractional to several thousand horsepower output. Each of these products is designed to give our customers the quality, reliability, and energy efficiency needed in their specific applications. Emerson’s electric motors are used in a variety of home appliances. They include variable, fixed and multi-speed motors used in horizontal and vertical axis washers, dryers, and dishwashers. Our motors are also used in residential and commercial pumps, such as those provided in spas, pools and golf course irrigation equipment; in HVAC equipment, such as furnaces, compressors, condenser fans, heat pumps, cooling towers and commercial air handlers; and in industrial, farming and mining applications, where we offer products such as explosion-proof motors, paint-free washdown motors and industrial severe duty motors.
Appliances and Appliance Components
Emerson provides a number of appliances and appliance technology solutions, ranging from water valves and controls to heating elements and switches. Our appliance offering includes residential and commercial garbage disposers and ceiling fans, instant hot-water dispensers, and compact electric water heaters. Our appliance solutions provide integrated systems, sub-systems and components for appliances that include electronic and electromechanical controls for washers, dryers, dishwashers, refrigerators and other home appliances as well as heating elements for dishwashers, electric ovens and water heaters.
Professional and Do-It-Yourself Tools
Our pipe-working tools are used by plumbing and mechanical professionals to install and repair piping systems. These tools include pipe wrenches, pipe cutters, pipe threading and roll grooving equipment; a time-saving system that joins tubing through mechanical crimping; drain cleaners; diagnostic systems including closed-circuit television pipe inspection and locating equipment; and tubing tools. Other professional tools include water jetters, wet-dry vacuums, rolling storage boxes, truck work boxes, bolt cutters, and van and truck ladder racks. Do-it-yourself tools, available at home improvement retail outlets, include drain cleaning equipment, pipe and tube working tools, and wet-dry vacuums.
Storage Solutions
Emerson provides a wide variety of freestanding, fixed and mobile storage products for residential, commercial, healthcare and food service applications. Our products for the home include wall-mounted and freestanding shelving systems, cabinet and closet organizers, home office storage, and drawer systems and containers, available in wire, stainless steel and laminate. Our storage solutions also help commercial customers utilize space in the most efficient manner. These solutions include storage and display shelving, stock-picking and kitting carts, cabinets, totes, bins, workstations, and merchandising and inventory storage racks. Products provided to the healthcare industry assist in medical response and treatment; they include emergency and operating room carts, medication carts, polymer and wire shelving systems, and sterile worktables. Our food service equipment helps meet the storage needs of the food service and hospitality industries, such as restaurants and hotels. This equipment includes polymer and wire storage systems, busing carts, pan and tray racks, transport carts and workstations.
Distribution
The principal worldwide distribution channel for the Appliance and Tools segment is direct sales forces. Motors and appliance components and solutions for original equipment manufacturers are sold almost exclusively worldwide through direct sales force networks. Independent distributors constitute the next most significant sales channel, with professional tools sold almost exclusively worldwide through distributors; and, to a lesser extent, independent sales representatives are utilized, particularly for storage solutions.
Brands
Service/trademarks and trade names within the Appliance and Tools segment include Emerson Appliance Solutions, Emerson Heating Products, Emerson Motor Technologies, Emerson Professional Tools, Emerson Storage Solutions, ClosetMaid, Digital Appliance Controls, Emerson, Flo Healthcare, InSinkErator, Knaack, Lionville, Mallory, METRO, RIDGID, U.S. Electrical Motors and Weather Guard.
PRODUCTION
Emerson utilizes various production operations and methods. The principal production operations are metal stamping, forming, casting, machining, welding, plating, heat treating, painting and assembly. In addition, Emerson uses specialized production operations, including automatic and semiautomatic testing, automated material handling and storage, ferrous and nonferrous machining and special furnaces for heat treating and foundry applications. Management believes the equipment, machinery and tooling used in these processes are of modern design and are well maintained.
RAW MATERIALS
Emerson's major requirements for basic raw materials include steel, copper, cast iron, electronics, aluminum and brass and, to a lesser extent, plastics and other petroleum-based chemicals. Emerson has multiple sources of supply for each of its major requirements and is not significantly dependent on any one or a few suppliers. Although recent high prices for some raw materials have caused pricing pressures to some of our businesses, the raw materials and various purchased components required for its products have generally been available in sufficient quantities.
PATENTS, TRADEMARKS AND LICENSES
The Company has a number of patents, trademarks and licenses, obtained over a number of years and expiring at various times. While proprietary intellectual property is important to the Company, management believes the loss or expiration of any intellectual property right would not materially impact the Company or any of its segments.
BACKLOG
The estimated consolidated order backlog of the Company was $5,518 million and $4,917 million at September 30, 2008 and 2007, respectively. Nearly all of the September 30, 2008 consolidated backlog amount is expected to be shipped within one year. The estimated backlog by business segment at September 30, 2008 and 2007 follows:
| (dollars in millions) | | 2007 | | 2008 | |
| Process Management | | $ | 2,531 | | | 2,897 | |
| Industrial Automation | | | 599 | | | 760 | |
| Network Power | | | 1,093 | | | 1,230 | |
| Climate Technologies | | | 375 | | | 396 | |
| Appliance and Tools | | | 319 | | | 235 | |
| Consolidated Order Backlog | | $ | 4,917 | | | 5,518 | |
COMPETITION
Emerson's businesses operate in markets that are highly competitive, and Emerson competes on product performance, quality, service and/or price across the industries and markets served. A significant element of the Company's competitive strategy is to deliver solutions to our customers by manufacturing high quality products at the best relevant global cost. Although no single company competes directly with Emerson in all of the Company's product lines, various companies compete in one or more product lines. Some of these companies have substantially greater sales and assets than Emerson, and Emerson also competes with many smaller companies. The number of Emerson's competitors varies by product line, and management believes that Emerson has a market leadership position in many of these product lines.
RESEARCH AND DEVELOPMENT
Costs associated with Company-sponsored research and development activities were $458 million, $397 million and $356 million in 2008, 2007 and 2006, respectively.
ENVIRONMENT
The Company's manufacturing locations generate waste, the treatment, storage, transportation and disposal of which are subject to federal, state and/or local laws and regulations relating to the protection of the environment. Compliance with laws regulating the discharge of materials into the environment or otherwise relating to the protection of the environment has not had a material effect upon Emerson's capital expenditures, earnings or competitive position. It is not anticipated that Emerson will have material capital expenditures for environmental control facilities during the next fiscal year.
EMPLOYEES
Emerson and its subsidiaries had an average of approximately 140,700 employees during 2008. Management believes that the Company's employee relations are favorable. Some of the Company's employees are represented under collective bargaining agreements, but none of these agreements is considered significant.
DOMESTIC AND FOREIGN OPERATIONS
International sales were $13,479 million in 2008, $11,219 million in 2007 and $9,166 million in 2006, including U.S. exports of $1,537 million, $1,277 million and $1,127 million in 2008, 2007 and 2006, respectively. Although there are additional risks attendant to foreign operations, such as possible nationalization of facilities, currency fluctuations and restrictions on the movement of funds, Emerson's financial position has not been materially affected thereby to date. See Note 16 of Notes to Consolidated Financial Statements of the 2008 Annual Report, which note is hereby incorporated by reference, for further information with respect to foreign operations.
INTERNET ACCESS
Emerson's Forms 10-K, 10-Q, 8-K and all amendments to those reports are available without charge through Emerson's web site on the Internet as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission. They may be accessed as follows: www.emerson.com, Investor Relations, SEC Filings. Information on Emerson’s web site does not constitute part of this Form 10-K.
The information set forth under, “Item 1A. Risk Factors” is hereby incorporated by reference.
Item 1A. Risk Factors
Investing in our securities involves risks. We may amend or supplement the risk factors described below from time to time by other reports we file with the SEC in the future.
We Operate In Businesses That Are Subject To Competitive Pressures That Could Affect Prices Or Demand For Our Products
Our businesses operate in markets that are highly competitive, and we compete on the basis of product performance, quality, service and/or price across the industries and markets served. A significant element of our competitive strategy is to deliver solutions to our customers by manufacturing high quality products at the best relevant global cost. Some of our competitors have greater sales, assets and financial resources than our Company. Competitive pressures could affect prices or customer demand for our products, impacting our profit margins and/or resulting in a loss of market share.
Our Operating Results Depend In Part On Continued Successful Research, Development And Marketing Of New And/Or Improved Products And Services, And There Can Be No Assurance That We Will Continue To Successfully Introduce New Products And Services
The success of new and improved products and services depends on their initial and continued acceptance by our customers. Our businesses are affected by varying degrees of technological change and corresponding shifts in customer demand, which result in unpredictable product transitions, shortened life cycles and increased importance of being first to market with new products and services. We may experience difficulties or delays in the research, development, production and/or marketing of new products and services which may negatively impact our operating results and prevent us from recouping or realizing a return on the investments required to bring new products and services to market.
We Engage In Acquisitions, And May Encounter Difficulties In Integrating These Businesses And Therefore We May Not Realize The Anticipated Benefits Of The Acquisitions
We are a company that, from time to time, seeks to grow through strategic acquisitions. In the past several years, we have made various acquisitions and entered into joint venture arrangements intended to complement or expand our business, and may continue to do so in the future. The success of these transactions will depend on our ability to integrate assets and personnel acquired in these transactions and to cooperate with our strategic partners. We may encounter difficulties in integrating acquisitions with our operations, and in managing strategic investments. Furthermore, we may not realize the degree, or timing, of benefits we anticipate when we first enter into a transaction. Any of the foregoing could adversely affect our business and results of operations.
Access To Funding Through The Capital Markets Is Essential To The Execution Of Our Business Plan And If We Are Unable To Maintain Such Access We Could Experience A Material Adverse Effect On Our Business And Financial Results
Our ability to invest in our businesses, make strategic acquisitions and refinance maturing debt obligations requires access to the capital markets and sufficient bank credit lines to support short-term borrowings. If we are unable to continue to access the capital markets, we could experience a material adverse effect on our business and financial results.
We Use A Variety Of Raw Materials And Components In Our Businesses, And Significant Shortages Or Price Increases Could Increase Our Operating Costs And Adversely Impact The Competitive Positions Of Our Products
Our major requirements for raw materials include steel, copper, cast iron, electronics, aluminum and brass and, to a lesser extent, plastics and other petroleum-based chemicals. Emerson has multiple sources of supply for each of its major requirements and is not significantly dependent on any one or a few suppliers. Significant shortages or price increases could affect the prices our affected businesses charge, their operating costs and the competitive position of their products and services, which could adversely affect our results of operations.
Our Operations Depend On Production Facilities Throughout The World, A Majority Of Which Are Located Outside The United States And Subject To Increased Risks Of Disrupted Production Causing Delays In Shipments And Loss Of Customers And Revenue
We manage businesses with manufacturing facilities worldwide, a majority of which are located outside the United States. Serving a global customer base requires that we place more production in emerging markets to capitalize on market opportunities and maintain our best-cost position. Our international production facilities and operations could be disrupted by a natural disaster, labor strike, war, political unrest, terrorist activity or public health concerns, particularly in emerging countries that are not well-equipped to handle such occurrences.
Our manufacturing facilities abroad also may be more susceptible to changes in laws and policies in host countries and economic and political upheaval than our domestic facilities. Any such disruption could cause delays in shipments of products and the loss of sales and customers, and insurance proceeds may not adequately compensate us.
Our Substantial Sales Abroad Subject Us To Economic Risk As Our Results Of Operations May Be Adversely Affected By Foreign Currency Fluctuations And Changes In Local Government Regulations And Policies
We sell, manufacture, engineer, and purchase products in overseas markets. A significant portion of our sales is outside the United States, and we expect sales from non - U.S. markets to continue to represent a significant portion of our total sales. International sales and operations are subject to changes in local government regulations and policies, including those related to tariffs and trade barriers, investments, taxation, exchange controls, and repatriation of earnings. Changes in the relative values of currencies occur from time to time and could affect our operating results. While we monitor our exchange rate exposures and attempt to reduce this exposure through hedging activities, this risk could adversely affect our operating results.
Downturns In The End Markets That We Serve May Negatively Impact Our Segment Revenues And Profitability
Our segment revenues, operating results and profitability have varied in the past and may vary significantly from quarter to quarter in the future. Profitability can be negatively impacted by volatility in the end markets that we serve. Future downturns in any of the markets that we serve could adversely affect our overall sales and operating results.
We Are Subject To Litigation And Environmental Regulations That Could Adversely Impact Our Operating Results
We are, and may in the future be, a party to a number of legal proceedings and claims, including those involving product liability and environmental matters, several of which claim, or may in the future claim, significant damages. Given the inherent uncertainty of litigation, we can offer no assurance that existing litigation or a future adverse development will not have a material adverse impact. We also are subject to various laws and regulations relating to environmental protection and the discharge of materials into the environment, and we could incur substantial costs as a result of the noncompliance with or liability for cleanup or other costs or damages under environmental laws.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
At September 30, 2008, Emerson had approximately 255 manufacturing locations worldwide, of which approximately 165 were located outside the United States, primarily in Europe and to a lesser extent in Asia, Canada and Latin America. The approximate numbers of manufacturing locations by business segment are: Process Management, 60; Industrial Automation, 75; Network Power, 40; Climate Technologies, 40; and Appliance and Tools, 40. The majority of the locations are owned, with the remainder occupied under operating or capital leases. The Company considers its facilities suitable and adequate for the purposes for which they are used.
Item 3. Legal Proceedings
The information regarding legal proceedings set forth in Note 12 of Notes to Consolidated Financial Statements of the 2008 Annual Report is hereby incorporated by reference.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the quarter ended September 30, 2008.
_____________________________________________________________
Executive Officers of the Registrant
The following sets forth certain information as of November 2008 with respect to Emerson's executive officers. Fiscal Year column indicates the first year the executive served as an officer of the Company. These officers have been elected or appointed to terms which will expire February 3, 2009:
| Name | | Position | | Age | | Fiscal Year |
| D. N. Farr* | | Chairman of the Board, Chief Executive Officer and President | | 53 | | 1985 |
| | | | | | | |
| C. W. Ashmore | | Senior Vice President - Planning and Development | | 46 | | 2001 |
| | | | | | | |
| W. J. Galvin | | Senior Executive Vice President and Chief Financial Officer | | 62 | | 1984 |
| | | | | | | |
| E. L. Monser | | Chief Operating Officer | | 58 | | 2002 |
| | | | | | | |
| C. A. Peters | | Senior Executive Vice President | | 53 | | 1990 |
| | | | | | | |
| R. J. Schlueter | | Vice President and Chief Accounting Officer | | 54 | | 1992 |
| | | | | | | |
| F. L. Steeves | | Senior Vice President, Secretary and General Counsel | | 54 | | 2007 |
*Also chairman of the Executive Committee of the Board of Directors.
There are no family relationships among any of the executive officers and directors.
David N. Farr has been Chief Executive Officer since October 2000 and was also appointed Chairman of the Board in September 2004 and appointed President in November 2005. Craig W. Ashmore has been Senior Vice President - Planning and Development since October 2004. Prior to his current position, Mr. Ashmore was Group Vice President from 2003 to 2004 and Vice President - Profit Planning from 2001 to 2003. Walter J. Galvin was appointed Senior Executive Vice President in October 2004 and has been Chief Financial Officer since 1993. Prior to his current position, Mr. Galvin was Executive Vice President from February 2000 to October 2004. Edward L. Monser was appointed Chief Operating Officer in November 2001. Charles A. Peters has been Senior Executive Vice President since October 2000. Richard J. Schlueter has been Vice President Accounting since 1999 and was also appointed Chief Accounting Officer in February 2003. Frank L. Steeves was appointed Senior Vice President, Secretary and General Counsel in March 2007, prior to which he was Vice Chairman of the Milwaukee-based law firm of von Briesen & Roper, S.C., which has provided legal services to the Company since 2001. Mr. Steeves joined von Briesen and Roper as a partner in 2001, and became Vice Chairman of the firm in 2004.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The information regarding the market for the Company's common stock, quarterly market price ranges and dividend payments set forth in Note 18 of Notes to Consolidated Financial Statements of the 2008 Annual Report is hereby incorporated by reference. There were approximately 26,445 stockholders of record at September 30, 2008.
Repurchases of equity securities during the fourth quarter of 2008 are listed in the following table.
| Period | | (a) Total Number of Shares Purchased (000s) | | (b) Average Price Paid per Share | | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (000s) | | (d) Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs (000s) | |
| July 2008 | | | 2,460 | | | | | | 2,460 | | | 78,542 | |
| August 2008 | | | 2,580 | | | $48.03 | | | 2,580 | | | 75,962 | |
| September 2008 | | | 3,570 | | | $42.65 | | | 3,570 | | | 72,392 | |
| Total | | | 8,610 | | | $46.23 | | | 8,610 | | | 72,392 | |
The Company’s Board of Directors authorized the repurchase of up to 80 million shares under the November 2001 program, as adjusted for the Company’s December 2006 two-for-one stock split. The Board of Directors approved a new program on May 6, 2008, for the repurchase of up to 80 million additional shares. The maximum number of shares that may yet be purchased under the 2008 program was 72.4 million and no shares remain under the November 2001 program.
Item 6. Selected Financial Data
Years ended September 30
(dollars in millions, except per share amounts)
| | | 2004 | | 2005 (a) | | 2006 | | 2007 | | 2008 | |
| Net sales | | $ | 15,226 | | | 16,902 | | | 19,734 | | | 22,131 | | | 24,807 | |
| Earnings from continuing operations | | $ | 1,246 | | | 1,413 | | | 1,839 | | | 2,129 | | | 2,454 | |
| Earnings from continuing operations per common share (basic) | | $ | 1.49 | | | 1.70 | | | 2.25 | | | 2.68 | | | 3.14 | |
| Earnings from continuing operations per common share (diluted) | | $ | 1.48 | | | 1.69 | | | 2.23 | | | 2.65 | | | 3.11 | |
| Cash dividends per common share | | $ | 0.80 | | | 0.83 | | | 0.89 | | | 1.05 | | | 1.20 | |
| Long-term debt | | $ | 3,136 | | | 3,128 | | | 3,128 | | | 3,372 | | | 3,297 | |
| Total assets | | $ | 16,361 | | | 17,227 | | | 18,672 | | | 19,680 | | | 21,040 | |
Information presented in the selected financial data reflects the December 2006 two-for-one stock split. The European appliance motor and pump business for all periods presented and the Brooks Instrument flow meters and flow controls unit for 2008 only are classified as discontinued operations. See Note 3 of Notes to Consolidated Financial Statements of the 2008 Annual Report, which note is hereby incorporated by reference, for information regarding the Company's acquisition and divestiture activities.
(a) Fiscal 2005 includes tax expense of $63 million ($0.07 per share) related to the repatriation of foreign earnings under the American Jobs Creation Act of 2004.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Information appearing under “Results of Operations,” “Financial Position, Capital Resources and Liquidity,” “Critical Accounting Policies” and the "Safe Harbor Statement" in the 2008 Annual Report are hereby incorporated by reference.
Fiscal 2009 Outlook
Fiscal year 2008 was a record year and Emerson is well positioned moving into an uncertain 2009 recessionary environment. Reported sales are forecast to be in the range of $23.5 billion to $25.5 billion, or negative 5 percent to positive 3 percent compared to 2008 sales of $24.8 billion. Underlying sales growth is expected to be in the range of negative 4 percent to positive 4 percent, which excludes an estimated 5 percent unfavorable impact of foreign currency translation at current exchange rates, and a favorable impact from completed and assumed future acquisitions of approximately 4 percent. Based on this level of sales, the Company forecasts 2009 earnings per share in the range of $2.80 to $3.20. There can be no assurance when and if future acquisitions will be completed, and what impact future exchange rates will have.
Non-GAAP Financial Measures
To supplement Emerson’s financial information presented in accordance with generally accepted accounting principles (GAAP), management uses additional measures, including non-GAAP financial measures as such term is defined in Regulation G under the rules of the Securities and Exchange Commission, to clarify and enhance understanding of past performance and prospects for the future. Generally, a non-GAAP financial measure is a numerical measure of a company’s financial performance, financial position or cash flows that exclude (or include) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. For example, these financial measures may exclude the impact of certain unique items such as acquisitions, divestitures, one-time gains and losses or items outside of management’s control (e.g., foreign currency exchange rates). Management believes that the following non-GAAP financial measures provide investors and analysts useful insight into Emerson’s financial position and performance.
Underlying sales, which exclude the impact of acquisitions and divestitures during the periods presented, and fluctuations in foreign currency exchange rates, are provided to facilitate relevant period-to-period comparisons of sales growth by excluding these unique items that impact the overall comparability. Underlying sales should be viewed in addition to, and not as an alternative to net sales as determined in accordance with U.S. GAAP.
Operating profit (defined as net sales less cost of sales and selling, general and administrative expenses) and operating profit margin (defined as operating profit divided by net sales) are indicative of short-term operational performance and ongoing profitability. Management closely monitors operating profit and operating profit margin of each business to evaluate past performance and actions required to improve profitability. Operating profit and operating profit margin should be viewed in addition to, and not as an alternative to pretax earnings or profit margin as determined in accordance with U.S. GAAP.
Earnings, earnings per share, return on equity and return on total capital excluding one-time gains and losses provide additional insight into the underlying, ongoing operating performance of the Company and facilitate period-to-period comparisons by excluding the earnings impact of these items. Given the unique nature of these items, management believes that presenting earnings, earnings per share, return on equity and return on total capital excluding them is more representative of the Company’s operational performance and may be more useful for investors. However, these financial measures are not intended to replace earnings, earnings per share, return on equity or return on total capital as determined in accordance with U.S. GAAP.
Free cash flow (operating cash flow less capital expenditures) is an indicator of the Company’s cash generating capabilities after considering investments in capital assets which are necessary to maintain and enhance existing operations. Operating cash flow adds back non-cash depreciation expense to earnings and thereby does not reflect a charge for necessary capital expenditures. Although management believes that free cash flow is useful to both management and investors as a measure of the Company’s ability to generate cash, it is not intended to replace operating cash flow as determined in accordance with U.S. GAAP.
Overall, while Emerson believes these non-GAAP financial measures are useful in evaluating the Company, this information should be considered as supplemental in nature and not as a substitute for or superior to the related financial information prepared in accordance with GAAP. Further, the calculation of these non-GAAP financial measures may differ from the calculation of similarly titled financial measures presented by other companies, and therefore they may not be comparable among companies.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Information appearing under "Financial Instruments" in the 2008 Annual Report is hereby incorporated by reference.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of the Company and its subsidiaries and the report thereon of KPMG LLP in the 2008 Annual Report are hereby incorporated by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Emerson maintains a system of disclosure controls and procedures which are designed to ensure that information required to be disclosed by the Company in the reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and is accumulated and communicated to management, including the Company’s certifying officers, as appropriate to allow timely decisions regarding required disclosure. Based on an evaluation performed, the Company's certifying officers have concluded that the disclosure controls and procedures were effective as of September 30, 2008, to provide reasonable assurance of the achievement of these objectives.
Notwithstanding the foregoing, there can be no assurance that the Company's disclosure controls and procedures will detect or uncover all failures of persons within the Company and its consolidated subsidiaries to report material information otherwise required to be set forth in the Company's reports.
There was no change in the Company's internal control over financial reporting during the quarter ended September 30, 2008, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
Management’s report on internal control over financial reporting, and the related report of the Company’s auditor, KPMG LLP, an independent registered public accounting firm, appearing in the 2008 Annual Report are hereby incorporated by reference.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information regarding nominees and directors appearing under "Nominees and Continuing Directors" in the Emerson Electric Co. Notice of Annual Meeting of Stockholders and Proxy Statement for the February 2009 annual stockholders' meeting (the "2009 Proxy Statement") is hereby incorporated by reference. Information regarding executive officers is set forth in Part I of this report. Information appearing under "Section 16(a) Beneficial Ownership Reporting Compliance" in the 2009 Proxy Statement is hereby incorporated by reference. Information regarding the Audit Committee and Audit Committee Financial Expert appearing under "Board of Directors and Committees" in the 2009 Proxy Statement is hereby incorporated by reference.
Emerson has adopted a Code of Ethics that applies to the Company's chief executive officer, chief financial officer, chief accounting officer and controller; has posted such Code of Ethics on its Internet web site; and intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K by posting such information on its Internet web site. Emerson has adopted Charters for its Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee and a Code of Business Ethics for directors, officers and employees, which are available on its Internet web site and are available in print to any shareholder who requests them. Emerson has also adopted Corporate Governance Principles and Practices, which are available on its Internet web site and are available in print to any shareholder who requests them. The Company's Internet web site may be accessed as follows: www.emerson.com, Investor Relations, Corporate Governance.
Item 11. Executive Compensation
Information appearing under “Board of Directors and Committees—Compensation Committee,” “Board of Directors and Committees—Corporate Governance and Nominating Committee,” “Director Compensation,” “Executive Compensation” (including, but not limited to, the information set forth under “Compensation Discussion and Analysis,” “Compensation Committee Report” and “Summary Compensation Table”) and “Compensation Committee Interlocks and Insider Participation” in the 2009 Proxy Statement is hereby incorporated by reference.
The information contained in “Compensation Committee Report” shall not be deemed to be “filed” with the Securities and Exchange Commission or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), except to the extent that Emerson specifically incorporates such information into future filings, under the Securities Act of 1933 or the Exchange Act.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information regarding beneficial ownership of shares by nominees and continuing directors, named executive officers and by all directors and executive officers as a group appearing under "Stock Ownership of Directors and Executive Officers" in the 2009 Proxy Statement is hereby incorporated by reference.
Equity Compensation Plan Information
The following table sets forth aggregate information regarding the Company’s equity compensation plans as of September 30, 2008:
| | | | | | | Number of Securities | |
| | | | | | | Remaining Available for | |
| | | Number of Securities | | Weighted-Average | | Future Issuance under | |
| | | to be Issued upon | | Exercise Price of | | Equity Compensation | |
| | | Exercise of | | Outstanding | | Plans (Excluding | |
| | | Outstanding Options, | | Options, Warrants | | Securities Reflected in | |
| | | Warrants and Rights | | and Rights | | Column (a)) | |
Plan Category | | (a) | | (b) | | (c) | |
| | | | | | | | |
Equity compensation plans approved by security holders(1) | | | 19,359,953 | | | $36.31 | | | 27,729,440 | |
| | | | | | | | | | | |
Equity compensation plans not approved by security holders | | | - | | | - | | | - | |
| | | | | | | | | | | |
| Total | | | 19,359,953 | | | $36.31 | | | 27,729,440 | |
| (1) | Includes the Company’s Stock Option and previously approved Incentive Shares Plans. Included in column (a) are 5,008,800 shares reserved for performance share awards (awarded in 2007), which will be distributed primarily in shares of common stock and partially in cash contingent upon the Company achieving the financial objective through 2010 and performance of services by the employees. As provided by the Company’s Incentive Shares Plans, performance share awards represent a commitment to issue such shares without cash payment by the employee, contingent upon achievement of the objective and the performance of services by the employee. The price in column (b) represents the weighted-average exercise price for outstanding options. Included in column (c) are 15,958,094 shares remaining available for award under the previously approved 2006 Incentive Shares Plan and 410,254 shares remaining available under the previously approved Restricted Stock Plan for Non-Management Directors. |
Information regarding stock option plans and incentive shares plans set forth in Note 14 of Notes to Consolidated Financial Statements of the 2008 Annual Report is hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information appearing under “Director Independence” in the 2009 Proxy Statement is hereby incorporated by reference.
Item 14. Principal Accounting Fees and Services
Information appearing under "Fees Paid to KPMG LLP" in the 2009 Proxy Statement is hereby incorporated by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules
| A) | Documents filed as a part of this report: |
| 1. | The consolidated financial statements of the Company and its subsidiaries and the report thereon of KPMG LLP in the 2008 Annual Report. |
| 2. | Financial Statement Schedules |
| | | All schedules are omitted because they are not required, not applicable or the information is given in the financial statements or notes thereto contained in the 2008 Annual Report. |
| 3. | Exhibits (Listed by numbers corresponding to the Exhibit Table of Item 601 in Regulation S-K). |
| 3(a) | Restated Articles of Incorporation of Emerson Electric Co., incorporated by reference to Emerson Electric Co. Form 10-Q for the quarter ended March 31, 2001, File No. 1-278, Exhibit 3(a); Termination of Designated Shares of Stock and Certificate of Designation, Preferences and Rights of Series B Junior Participating Preferred Stock, incorporated by reference to Emerson Electric Co. 1998 Form 10-K, File No. 1-278, Exhibit 3(a). |
| 3(b) | Bylaws of Emerson Electric Co., as amended through February 5, 2008, incorporated by reference to Emerson Electric Co. Form 10-Q for the quarter ended March 31, 2008, File No. 1-278, Exhibit 3.1. |
| 4(a) | Indenture dated as of April 17, 1991, between Emerson Electric Co. and The Boatmen's National Bank of St. Louis, Trustee, incorporated by reference to Emerson Electric Co. Registration Statement on Form S-3, File No. 33-62545, Exhibit 4.1. |
| 4(b) | Indenture dated as of December 10, 1998, between Emerson Electric Co. and The Bank of New York, Trustee, incorporated by reference to Emerson Electric Co. 1998 Form 10-K, File No. 1-278, Exhibit 4(b). |
No other long-term debt instruments are filed since the total amount of securities authorized under any such instrument does not exceed 10 percent of the total assets of Emerson Electric Co. and its subsidiaries on a consolidated basis. Emerson Electric Co. agrees to furnish a copy of such instruments to the Securities and Exchange Commission upon request.
| 4(c) | Rights Agreement dated as of November 1, 1998, between Emerson Electric Co. and ChaseMellon Shareholder Services, L.L.C., incorporated by reference to Emerson Electric Co. Form 8-A, dated October 6, 1998, File No. 1-278, Exhibit 1. |
| 10(a)* | 1991 Stock Option Plan, as amended, incorporated by reference to Emerson Electric Co. 1997 Form 10-K, File No. 1-278, Exhibit 10(e) and Amendment No. 1 thereto, incorporated by reference to Emerson Electric Co. 2000 Form 10-K, File No. 1-278, Exhibit 10(c). |
| 10(b)* | Third Amendment to the Emerson Electric Co. 1993 Incentive Shares Plan, as restated, incorporated by reference to Emerson Electric Co. 1996 Form 10-K, File No. 1-278, Exhibit 10(g), and Fourth Amendment thereto, incorporated by reference to Emerson Electric Co. 2001 Form 10-K, File No. 1-278, Exhibit 10(d). |
| 10(c)* | Amended and Restated Emerson Electric Co. Continuing Compensation Plan for Non-Management Directors, incorporated by reference to Emerson Electric Co. 2007 Form 10-K, File No. 1-278, Exhibit 10(c). |
| 10(d)* | Amended and Restated Deferred Compensation Plan for Non-Employee Directors and Forms of Payment Election Form, Initial Notice of Election and Notice of Election Change, incorporated by reference to Emerson Electric Co. 2007 Form 10-K, File No. 1-278, Exhibit 10(d). |
| 10(e)* | First Amendment to the Emerson Electric Co. Supplemental Executive Retirement Plan, incorporated by reference to Emerson Electric Co. 1999 Form 10-K, File No. 1-278, Exhibit 10(h), and Form of Change of Control Election, incorporated by reference to Emerson Electric Co. Form 8-K dated October 1, 2004, Exhibit 10.9 (applicable only with respect to benefits vested as of December 31, 2004). |
| 10(f)* | Amended and Restated Emerson Electric Co. Pension Restoration Plan and Forms of Participation Award Letter, Acceptance of Award and Benefit Election Forms (applicable only with respect to benefits after January 1, 2005), incorporated by reference to Emerson Electric Co. 2007 Form 10-K, File No. 1-278, Exhibit 10(f). |
| 10(g)* | Fifth Amendment to the Supplemental Executive Savings Investment Plan, incorporated by reference to Emerson Electric Co. Form 10-Q for the quarter ended March 31, 1999, File No. 1-278, Exhibit 10(j), and Form of Participation Agreement and Form of Annual Election, incorporated by reference to Emerson Electric Co. Form 8-K dated October 1, 2004, Exhibit 10.8 (applicable only with respect to benefits vested as of December 31, 2004). |
| 10(h)* | Amended and Restated Emerson Electric Co. Savings Investment Restoration Plan and Forms of Participation Agreement, Annual Election Form and Payment Election Form (applicable only with respect to benefits after January 1, 2005), incorporated by reference to Emerson Electric Co. 2007 Form 10-K, File No. 1-278, Exhibit 10(h), and First Amendment to Emerson Electric Co. Savings Investment Restoration Plan, incorporated by reference to Emerson Electric Co. Form 10-Q for the quarter ended March 31, 2008, File No. 1-278, Exhibit 10.1. |
| 10(i)* | Amended and Restated Emerson Electric Co. Annual Incentive Plan and Form of Acceptance of Award, incorporated by reference to Emerson Electric Co. 2007 Form 10-K, File No. 1-278, Exhibit 10(i). |
| 10(j)* | 1997 Incentive Shares Plan, incorporated by reference to Emerson Electric Co. 1997 Proxy Statement dated December 6, 1996, File No. 1-278, Exhibit A, and First Amendment thereto, incorporated by reference to Emerson Electric Co. 2001 Form 10-K, File No. 1-278, Exhibit 10(j), Amendment for 409A Compliance, incorporated by reference to Emerson Electric Co. 2007 Form 10-K, File No. 1-278, Exhibit 10(j), Form of Performance Share Award Certificate, Forms of Acceptance of Award and Change of Control Election, incorporated by reference to Emerson Electric Co. Form 8-K dated October 1, 2004, Exhibit 10.5, and Form of Restricted Shares Award Agreement, incorporated by reference to Emerson Electric Co. Form 8-K dated October 1, 2004, Exhibit 10.6. |
| 10(k)* | 1998 Stock Option Plan, incorporated by reference to Emerson Electric Co. 1998 Proxy Statement dated December 12, 1997, File No. 1-278, Appendix A, and Amendment No. 1 thereto, incorporated by reference to Emerson Electric Co. 2000 Form 10-K, File No. 1-278, Exhibit 10(l), Form of Notice of Grant of Stock Options and Option Agreement and Form of Incentive Stock Option Agreement, incorporated by reference to Emerson Electric Co. Form 8-K dated October 1, 2004, Exhibit 10.1, and Form of Notice of Grant of Stock Options and Option Agreement and Form of Nonqualified Stock Option Agreement, incorporated by reference to Emerson Electric Co. Form 8-K dated October 1, 2004, Exhibit 10.2. |
| 10(l)* | 2001 Stock Option Plan, incorporated by reference to Emerson Electric Co. 2002 Proxy Statement dated December 12, 2001, File No. 1-278, Appendix A, Form of Notice of Grant of Stock Options and Option Agreement and Form of Incentive Stock Option Agreement, incorporated by reference to Emerson Electric Co. Form 8-K dated October 1, 2004, Exhibit 10.3, and Form of Notice of Grant of Stock Options and Option Agreement and Form of Nonqualified Stock Option Agreement, incorporated by reference to Emerson Electric Co. Form 8-K dated October 1, 2004, Exhibit 10.4. |
| 10(m)* | Emerson Electric Co. Description of Split Dollar Life Insurance Program Transition, incorporated by reference to Emerson Electric Co. Form 8-K dated August 31, 2005, Exhibit 10.1. |
| 10(n)* | Emerson Electric Co. Restricted Stock Plan for Non-Management Directors, incorporated by reference to Emerson Electric Co. 2005 Proxy Statement dated December 8, 2004, Appendix B, and Form of Award Letter under the Emerson Electric Co. Restricted Stock Plan for Non-Management Directors, incorporated by reference to Emerson Electric Co. Form 8-K dated February 1, 2005, Exhibit 10.2. |
| 10(o)* | Description of Non-Management Director Compensation, incorporated by reference to Emerson Electric Co. Form 10-Q for the quarter ended March 31, 2007, File No. 1-278, Exhibit 10.1, and Summary of Changes to Compensation Arrangements for Non-Management Directors, incorporated by reference to Emerson Electric Co. Form 10-Q for the quarter ended June 30, 2008, File No. 1-278, Exhibit 10.2. |
| 10(p)* | Description of Named Executive Officer Compensation, incorporated by reference to Emerson Electric Co. Form 10-Q for the quarter ended December 31, 2004, Exhibit 10.1. |
| 10(q)* | Emerson Electric Co. 2006 Incentive Shares Plan, incorporated by reference to Emerson Electric Co. 2006 Proxy Statement dated December 16, 2005, Appendix C, Amendment for 409A Compliance, incorporated by reference to Emerson Electric Co. 2007 Form 10-K, File No. 1-278, Exhibit 10(q), Forms of Performance Share Award Certificate, Acceptance of Award and Restricted Share Award Agreement, incorporated by reference to Emerson Electric Co. 2007 Form 10-K, File No. 1-278, Exhibit 10(q), and Amendment to Emerson Electric Co. 2006 Incentive Shares Plan, incorporated by reference to Emerson Electric Co. Form 10-Q for the quarter ended June 30, 2008, File No. 1-278, Exhibit 10.1. |
| 10(r) | Long-Term Credit Agreement dated as of April 28, 2006, incorporated by reference to Emerson Electric Co. Form 8-K dated May 2, 2006, Exhibit 10.1. |
| 10(s)* | Letter Agreement effective as of April 4, 2007, by and between Emerson Electric Co. and W. Wayne Withers, incorporated by reference to Emerson Electric Co. Form 8-K dated April 4, 2007, Exhibit 10.1. |
| 10(t)* | Consulting Contract made and entered into as of April 4, 2007, by and between Emerson Electric Co. and W. Wayne Withers, incorporated by reference to Emerson Electric Co. Form 8-K dated April 4, 2007, Exhibit 10.2. |
| 12 | Ratio of Earnings to Fixed Charges. |
| 13 | Portions of Emerson Electric Co. Annual Report to Stockholders for the year ended September 30, 2008, incorporated by reference herein. |
| 21 | Subsidiaries of Emerson Electric Co. |
| 23 | Consent of Independent Registered Public Accounting Firm. |
| 31 | Certifications pursuant to Exchange Act Rule 13a-14(a). |
| 32 | Certifications pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350. |
* Management contract or compensatory plan.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | EMERSON ELECTRIC CO. |
| | | |
| By | /s/ | W. J. Galvin |
| | | |
| | | W. J. Galvin |
| | | Senior Executive Vice President |
| | | and Chief Financial Officer |
Date: November 24, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on November 24, 2008, by the following persons on behalf of the registrant and in the capacities indicated.
| Signature | | Title | |
| | | | |
| | | | |
| /s/ D. N. Farr | | Chairman of the Board, Chief Executive Officer and President | |
| D. N. Farr | | | |
| | | | |
| /s/ W. J. Galvin | | Senior Executive Vice President, Chief Financial Officer and Director | |
| W. J. Galvin | | | |
| | | | |
| /s/ R. J. Schlueter | | Vice President and Chief Accounting Officer | |
| R. J. Schlueter | | | |
| | | | |
| * | | Director | |
| A. A. Busch III | | | |
| | | | |
| * | | Director | |
| D. C. Farrell | | | |
| | | | |
| * | | Director | |
| C. Fernandez G. | | | |
| | | | |
| * | | Director | |
| A. F. Golden | | | |
| | | | |
| * | | Director | |
| H. Green | | | |
| * | | Director |
| R. B. Horton | | |
| | | |
| * | | Director |
| W. R. Johnson | | |
| | | |
| * | | Director |
| V. R. Loucks, Jr. | | |
| | | |
| * | | Director |
| J. B. Menzer | | |
| | | |
| * | | Director |
| C. A. Peters | | |
| | | |
| * | | Director |
| J. W. Prueher | | |
| | | |
| * | | Director |
| R. L. Ridgway | | |
| | | |
| * | | Director |
| R. L. Stephenson | | |
| * By | /s/ | W. J. Galvin |
| | W. J. Galvin |
| | Attorney-in-fact |
INDEX TO EXHIBITS
Exhibits are listed by numbers corresponding to the Exhibit Table of Item 601 in Regulation S-K.
Exhibit No. | | Exhibit |
| 12 | | Ratio of Earnings to Fixed Charges |
| | | |
| 13 | | Portions of Emerson Electric Co. Annual Report to Stockholders for the year ended September 30, 2008, incorporated by reference herein |
| | | |
| 21 | | Subsidiaries of Emerson Electric Co. |
| | | |
| 23 | | Consent of Independent Registered Public Accounting Firm |
| | | |
| 24 | | Power of Attorney |
| | | |
| 31 | | Certifications pursuant to Exchange Act Rule 13a - 14(a) |
| | | |
| 32 | | Certifications pursuant to Exchange Act Rule 13a - 14(b) and 18 U.S.C. Section 1350 |
*Management contract or compensatory plan.
See Item 15(A) 3. for a list of exhibits incorporated by reference.
