Edgar Filing: EMERSON ELECTRIC CO

Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2010

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from ____________________ to __________________

Commission file number 1-278

EMERSON ELECTRIC CO.

(Exact name of registrant as specified in its charter)

Missouri		43-0259330
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

8000 W. Florissant Ave.
P.O. Box 4100
St. Louis, Missouri		63136
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code: (314) 553-2000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer o
Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common stock of $0.50 par value per share outstanding at April 30, 2010: 753,169,778 shares.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EMERSON ELECTRIC CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2010

(Dollars in millions, except per share; unaudited)

	Three Months					Six Months
	Ended March 31,					Ended March 31,
	2009		2010			2009		2010

Net sales	$	5,087		5,144			10,502		10,155

Costs and expenses:
Cost of sales		3,250		3,144			6,669		6,252
Selling, general and administrative expenses		1,119		1,230			2,312		2,391
Other deductions, net		111		92			190		185
Interest expense (net of interest income of $5, $6, $16 and $9, respectively)		49		67			92		132
Earnings from continuing operations before income taxes		558		611			1,239		1,195
Income taxes		176		184			386		334
Earnings from continuing operations		382		427			853		861
Discontinued operations, net of tax		-		(9	)		-		(6	)
Net earnings		382		418			853		855
Less: Noncontrolling interests in earnings of subsidiaries		9		13			22		25
Net earnings attributable to Emerson	$	373		405			831		830

Basic earnings per share attributable to Emerson:
Earnings from continuing operations	$	0.50		0.55			1.10		1.11
Discontinued operations		-		(0.01	)		-		(0.01	)
Basic earnings per common share	$	0.50		0.54			1.10		1.10
Diluted earnings per share attributable to Emerson:
Earnings from continuing operations	$	0.49		0.54			1.09		1.10
Discontinued operations		-		(0.01	)		-		(0.01	)
Diluted earnings per common share	$	0.49		0.53			1.09		1.09

Earnings attributable to Emerson:
Earnings from continuing operations	$	373		414			831		836
Discontinued operations, net of tax		-		(9	)		-		(6	)
Net earnings attributable to Emerson	$	373		405			831		830

Cash dividends per common share	$	0.33		0.335			0.66		0.67

See accompanying Notes to Consolidated Financial Statements.

EMERSON ELECTRIC CO. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in millions, except share amounts; unaudited)

	September 30,			March 31,
	2009			2010
ASSETS
Current assets
Cash and equivalents	$	1,560			2,159
Receivables, less allowances of $93 and $99, respectively		3,623			3,654
Inventories		1,855			2,075
Other current assets		615			620
Total current assets		7,653			8,508

Property, plant and equipment, net		3,500			3,367
Other assets
Goodwill		7,078			7,630
Other		1,532			2,215
Total other assets		8,610			9,845
	$	19,763			21,720

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings and current maturities of long-term debt	$	577			1,269
Accounts payable		1,949			2,122
Accrued expenses		2,378			2,556
Income taxes		52			52
Total current liabilities		4,956			5,999

Long-term debt		3,998			4,581

Other liabilities		2,103			2,135

Stockholders’ equity
Preferred stock, $2.50 par value per share;
authorized, 5,400,000 shares; issued, none		-			-
Common stock, $0.50 par value per share;
authorized, 1,200,000,000 shares; issued, 953,354,012 shares;
outstanding, 751,872,857 shares and 753,305,725 shares, respectively		477			477
Additional paid-in capital		157			165
Retained earnings		14,714			15,040
Accumulated other comprehensive income		(496	)		(558	)
Cost of common stock in treasury, 201,481,155 shares and
200,048,287 shares, respectively		(6,297	)		(6,269	)
Emerson stockholders’ equity		8,555			8,855
Noncontrolling interests in subsidiaries		151			150
Total equity		8,706			9,005
	$	19,763			21,720

See accompanying Notes to Consolidated Financial Statements.

EMERSON ELECTRIC CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED MARCH 31, 2009 AND 2010

(Dollars in millions; unaudited)

	Six Months Ended
	March 31,
	2009			2010
Operating activities
Net earnings	$	853			855
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization		358			402
Changes in operating working capital		(355	)		33
Pension funding		(148	)		(109	)
Other		110			138
Net cash provided by operating activities		818			1,319

Investing activities
Capital expenditures		(272	)		(178	)
Purchases of businesses, net of cash and equivalents acquired		(433	)		(1,340	)
Other		37			31
Net cash used in investing activities		(668	)		(1,487	)

Financing activities
Net increase in short-term borrowings		886			725
Proceeds from long-term debt		500			596
Principal payments on long-term debt		(438	)		(50	)
Dividends paid		(502	)		(504	)
Purchases of treasury stock		(718	)		(24	)
Other		(43	)		49
Net cash provided by (used in) financing activities		(315	)		792

Effect of exchange rate changes on cash and equivalents		(105	)		(25	)

Increase (decrease) in cash and equivalents		(270	)		599
Beginning cash and equivalents		1,777			1,560
Ending cash and equivalents	$	1,507			2,159

Changes in operating working capital
Receivables	$	620			(6	)
Inventories		46			(163	)
Other current assets		(24	)		(17	)
Accounts payable		(683	)		160
Accrued expenses		(160	)		(5	)
Income taxes		(154	)		64
	$	(355	)		33

See accompanying Notes to Consolidated Financial Statements.

EMERSON ELECTRIC CO. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary for a fair presentation of operating results for the interim periods presented. Adjustments consist of normal and recurring accruals. The consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all disclosures required for annual financial statements presented in conformity with U.S. generally accepted accounting principles (GAAP). For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2009. Certain prior year amounts have been recast to conform to the current year presentation.

Effective October 1, 2009, the Company adopted ASC 805, Business Combinations, which requires that assets acquired, liabilities assumed and contractual contingencies be measured at fair value as of the acquisition date and all acquisition costs be expensed as incurred.

Effective October 1, 2009, the Company adopted updates to ASC 810, Consolidation. The updates require an entity to separately disclose noncontrolling interests in subsidiaries as a separate component of equity in the balance sheet and as a separate line item in the income statement. Adoption did not have a material impact on the Company’s financial statements. As required, this change has been retrospectively applied to prior periods.

In December 2008, the FASB issued updates to ASC 715, Compensation - Retirement Benefits. These updates are effective for 2010 annual reporting and expand disclosure about an entity’s investment policies and strategies for assets held by defined benefit pension or postretirement plans, including information regarding major classes of plan assets, inputs and valuation techniques used to measure the fair value of assets, and significant concentrations of risk within the plans. Adoption is not expected to have a material impact on the Company’s financial statements.

In the first quarter 2010, the Company adopted updates to ASC 260, Earnings per Share, regarding the two-class method of computing earnings per share (EPS). This method requires earnings to be allocated to participating securities (for Emerson, certain employee stock awards) in the EPS computation based on each security’s respective dividend rate. This change had an inconsequential impact on EPS for all periods presented.

Reconciliations of weighted average shares for basic and diluted earnings per common share follow (in millions). Earnings allocated to participating securities were inconsequential.

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2009		2010		2009		2010

Basic shares outstanding		752.1		751.1		757.6		750.7
Dilutive shares		4.8		6.3		4.8		5.7
Diluted shares outstanding		756.9		757.4		762.4		756.4

EMERSON ELECTRIC CO. AND SUBSIDIARIES

The change in stockholders’ equity balances for the six months ended March 31, 2010 follows (in millions):

	Emerson Stockholders’ Equity			Noncontrolling Interests in Subsidiaries			Total Equity
September 30, 2009	$	8,555			151			8,706
Net earnings		830			25			855
Other comprehensive income		(62	)		1			(61	)
Cash dividends		(504	)		(25	)		(529	)
Net treasury stock purchases and other		36			(2	)		34
March 31, 2010	$	8,855			150			9,005

Comprehensive income (loss), net of applicable income taxes, for the three and six months ended March 31, 2010 is summarized as follows (in millions):

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2009			2010			2009			2010

Net earnings	$	382			418			853			855
Foreign currency translation		(119	)		(101	)		(523	)		(94	)
Cash flow hedges and other		43			9			(54	)		33
		306			326			276			794
Less: Noncontrolling interests		7			13			16			26
Amount attributable to Emerson	$	299			313			260			768

The change in foreign currency translation during the first half of 2010 is primarily due to the weakening of the U.S. dollar. The amount attributable to noncontrolling interests in subsidiaries consisted of earnings and foreign currency translation.

Net periodic pension expense is summarized as follows (in millions):

	Three Months Ended March 31,						Six Months Ended March 31,
	2009			2010			2009			2010

Service cost	$	17			19			35			38
Interest cost		56			56			112			111
Expected return on plan assets		(71	)		(77	)		(143	)		(153	)
Net amortization		20			34			41			69
	$	22			32			45			65

Net postretirement healthcare expense is summarized as follows (in millions):

	Three Months Ended March 31,				Six Months Ended March 31,
	2009		2010		2009		2010

Service cost	$	1		1		2		2
Interest cost		7		6		14		12
Net amortization		2		1		4		1
	$	10		8		20		15

EMERSON ELECTRIC CO. AND SUBSIDIARIES

Other deductions, net are summarized as follows (in millions):

	Three Months Ended March 31,					Six Months Ended March 31,
	2009			2010		2009			2010
Other deductions, net
Rationalization of operations	$	64			36		107			74
Amortization of intangibles		24			45		47			80
Other		48			10		65			34
(Gains)/losses, net		(25	)		1		(29	)		(3	)
	$	111			92		190			185

Other deductions, net decreased for the three and six months ended March 31, 2010, primarily due to lower rationalization expense, lower losses on foreign exchange transactions and lower bad debt expense which were partially offset by higher amortization expense on acquired intangible assets.

During the second quarter of 2009, the Company received $41 million from the sale of an asset and recognized a gain of $25 million ($17 million after-tax).

Rationalization of operations expense reflects costs associated with the Company’s efforts to continuously improve operational efficiency and expand globally, in order to remain competitive on a worldwide basis. The change in the liability for rationalization costs during the six months ended March 31, 2010 follows (in millions):

	September 30,						March 31,
	2009		Expense		Paid/Utilized		2010
Severance and benefits	$	112		48		82		78
Lease/contract terminations		7		3		4		6
Fixed asset write-downs		-		5		5		-
Vacant facility and other shutdown costs		2		7		7		2
Start-up and moving costs		1		11		11		1
	$	122		74		109		87

Rationalization of operations by segment is summarized as follows (in millions):

	Three Months Ended March 31,				Six Months Ended March 31,
	2009		2010		2009		2010

Process Management	$	6		9		8		16
Industrial Automation		9		15		12		33
Network Power		30		9		50		16
Climate Technologies		8		2		22		5
Appliance and Tools		11		1		15		4
	$	64		36		107		74

EMERSON ELECTRIC CO. AND SUBSIDIARIES

The Company expects to incur full year rationalization costs of approximately $145 million to $170 million, which includes the $74 million shown above, as well as costs to complete actions initiated before the end of the second quarter and actions anticipated to be approved and initiated during the remainder of the year. The Company has incurred significant costs over the last year to rationalize its businesses to the level appropriate for current economic conditions, as well as improve its cost structure for future growth. Costs incurred during the first half of 2010 included shutdown costs due to workforce reductions and/or the consolidation of facilities in all the Company’s business segments. Start-up and moving costs, and vacant facilities and other costs were not material for any segment. Actions during the first six months of 2010 involved the elimination of 1,800 positions and included Process Management reducing worldwide forcecount and consolidating some North American production; Industrial Automation consolidating production and sales facilities within Europe and North America; Network Power reducing worldwide forcecount, consolidating North American production and shifting some production and engineering capabilities from North America and Europe to Asia; Climate Technologies consolidating or downsizing production facilities in North America and Europe; and Appliance and Tools outsourcing freight operations.

Other Financial Information (in millions):

	September 30,			March 31,
	2009			2010
Inventories
Finished products	$	697			787
Raw materials and work in process		1,158			1,288
	$	1,855			2,075

Property, plant and equipment, net
Property, plant and equipment, at cost	$	8,894			8,900
Less: Accumulated depreciation		(5,394	)		(5,533	)
	$	3,500			3,367

Goodwill by business segment
Process Management	$	2,242			2,259
Industrial Automation		1,304			1,352
Network Power		2,454			2,948
Climate Technologies		473			465
Appliance and Tools		605			606
	$	7,078			7,630

Changes in goodwill since September 30, 2009 are primarily due to acquisitions, particularly in the Network Power ($511 million) and Industrial Automation ($79 million) segments, as well as foreign currency translation. Valuations of assets are in-process and purchase price allocations for acquisitions are subject to change.

Other assets, other
Intellectual property and customer relationships	$	930	1,204
Capitalized software		214	210
LANDesk discontinued operations		-	407
Other		388	394
	$	1,532	2,215

Intellectual property and customer relationships of companies acquired in fiscal 2010 totaled approximately $357 million, primarily in the Network Power and Industrial Automation segments. See Note 10 for further information regarding the assets held for sale related to LANDesk.

Accrued expenses include the following:
Employee compensation	$	536	637
Customer advanced payments	$	315	356
Product warranty liability	$	199	201

EMERSON ELECTRIC CO. AND SUBSIDIARIES

	September 30,		March 31,
	2009		2010
Other liabilities
Pension plans	$	613		542
Postretirement plans, excluding current portion		460		458
Deferred income taxes		406		474
Other		624		661
	$	2,103		2,135

Summarized information about the Company’s results of operations by business segment follows (in millions):

	Three months ended March 31,
	Sales						Earnings
	2009			2010			2009			2010
Process Management	$	1,505			1,428			257			241
Industrial Automation		960			867			102			94
Network Power		1,304			1,351			108			157
Climate Technologies		733			908			69			163
Appliance and Tools		727			760			61			133
		5,229			5,314			597			788
Differences in accounting methods								47			49
Corporate and other								(37	)		(159	)
Eliminations/Interest		(142	)		(170	)		(49	)		(67	)
	$	5,087			5,144			558			611

	Six months ended March 31,
	Sales						Earnings
	2009			2010			2009			2010
Process Management	$	3,031			2,810			556			457
Industrial Automation		2,063			1,743			266			179
Network Power		2,765			2,732			260			363
Climate Technologies		1,425			1,692			123			276
Appliance and Tools		1,498			1,491			140			244
		10,782			10,468			1,345			1,519
Differences in accounting methods								97			95
Corporate and other								(111	)		(287	)
Eliminations/Interest		(280	)		(313	)		(92	)		(132	)
	$	10,502			10,155			1,239			1,195

Intersegment sales of the Appliance and Tools segment for the three months ended March 31, 2010 and 2009 were $147 million and $122 million, respectively, and $267 million and $234 million, respectively, for the six months ended March 31, 2010 and 2009. The increase in Corporate and other for 2010 primarily reflects higher incentive stock compensation expense of $72 million for the quarter and $110 million year-to-date related to an increase in the Company’s stock price and the overlap of two incentive stock compensation plans, $25 million lower one-time gains in both periods versus 2009, and lower commodity mark-to-market gains of $9 million for the quarter and $13 million year-to-date.

Following is a discussion regarding the Company’s use of financial instruments.

Hedging Activities

As of March 31, 2010, the notional value of foreign currency hedge positions totaled approximately $1.5 billion and commodity hedges outstanding included a combined total of approximately 72 million pounds of copper and aluminum. The majority of hedging gains and losses deferred as of March 31, 2010 will generally be recognized over the next 12 months as the underlying forecasted transactions occur.

EMERSON ELECTRIC CO. AND SUBSIDIARIES

Shown below are amounts recognized in earnings and other comprehensive income for the three and six months ended March 31, 2010 and 2009 (in millions). All derivatives receiving deferral accounting are cash flow hedges.

Derivatives Receiving Deferral Accounting

Gain (Loss) Reclassified into Earnings		Three Months Ended March 31,							Six Months Ended March 31,
		2009				2010			2009			2010
	Location
Foreign currency	Sales		$	(9	)		(1	)		(15	)		(4	)
Foreign currency	Cost of sales			(11	)		-			(19	)		(1	)
Commodity	Cost of sales			(39	)		17			(59	)		21
			$	(59	)		16			(93	)		16

Gain (Loss) Recognized in		Three Months Ended March 31,							Six Months Ended March 31,
Other Comprehensive Income		2009				2010			2009			2010

Foreign currency			$	(18	)		11			(93	)		28
Commodity				20			19			(87	)		41
			$	2			30			(180	)		69

Derivatives Not Receiving Deferral Accounting

Gain (Loss) Recognized in Earnings		Three Months Ended March 31,						Six Months Ended March 31,
		2009				2010		2009			2010
	Location
Foreign currency	Other income (deductions)		$	(14	)		62		(24	)		72
Commodity	Cost of sales			(1	)		-		(9	)		1
			$	(15	)		62		(33	)		73

Hedging gains or losses are expected to be largely offset by losses or gains on the related underlying exposures. Hedge ineffectiveness was immaterial for the quarter and year-to-date and no amounts were excluded from the assessment of hedge effectiveness.

Fair Value Measurements

Valuations for all of Emerson’s derivatives fall within Level 2 of the GAAP valuation hierarchy. Fair values of derivative contracts outstanding as of September 30, 2009 and March 31, 2010 follow (in millions):

	September 30, 2009					March 31, 2010
	Assets		Liabilities			Assets		Liabilities
Derivatives Receiving Deferral Accounting
Foreign currency	$	15		(33	)		28		(14	)
Commodity	$	30		(4	)		45		-

Derivatives Not Receiving Deferral Accounting
Foreign currency	$	6		(7	)		11		-
Commodity	$	2		(2	)		3		(1	)

At March 31, 2010, commodity contracts and foreign currency contracts were reported in current assets. The Company held $19 million of collateral posted by counterparties in the normal course of business as of March 31, 2010. The maximum collateral the Company could have been required to post as of March 31, 2010 was $5 million. As of March 31, 2010, the fair value of long-term debt was $5,378 million, which exceeded the carrying value by $266 million.

EMERSON ELECTRIC CO. AND SUBSIDIARIES

10.

On November 6, 2009, the Company acquired SSB Group GmbH (SSB), a designer and manufacturer of electrical pitch systems and control technology used in wind turbine generators, for approximately $145 million in cash. SSB had annual revenues in 2009 of approximately $115 million and is reported in the Industrial Automation business segment.

On December 11, 2009, the Company acquired Avocent Corporation, a leader in delivering information technology solutions that significantly enhance companies’ datacenter solutions capability, which strongly positions Emerson for the growing importance of energy management in datacenters worldwide, for $1.2 billion in cash. Avocent, excluding its LANDesk business, had annual revenues of $390 million in 2009 and is reported in the Network Power business segment. In connection with the acquisition, the Company immediately began pursuing the sale of the LANDesk business unit which is not a strategic fit with Emerson, and expects to complete the sale in 2010. LANDesk sells management and security software suites and had annual revenues of $150 million in 2009. LANDesk results for the three and six months ended March 31, 2010 are included in discontinued operations, with assets totaling approximately $0.5 billion and liabilities of approximately $0.2 billion.

Given the timing of these acquisitions, the purchase price allocations for SSB, Avocent and LANDesk are preliminary, and may be adjusted based on valuations to be completed during 2010 (see Note 7). The preliminary purchase price allocation to LANDesk was made by reference to Avocent’s valuation of the business prepared in early 2009 and the Company’s preliminary assessment.

The Company has been approached regarding the possible acquisition of the appliance motors and commercial and industrial motors businesses, which are included in the Appliance and Tools business segment. The Company has engaged an investment advisor to evaluate strategic options and to consider other potential acquirers. This evaluation is in process and no decision has been made as to whether these businesses will be sold.

On April 23, 2010, Emerson made an indicative proposal to the Board of Directors of Chloride Group PLC, a provider of uninterruptible power supply systems, which could lead to an offer to acquire Chloride for 275 pence per share in cash, or approximately £723 million ($1.1 billion). Chloride rejected the indicative proposal. Emerson plans to directly engage Chloride shareholders regarding the merits of the proposal.

Items 2 and 3. Management's Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

The second quarter of fiscal 2010 showed signs that underlying market conditions are beginning to improve, as worldwide gross fixed investment appears to be stabilizing. Sales grew in three of the Company’s business segments and earnings improved as aggressive rationalization and cost containment efforts in previous periods yielded results. Capital goods, industrial production and manufacturing have grown, but residential and nonresidential construction remains weak. The Company anticipates conditions will continue to improve during the remainder of the calendar year and expects the longer-term economic recovery to be gradual. Second quarter underlying sales declined in all geographic regions except Asia, where China had strong sales growth. Contributions from acquisitions and favorable foreign currency translation offset underlying sales declines and led to a slight sales increase overall. Sales increased for Climate Technologies due to strong sales growth in Asia and the United States, for Network Power primarily due to solid sales growth in China and for Appliance and Tools due to growth in the United States, while sales for Process Management and Industrial Automation declined, as spending and investment in the end markets served by these businesses have been slower to recover. As noted, successful restructuring efforts in 2009 and 2010 helped increase earnings in the Climate Technologies, Network Power and Appliance and Tools segments during the second quarter. Despite the economic downturn, Emerson's financial position remains strong and the Company continues to generate substantial operating cash flow.

EMERSON ELECTRIC CO. AND SUBSIDIARIES

THREE MONTHS ENDED MARCH 31, 2010, COMPARED WITH THREE MONTHS ENDED MARCH 31, 2009

RESULTS OF OPERATIONS

Three months ended March 31,	2009			2010			Change
(dollars in millions, except per share amounts)

Net sales	$	5,087			5,144			1	%
Gross profit	$	1,837			2,000			9	%
Percent of sales		36.1	%		38.9	%
SG&A	$	1,119			1,230
Percent of sales		22.0	%		23.9	%
Other deductions, net	$	111			92
Interest expense, net	$	49			67

Earnings from continuing operations before income taxes	$	558			611			9	%
Percent of sales		11.0	%		11.9	%
Earnings from continuing operations - Emerson	$	373			414			11	%
Net earnings - Emerson	$	373			405			9	%
Percent of sales		7.3	%		7.9	%

Diluted EPS – Earnings from continuing operations	$	0.49			0.54			10	%
Diluted EPS – Net earnings	$	0.49			0.53			8	%

Net sales for the quarter ended March 31, 2010 were $5,144 million, an increase of $57 million, or 1 percent, compared with net sales of $5,087 million for the quarter ended March 31, 2009. Consolidated results reflect a 6 percent ($320 million) decrease in underlying sales (which exclude acquisitions and foreign currency translation), offset by a 4 percent ($211 million) increase from acquisitions and a 3 percent ($166 million) favorable impact from foreign currency translation. The underlying sales decline reflects both lower volume (5 percent) and lower pricing (1 percent) as underlying sales decreased 3 percent in the United States and 9 percent internationally. The international sales decrease included declines in most geographic regions, including Europe (18 percent), Canada (18 percent), Middle East/Africa (13 percent) and Latin America (12 percent), partially offset by growth in Asia (5 percent). Climate Technologies had strong sales growth in the quarter aided by stimulus programs in China, and Network Power and Appliance and Tools had slight sales increases. Process Management and Industrial Automation continued to be affected by the slow recovery in capital goods spending.

Costs of sales for the second quarters of 2010 and 2009 were $3,144 million and $3,250 million, respectively. Gross profit of $2,000 million and $1,837 million, respectively, resulted in gross profit margins of 38.9 percent and 36.1 percent. The increase in gross profit in the second quarter of 2010 primarily reflects acquisitions, savings from cost reduction actions and favorable foreign currency translation, partially offset by lower volume. The increase in gross profit margin reflects savings from cost reduction actions, acquisitions and favorable product mix, partially offset by lower volume. Materials cost containment was substantially offset by lower sales prices.

Selling, general and administrative (SG&A) expenses for the second quarter of 2010 were $1,230 million, or 23.9 percent of net sales, an increase of $111 million compared with $1,119 million, or 22.0 percent, for 2009. The increase in SG&A as a percent of sales was primarily the result of higher incentive stock compensation expense of $72 million related to an increase in the Company’s stock price and the overlap of two incentive stock compensation plans, plus costs due to acquisitions.

Other deductions, net were $92 million for the second quarter of 2010, a $19 million decrease from the same period in the prior year, primarily due to decreased rationalization costs, lower losses on foreign exchange transactions and lower bad debt expense, partially offset by higher amortization expense and lower nonrecurring gains. See Notes 5 and 6 for further details regarding other deductions, net and rationalization costs.

EMERSON ELECTRIC CO. AND SUBSIDIARIES

Pretax earnings from continuing operations of $611 million for the second quarter of 2010 increased $53 million, or 9 percent, compared with $558 million for the prior year. This increase was primarily due to higher gross profit and a decrease in other deductions, net, partially offset by increased SG&A and interest expenses. Emerson has realized benefits from the aggressive restructuring actions taken in 2009 and 2010 that positioned the Company for growth as the economy recovers. Earnings results predominantly reflect increases of $94 million in Climate Technologies, $72 million in Appliance and Tools and $49 million in Network Power, partially offset by decreases of $16 million in Process Management and $8 million in Industrial Automation.

Income taxes were $184 million and $176 million for the three months ended March 31, 2010 and 2009, respectively, resulting in an effective tax rate of 30 percent and 31 percent, respectively.

Earnings and earnings per share from continuing operations attributable to Emerson were $414 million and $0.54 for the second quarter of 2010, increases of 11 percent and 10 percent, respectively, compared with $373 million and $0.49 for the second quarter of 2009.

Net earnings attributable to Emerson were $405 million and net earnings per share were $0.53 for the three months ended March 31, 2010, increases of 9 percent and 8 percent, respectively, compared with $373 million and $0.49 for the three months ended March 31, 2009. Net earnings for the second quarter of 2010 included a loss from discontinued operations of $9 million related to LANDesk (see Note 10).

BUSINESS SEGMENTS

Following is a summary of operating results for the Company’s business segments for the second quarter ended March 31, 2010, compared with the second quarter ended March 31, 2009. The Company defines segment earnings as earnings before interest and taxes.

Process Management

Three months ended March 31,	2009			2010			Change
(dollars in millions)

Sales	$	1,505			1,428			(5	)%
Earnings	$	257			241			(6	)%
Margin		17.1	%		16.9	%

Process Management reported second quarter sales of $1,428 million, a decrease of 5 percent from the prior year. Primarily as a result of weakness in the chemical, refining and marine markets, nearly all of the businesses reported lower sales and earnings, particularly the valves and measurement businesses. Underlying sales decreased 13 percent due to a decline in volume, with a 4 percent favorable impact from both foreign currency translation ($66 million) and acquisitions, primarily Roxar ($64 million). The decrease in underlying sales includes declines in the United States (5 percent), Europe (19 percent), Canada (31 percent), Asia (13 percent), Latin America (27 percent) and Middle East/Africa (6 percent). Earnings decreased 6 percent for the period to $241 million primarily due to lower sales volume, while the slight margin decrease primarily reflects deleverage on the lower sales volume plus acquisition integration costs, substantially offset by savings from significant cost reduction actions, particularly in the systems and solutions business and the measurement business.

Industrial Automation

Three months ended March 31,	2009			2010			Change
(dollars in millions)

Sales	$	960			867			(10	)%
Earnings	$	102			94			(9	)%
Margin		10.7	%		10.7	%

EMERSON ELECTRIC CO. AND SUBSIDIARIES

Sales decreased 10 percent, to $867 million, in the Industrial Automation segment for the second quarter, reflecting significant declines in the power generating alternators and motors business and power transmission business due to continued weakness in the capital goods markets, partially offset by a strong increase in the electrical drives business and modest increases in the fluid automation and electrical distribution businesses. Underlying sales decreased 16 percent on lower volume, foreign currency translation had a 3 percent ($39 million) favorable impact and the Trident Power and SSB acquisitions added 3 percent ($25 million). Underlying sales declined 18 percent in the United States and 19 percent in Europe, while sales increased in Asia (8 percent) and Latin America (9 percent). Earnings were $94 million, compared with $102 million in the prior year and margin was flat, reflecting deleverage on the lower sales volume, negative product mix and higher restructuring expense of $6 million, offset by savings from cost reduction actions. Materials cost containment was partially offset by lower sales prices.

Network Power

Three months ended March 31,	2009			2010			Change
(dollars in millions)

Sales	$	1,304			1,351			4	%
Earnings	$	108			157			47	%
Margin		8.2	%		11.7	%

Sales in the Network Power segment increased 4 percent to $1,351 million for the second quarter, primarily reflecting the Avocent acquisition and strong sales growth in the embedded power business, partially offset by moderate declines in the uninterruptible power supply, precision cooling and energy systems businesses. Sales in the network power business in Asia were flat. The sales increase reflects an underlying sales decline of 6 percent, a 7 percent ($92 million) contribution from the Avocent acquisition and a 3 percent ($39 million) favorable impact from foreign currency translation. The underlying sales decline reflects a 4 percent decline in volume and a 2 percent impact from lower sales prices. Geographically, underlying sales reflect decreases of 20 percent in Europe, 3 percent in the United States and 13 percent in Latin America, while sales in Asia increased 2 percent. Earnings of $157 million increased 47 percent compared to the prior year, along with a margin increase of 3.5 percentage points, primarily due to earnings growth in the embedded computing and power businesses as the aggressive restructuring actions taken in 2009 have yielded results. The increase reflects savings from cost reduction actions, particularly in the embedded computing business, lower restructuring expense of $21 million and lower losses on foreign currency transactions, all partially offset by lower volume. Materials cost containment was more than offset by lower selling prices.

Climate Technologies

Three months ended March 31,	2009			2010			Change
(dollars in millions)

Sales	$	733			908			24	%
Earnings	$	69			163			136	%
Margin		9.4	%		17.9	%

Climate Technologies sales increased 24 percent in the second quarter to $908 million, reflecting increases across all of the businesses, including the compressor, heater controls and temperature sensors businesses, with strong growth in China, due largely to stimulus programs in support of mandated higher efficiency standards, and growth in the North American air-conditioning market. Sales growth reflects a 19 percent underlying increase from higher volume, which includes new product penetration gains, a 3 percent ($21 million) favorable impact from acquisitions and a 2 percent ($15 million) favorable impact from foreign currency translation. Sales increases of 13 percent in the United States and 26 percent internationally, including growth in Asia (67 percent) and Latin America (47 percent), were partially offset by a decline in Europe (11 percent). Earnings increased 136 percent to $163 million and margin increased 8.5 percentage points due to leverage on higher sales volume, materials cost containment, savings from successful restructuring actions taken in 2009 and lower losses on foreign currency transactions, partially offset by lower prices.

EMERSON ELECTRIC CO. AND SUBSIDIARIES

Appliance and Tools

Three months ended March 31,	2009			2010			Change
(dollars in millions)

Sales	$	727			760			4	%
Earnings	$	61			133			117	%
Margin		8.4	%		17.4	%

Appliance and Tools segment sales increased 4 percent to $760 million in the second quarter, reflecting increases in the tools, hermetic motors and disposer businesses, which were partially offset by declines in the storage and commercial motors businesses. The 4 percent sales increase included a 2 percent increase in underlying sales, a 1 percent ($9 million) contribution from acquisitions and a 1 percent ($7 million) favorable impact from foreign currency translation. The underlying sales increase reflects an estimated 5 percent increase in volume and an approximate 3 percent negative impact from lower sales prices. Underlying sales increased in the United States (3 percent) and internationally (2 percent). Earnings were $133 million, an increase of 117 percent compared with the prior year. Earnings and margin results reflect growth in the motors, tools and disposer businesses, benefits from aggressive restructuring and cost reduction actions, leverage on higher sales volume, favorable product mix and lower restructuring expense of $10 million. Materials cost containment was substantially offset by lower selling prices.

SIX MONTHS ENDED MARCH 31, 2010, COMPARED WITH SIX MONTHS ENDED MARCH 31, 2009

RESULTS OF OPERATIONS

Six months ended March 31,	2009			2010			Change
(dollars in millions, except per share amounts)

Net sales	$	10,502			10,155			(3	)%
Gross profit	$	3,833			3,903			2	%
Percent of sales		36.5	%		38.4	%
SG&A	$	2,312			2,391
Percent of sales		22.0	%		23.5	%
Other deductions, net	$	190			185
Interest expense, net	$	92			132