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EMR > SEC Filings for EMR > Form 10-K on 19-Nov-2013All Recent SEC Filings

Show all filings for EMERSON ELECTRIC CO

Form 10-K for EMERSON ELECTRIC CO


19-Nov-2013

Annual Report


ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The information from the 2013 Annual Report set forth in Exhibit 13 hereto under "Results of Operations," "Business Segments," "Financial Position, Capital Resources and Liquidity," "Critical Accounting Policies," and "Safe Harbor Statement" is hereby incorporated by reference.

Fiscal 2014 Outlook

Global economic indicators remain mixed and uncertain, but momentum appears to be on a slightly favorable trend. Process Management orders are expected to remain solid through 2014. Improvement in Europe and Asia is expected to support modest near-term sales growth in Industrial Automation, while also supporting positive near-term order trends in the Network Power Systems business. For Climate Technologies, residential and refrigeration strength and an expected commercial end market recovery support a moderate growth outlook. Solid residential end market momentum supports an outlook for modest near-term growth in Commercial & Residential Solutions. Based on a forecast of global gross fixed investment growth of 2.5 to 4 percent, Emerson underlying sales are expected to grow 3 to 5 percent in 2014, excluding (4) percent from acquisitions and the previously announced divestiture of the embedded computing and power business. Reported sales are expected to change (1) to 1 percent. After managing costs aggressively through sluggish economic conditions the past two years, incremental growth investments will accelerate next year, resulting in only slight margin expansion. Earnings per share are expected to increase 4 to 7 percent excluding an approximate 30 percent impact from impairment and repatriation charges, or increase 33 to 38 percent on a reported basis.The embedded computing and power transaction impact to 2014 earnings per share is expected to be approximately neutral, as supplemental share repurchase offsets the earnings decline.

Non-GAAP Financial Measures

To supplement Emerson's financial information presented in accordance with U.S. generally accepted accounting principles (U.S. GAAP), management periodically uses certain "non-GAAP financial measures," as such term is defined in Regulation G under the rules of the SEC, 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 operating performance, financial position or cash flows that excludes or includes amounts that are included in or excluded from the most directly comparable measure calculated and presented in accordance with U.S. GAAP. For example, non-GAAP measures may exclude the impact of certain items such as acquisitions, divestitures, gains, losses and impairments, or items outside of management's control, such as foreign currency exchange rate fluctuations. Management believes that the following non-GAAP financial measures provide investors and analysts useful insight into Emerson's financial position and operating performance. Any non-GAAP measure provided should be viewed in addition to, and not as an alternative to, the most directly comparable measure determined in accordance with U.S. GAAP, as identified in italics below. 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 may not be comparable among companies.

Underlying sales, which exclude the impact of acquisitions, divestitures and fluctuations in foreign currency exchange rates during the periods presented, are provided to facilitate relevant period-to-period comparisons of sales growth by excluding those items that impact overall comparability (U.S. GAAP measure:
net sales).

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. EBIT (defined as earnings before deductions for interest expense, net and income taxes) and total segment EBIT, and EBIT margin (defined as EBIT divided by net sales) and total segment EBIT margin, are commonly used financial measures that exclude the impact of financing on the capital structure and income taxes. All these measures are utilized by management to evaluate performance (U.S. GAAP measures: pretax earnings or pretax profit margin).

Earnings, earnings per share, return on common stockholders' equity and return on total capital excluding certain gains and losses, impairments or other items 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. Management believes that presenting earnings, earnings per share, return on common stockholders' equity


and return on total capital excluding these items is more representative of the Company's operational performance and may be more useful for investors (U.S. GAAP measures: earnings, earnings per share, return on common stockholders' equity, return on total capital).

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. The determination of operating cash flow adds back non-cash depreciation expense to earnings and thereby does not reflect a charge for necessary capital expenditures. Management believes that free cash flow is useful to both management and investors as a measure of the Company's ability to generate cash (U.S. GAAP measure: operating cash flow).

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