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Article by DailyStocks_admin    (11-18-08 09:59 AM)

The Daily Magic Formula Stock for 11/16/2008 is Emerson Electric Co. According to the Magic Formula Investing Web Site, the ebit yield is 14% and the EBIT ROIC is 50-75 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


Dailystocks.com makes NO RECOMMENDATIONS whatsoever, and provides this for informational purpose only.

BUSINESS OVERVIEW

Business

Emerson was incorporated in Missouri in 1890, and has grown from a regional manufacturer of electric motors and fans into a diversified global technology company. Having expanded its product lines through internal growth and acquisition, Emerson today is designing and supplying product technology and delivering engineering services in a wide range of industrial, commercial and consumer markets around the world.

Emerson is organized into the following business segments, based on the nature of the products and services rendered:


•

Process Management, providing measurement, control and diagnostic capabilities for automated industrial processes producing items such as foods, fuels, medicines and power


•

Industrial Automation, bringing integrated manufacturing solutions to diverse industries worldwide


•

Network Power, providing power and environmental conditioning and reliability to help keep telecommunication systems, data networks and critical business applications continuously operating


•

Climate Technologies, enhancing household and commercial comfort as well as food safety and energy efficiency through air-conditioning and refrigeration technology


•

Appliance and Tools, providing uniquely designed motors for a broad range of applications, appliances and integrated appliance solutions, and tools for both homeowners and professionals, as well as home and commercial storage systems

Sales, earnings before interest and income taxes, and total assets attributable to each segment for the three years ended September 30, 2007, are set forth in Note 16 of Notes to Consolidated Financial Statements of the 2007 Annual Report, which note is hereby incorporated by reference. Sales by segment in 2007 were Process Management 25 percent, Industrial Automation 18 percent, Network Power 22 percent, Climate Technologies 16 percent, and Appliance and Tools 19 percent. Sales by geographic destination in 2007 were United States 48 percent, Europe 23 percent, Asia 16 percent and other regions 13 percent. Information with respect to acquisition and divestiture activities by Emerson is set forth in Note 3 of Notes to Consolidated Financial Statements of the 2007 Annual Report, which note is hereby incorporated by reference.

PROCESS MANAGEMENT

The Process Management segment offers customers product technology as well as engineering and project management services for precision control, monitoring and asset optimization of plants that produce power or that process or treat such items as oil, natural gas and petrochemicals; food and beverages; pulp and paper; pharmaceuticals; and municipal water supplies. This array of products and services helps customers optimize their process plant capabilities in the areas of plant safety and reliability, and product quality and output. In 2007, sales by geographic destination for this segment were United States 34 percent, Europe 24 percent, Asia 20 percent and other regions 22 percent.

Process Management Systems and Software

Emerson’s Process Management systems and software control plant processes by collecting and analyzing information from measurement devices in the plant, and by using that information to adjust valves, pumps, motors, drives and other control hardware in the plant for maximum product quality and process efficiency.

Measurement and Analytical Instrumentation

Measurement instrumentation measures the physical properties of liquids or gases in a process stream, such as pressure, temperature, level, or rate and amount of flow, and communicates this information to the control system. Measurement technologies provided by Emerson include Coriolis direct mass flow, magnetic flow, vortex flow, ultrasonic flow, differential pressure, ultralow-flow fluid measurement, temperature sensors and radar based tank gauging. Emerson measurement products also are used in custody transfer applications, such as the transfer of gasoline from a storage tank to a tanker truck, where precise metering of the amount of fluid transferred helps ensure accurate asset management.

Analytical instrumentation analyzes the chemical composition of process fluids and emissions to enhance quality and efficiency, as well as environmental compliance. Emerson’s analytical technologies include process gas chromatographs, in-situ oxygen analyzers, infrared gas and process fluid analyzers, combustion analyzers and systems, and analyzers that measure pH, conductivity and water quality.

Valves, Actuators and Regulators

Control valves respond to commands from the control system by continuously and precisely modulating the flow of process fluids to provide maximum process efficiency and product quality. Emerson provides sliding stem valves, rotary valves, butterfly valves and related valve actuators and controllers. Emerson also provides a line of industrial and residential regulators, whose function is to reduce the pressure of fluids such as natural gas and liquid petroleum gas for transfer from high-pressure supply lines to lower pressure systems.

PlantWeb ® Digital Plant Architecture

Emerson’s PlantWeb digital plant architecture combines the technologies described above with the advantages of “intelligent” plant devices (valves and measurement instruments that have advanced diagnostic capabilities), open communication standards (non-proprietary digital protocols allowing the plant devices and the control system to “talk” with one another) and integrated modular software, not only to control the process better but also to collect and analyze valuable information about plant assets and processes. This capability gives customers the ability to detect or predict changes in equipment and process performance and the impact they can have on plant operations. The PlantWeb architecture provides the insight to improve plant availability and safety. PlantWeb also furnishes a platform to continually improve asset management and standards compliance, and to reduce startup, operations and maintenance costs.

Industry Services and Solutions

Emerson’s array of process automation and asset optimization services can improve automation project implementation time and costs, increase process availability and productivity, and reduce total cost of ownership. Global industry centers offer engineering and project management services to help customers extract maximum performance and reliability from their process equipment and automation assets. These centers serve industries such as oil and gas, pulp and paper, chemical, power, food and beverage, and life sciences. They also assist customers in diagnosing equipment problems and plant inefficiencies.

Distribution

The principal worldwide distribution channel for the Process Management segment is a direct sales force, although a network of independent sales representatives, and to a lesser extent, independent distributors purchasing these products for resale are also utilized. The majority of sales in the United States are made through a direct sales force with the remainder primarily through independent sales representatives. In Europe and Asia, sales are almost exclusively made through a direct sales force with the remainder split evenly between independent sales representatives and distributors.

Brands

Brands, service/trademarks and trade names within the Process Management segment include Emerson Process Management, AMS Suite, Asset Optimization, Baumann, Bettis, Bristol, Brooks Instrument, CSI, Damcos, Daniel, DeltaV, El-O-Matic, Fisher, Micro Motion, Mobrey, Ovation, PlantWeb, ROC, Rosemount, Rosemount Tank Radar, Smart Process and Tescom.

INDUSTRIAL AUTOMATION

The Industrial Automation segment provides integrated manufacturing solutions to our customers at the source of manufacturing their own products. Products include motors, transmissions, alternators, fluid controls and materials joining equipment. Through these offerings, Emerson brings technology and enhanced quality to the customer’s final product. In 2007, sales by geographic destination for this segment were United States 41 percent, Europe 41 percent, Asia 10 percent and other regions 8 percent.

Motors and Drives

Emerson provides a broad line of gear drives that can be coupled to electric motors and used in a wide variety of manufacturing operations and products, from automobile assembly lines to escalators in shopping malls or supermarket checkout stations. Products in this category include alternating current (AC) and direct current (DC) electronic variable speed drives, servo motors, pump motors, drive control systems, integral horsepower motors (1 HP and above), fractional horsepower motors (less than 1 HP) and gear drives.

Power Transmission

Emerson’s power transmission products include belt and chain drives, helical and worm gearing, gear motors, motor sheaves, pulleys, mounted and unmounted bearings, couplings, chains and sprockets. They are used to transmit power mechanically in a wide range of manufacturing and material handling operations and products. Our design and application experience enable us to provide both standard and customized automation and power transmission solutions to our customers.

Power Generation

Emerson provides alternators (low, medium and high voltage) for use in diesel or gas powered generator sets, as well as high frequency alternators, AC motor/generator sets, traction generators and wind power generators.

Fluid Power and Fluid Control

Products in this category control and power the flow of fluids (liquids and gases) in manufacturing operations such as automobile assembly, food processing, textile manufacturing and petrochemical processing. They include solenoid and pneumatic valves, valve position indicators, pneumatic cylinders, air preparation equipment, and pressure, vacuum and temperature switches.

Materials Joining and Precision Cleaning

Emerson supplies both plastics joining technologies and equipment, and metal welding and joining processes to a diversified manufacturing customer base, including automotive, medical devices and toys. We also provide precision cleaning and liquid processing solutions to industrial and commercial manufacturers. Products include ultrasonic joining and cleaning equipment, linear and orbital vibration welding equipment, systems for hot plate welding, spin welding, and laser welding, and aqueous, semi-aqueous and vapor cleaning systems.

Electrical Distribution

Emerson’s majority-owned EGS Electrical Group joint venture with SPX Corporation manufactures a broad line of components for current- and noncurrent-carrying electrical distribution devices. These products include conduit and cable fittings, plugs and receptacles, industrial lighting, and enclosures and controls. Products in this category are used in hazardous, industrial, commercial and construction environments, such as oil and gas drilling and production sites, pulp and paper mills and petrochemical plants.

Distribution

On a worldwide basis, the primary distribution channel for the Industrial Automation segment is through direct sales forces. Most products sold worldwide to original equipment manufacturers are through a direct sales force. Independent distributors constitute the next significant sales channel, mostly to reach end users; and, to a lesser extent, independent sales representatives are utilized, particularly for electrical distribution products in the United States.

Brands

Brands, service/trademarks and trade names within the Industrial Automation segment include Emerson Industrial Automation, Appleton, ASCO, ASCO Joucomatic, Branson Ultrasonics, Browning, Control Techniques, Emerson Power Transmission, Kato Engineering, Kop-Flex, Leroy Somer, McGill, Morse, Numatics and O-Z/Gedney.

NETWORK POWER

Emerson’s Network Power segment designs, manufactures, installs and maintains products providing “grid to chip” electric power conditioning, power reliability and environmental control for telecommunications networks, data centers and other critical applications. Products in this segment include power systems, embedded power supplies, precision cooling and inbound power systems, along with 24-hour service. In 2007, sales by geographic destination for this segment were United States 43 percent, Europe 20 percent, Asia 27 percent and other regions 10 percent.

Power Systems

Emerson supplies uninterruptible AC and DC power systems, which provide reliable, conditioned power to telecommunication networks, data centers and other critical equipment in the event of a blackout or line surges and spikes. Power Systems’ products range from stand-alone units to complete systems incorporating rectifiers, distribution units, surge protection, batteries and system supervision.

Embedded Power Supplies

Embedded power supplies are installed by original equipment manufacturers to convert or condition power for microprocessors and peripherals in a wide range of telecommunication, health care, computer and industrial applications using standard or custom AC/DC or DC/DC designs. They are also used in consumer products, in the form of power adaptors for ink jet printers and in chargers for mobile phones.

Precision Cooling

Emerson’s precision cooling products provide temperature and humidity control for computers, telecommunications and other sensitive equipment. These products range from 14,000 to 4 million BTUs in capacity and are available in up flow, down flow and overhead configurations.


Inbound Power Systems

Emerson inbound power technology provides reliable power systems which automatically transfer critical application loads from a utility to emergency backup generators in the event of a blackout or brownout. Products include automatic transfer switches, paralleling and synchronizing gear and related distribution equipment and control systems.

Connectivity Solutions

Emerson’s connectivity products serve the needs of the wireless communications, telephony and data network, CATV, defense, security systems and health care industries and other industrial customers globally with a broad range of radio frequency, microwave and fiber optic interconnect components and assemblies.

Service and Site Operations

Emerson staffs Energy Operation Centers in more than 30 countries, and deploys field service personnel worldwide to assist customers in managing their network support systems. Our services include on-site operations management, energy consumption monitoring, preventive maintenance, electrical testing, remote monitoring and management, and 24-hour service capability.

Distribution

The Network Power segment sells primarily through worldwide direct sales force networks, particularly in Europe and Asia. The remainder of sales is handled by independent sales representatives, particularly in the United States, and independent distributors.

Brands

Brands, service/trademarks and trade names within the Network Power segment include Emerson Network Power, Artesyn, ASCO, ASCO Power Technologies, Astec Power, Control Concepts, Emerson Energy Systems, Engineered Endeavors, KnĂĽrr, Liebert, Liebert Global Services, Liebert HIROSS, Lorain, Northern Technologies, Semflex, Stratos, Trompeter and VORTEX.


MANAGEMENT DISCUSSION FROM LATEST 10K

Fiscal 2008 Outlook

The outlook for Emerson remains positive moving into fiscal 2008. Many of Emerson’s end markets remain strong, but a moderation in growth rates is expected when compared to 2007. Underlying sales growth for fiscal 2008 is expected to be in the range of 5 percent to 7 percent, which excludes the expected 2 percent to 3 percent favorable impact from foreign currency translation, acquisitions and divestitures. Reported sales growth is expected to be in the range of 7 percent to 10 percent. Based on this level of sales growth, the Company expects to generate 2008 earnings per share growth in the range of 10 percent to 15 percent above the $2.66 per share earned in fiscal 2007.

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 (for example, 2005 tax expense for earnings repatriation or 2003 gains from divestitures) 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.


MANAGEMENT DISCUSSION FOR LATEST QUARTER

OVERVIEW

The Company’s results for the first nine months of fiscal 2008 were strong, with earnings increasing for all five business segments and sales increasing for four of the five business segments over the prior year period. The Process Management, Network Power and Industrial Automation businesses had strong performances and drove gains as international gross fixed investment expanded during the first nine months of fiscal 2008. Strong growth in Asia, Latin America and Middle East/Africa, favorable foreign currency translation, and acquisitions contributed to the third quarter and first nine months’ results. Profit margins remained at high levels, primarily due to leverage on increased sales volume, benefits from previous rationalization actions and business mix. Emerson's financial position remains strong and the Company continues to generate substantial cash flow.

THREE MONTHS ENDED JUNE 30, 2008, COMPARED WITH THREE MONTHS ENDED JUNE 30, 2007

RESULTS OF OPERATIONS

Net sales for the quarter ended June 30, 2008 were $6,568 million, an increase of $796 million, or 14 percent, over net sales of $5,772 million for the quarter ended June 30, 2007, with international sales aiding the overall growth. The consolidated results reflect increases in four of the five business segments, with a 7 percent ($402 million) increase in underlying sales (which exclude acquisitions, divestitures and foreign currency translation), a 5 percent ($263 million) favorable impact from foreign currency translation and a 2 percent ($131 million) favorable impact from acquisitions, net of divestitures. The underlying sales increase for the third quarter reflects 10 percent growth in total international sales, while growth in the United States increased 4 percent. The international sales growth included increases in Asia (16 percent), Latin America (16 percent), Middle East/Africa (15 percent) and Europe (3 percent). The Company estimates that the underlying sales growth primarily reflects an approximate 6 percent gain from volume, which includes an estimated 2 percent impact from penetration gains, and an approximate 1 percent increase from higher sales prices.

Costs of sales for the third quarters of fiscal 2008 and 2007 were $4,155 million and $3,677 million, respectively. Cost of sales as a percent of net sales was 63.3 percent in the third quarter of 2008, compared with 63.7 percent in the third quarter of 2007. Gross profit was $2,413 million and $2,095 million for the third quarters ended June 30, 2008 and 2007, respectively, resulting in gross profit margins of 36.7 percent and 36.3 percent. The increase in the gross profit margin during the third quarter primarily reflects leverage on the higher sales volume and savings from cost reduction efforts. Higher sales prices were offset by higher material costs and wages. The increase in the gross profit amount primarily reflects higher sales volume and foreign currency translation.

EMERSON ELECTRIC CO. AND SUBSIDIARIES

FORM 10-Q

Selling, general and administrative (SG&A) expenses for the third quarter of 2008 were $1,321 million, or 20.1 percent of net sales, compared with $1,154 million, or 20.0 percent of net sales, for the third quarter of 2007. The increase of $167 million was largely due to the increase in variable costs on higher sales and acquisitions.

Other deductions, net were $100 million for the third quarter of 2008, a $42 million increase from the $58 million for the same period in the prior year. The three months ended June 30, 2008, included approximately $12 million of losses on foreign exchange transactions compared with $6 million of gains in the prior year period. The third quarter of fiscal 2008 also included a $9 million impairment charge in the appliance control business (See Note 10), and higher restructuring and amortization expense. For the three months ended June 30, 2008, amortization of intangibles increased $4 million compared with the prior year period due to acquisitions, while rationalization costs increased $6 million. See Notes 6 and 7 for further details regarding other deductions, net and rationalization costs.

Earnings from continuing operations before income taxes for the third quarter of 2008 increased $124 million, or 15 percent, to $946 million, compared with $822 million for the third quarter of 2007. The earnings results primarily reflect increases of $77 million in the Process Management, $34 million in the Network Power and $25 million in the Industrial Automation business segments.

Income taxes were $299 million and $249 million for the three months ended June 30, 2008 and 2007, respectively. The effective tax rate was 32 percent in the third quarter of 2008 compared with 30 percent in the prior year period. The effective tax rate for the entire fiscal year 2008 is expected to be approximately 32 percent.

Earnings from continuing operations were $647 million and earnings per share from continuing operations were $0.82 for the three months ended June 30, 2008, increases of 13 percent and 15 percent, respectively, compared with $573 million and $0.71 for the three months ended June 30, 2007.

Net earnings were $612 million and earnings per share were $0.78 for the three months ended June 30, 2008, increases of 7 percent and 8 percent, respectively, compared with $574 million and $0.72 for the three months ended June 30, 2007. Earnings for the third quarter of fiscal 2008 included a loss from discontinued operations of $35 million, or $0.04 per share, related to an additional write-down of the European appliance motor and pump business based on a definitive agreement to sell this unit (See Note 10). The 8 percent increase in earnings per share also reflects the purchase of treasury shares.

BUSINESS SEGMENTS

Process Management sales were $1,731 million in the third quarter of fiscal 2008, an increase of 18 percent over the prior year period. Nearly all of the businesses in this segment reported higher sales, with sales particularly strong for the valves, measurement and systems businesses, reflecting continued worldwide demand in the energy and power markets. Underlying sales increased approximately 13 percent, reflecting an estimated 12 percent from volume, which includes approximately 2 percent from penetration gains, and an estimated 1 percent from higher sales prices. Favorable foreign currency translation added 6 percent ($81 million) and the Brooks divestiture, net of an acquisition, had an unfavorable impact of 1 percent ($17 million). The underlying sales increase reflects growth in Asia (21 percent), the United States (12 percent), Latin America (28 percent), Middle East/Africa (14 percent) and Europe (5 percent). Third quarter earnings (defined as earnings before interest and taxes for the business segments discussion) increased 29 percent to $346 million from $269 million in the prior year period, reflecting higher sales volume and the benefit from foreign currency translation. The margin increase primarily reflects leverage on the higher volume and an $11 million litigation charge in the prior year. The increase in sales prices was more than offset by higher wage costs.

Sales grew 16 percent to $1,271 million in the Industrial Automation segment for the three months ended June 30, 2008, reflecting sales growth in all of the businesses and in all of the major geographic regions. Third quarter results were driven by particular strength in the power generating alternator, fluid automation and industrial equipment businesses. Third quarter underlying sales grew 8 percent, reflecting global industrial demand, and included the benefit of an estimated more than 1 percent positive impact from price. Foreign currency translation had an 8 percent ($87 million) favorable impact. The underlying sales increase reflects growth in all of the major geographic regions, including 11 percent in the United States and 6 percent internationally. The international sales growth included a 4 percent increase in Europe and a 16 percent increase in Asia. Earnings increased 15 percent over the prior year period to $186 million, reflecting the higher sales volume and foreign currency translation. The margin was diluted as higher sales prices were offset by material inflation and higher wage costs.

Network Power

Network Power sales increased 26 percent to $1,672 million during the third quarter of 2008 compared with the prior year period, reflecting continued strength in the power systems, precision cooling and telecommunications businesses and acquisitions. The sales increase reflects an underlying sales growth of 10 percent, a 12 percent ($161 million) increase from the Embedded Computing and Stratos acquisitions and a 4 percent ($51 million) favorable impact from foreign currency translation. The underlying sales growth reflects higher volume of 10 percent, which includes approximately 3 percent from penetration gains. Geographically, the underlying sales increase reflects growth in the United States (10 percent), Asia (13 percent), Europe (3 percent) and Latin America (8 percent). The growth in the United States reflects substantial customer investment in data room construction and non-residential computer equipment as well as segments of the telecommunications power market. The Company’s market penetration gains in China and other Asian markets continued. Earnings of $212 million increased $34 million, or 19 percent, from the prior year period primarily reflecting higher sales volume. The margin was negatively impacted approximately 1.5 percentage points from acquisitions.

CONF CALL

Lynne Maxeiner - Director of Investor Relations

Thank you, Andrew. I am joined today by David Farr, Chairman, Chief Executive Officer and President of Emerson; and Walter Galvin, Senior Executive Vice President and Chief Financial Officer.

Today's call will summarize Emerson's fourth quarter and fiscal year 2008 results. A conference call slide presentation will accompany my comments and is available in the Investor Relation section of Emerson's corporate website. A replay of this conference call and slide presentation will be available on the website after the call for the next three months. I will start with the highlights of the quarter as shown on page two of the conference call slide presentation.

Fourth quarter sales were up 11% to $6.7 billion with increases in four our of five business segments. Strong underlying sales growths of 7% led by process management, network power, and industrial automation. Operating profit margin improve 70 basis points to 17.5% of sales, and earnings per share from continuing operations in the quarter was $0.88, up 13%. Operating cash flow of $1.295 billion and free cash flow of $1.042 billion in the quarter.

Operational efficiency initiative continue and the balance sheet is strong as evidence by a trade working capital as a percent of sales, improving to 15.9% from 16.2%, and operating cash flow to total debt strong at 73%.

On the next slide the fourth quarter P&L. Sales in the quarter of $6.696 billion, up 11%. We'd underlying sales growth of 7%, currency added two points, and acquisitions net of divestitures added two points of growth.

Operating profits dollars in the quarter were $1.174 billion or 17.5% of sales. Good margin improvement of 70 basis points driven by cost containment programs, volume leverage, and favorable business mix.

Net earnings from continuing operations were $690 million up 11%. We repurchased 8.6 million shares for $398 million in the quarter. Diluted shares outstanding were 781.4 million, which get you to an EPS from continuing operations of $0.88, again up 13%. Reported EPS was also $0.88 in the quarter.

The sale of the European appliance, motor and pump business was closed in the quarter on September 30th.

The next slide underlying sales by geography. In Q4 the United States was up 1%, good international growth up 13% which strength from Asia, which was up 17%, Latin America up 25%, and Middle-East Africa up 14%. That gets into a total underlying sales number of plus 7%, currency added two points and acquisitions net of divestitures added two point, bringing you to the total of plus 11% for the quarter.

For fiscal year 2008, the U.S was up 3%, and total international was up 10%. Again which strength from Asia up 17%. Middle-East Africa up 17%, and Latin America up 18%. Total underlying sales of plus 7%, currency adding four points in acquisitions net of divestitures adding one point, bringing you to the total of plus 12% for the fiscal year.

Next on page five, income statement detail. Gross profit dollars of $2.474 billion or 37% of sales. SG&A as a percent of sales of 19.5% as we leverage the growth. Getting you to the OP of $1.174 billion or 17.5% of sale. Other deductions net was $133 million the increase driven by $22 million increase related to restructuring and $22 million charge related to the appliance control business.

Interest expense of 41 million getting you to the pretax line of 1 billion or 14.9% of sales. Tax rate in the quarter was 31% bringing the full year rate to 31.7% in line with prior guidance.

Page six, restructuring. Emerson restructures continuously throughout the business cycle with restructuring programs supporting geographic expansion and best cost country programs. We've accelerated restructuring throughout '08 as 2009 economy looked tougher.

Page seven, operating cash flow and balance sheet detail. Operating cash flow of $1.295 billion increased 4% driven by increased earning. Capital expenditures of $253 million get you to a free cash flow of $1.042 billion. Free cash flow was 151% of net earnings in the quarter. The strong balance sheet with 72.9% cash flow to total debt.

Trade working capital balances at the bottom of the page with the ratio of trade working capital as a percent of sales of 15.9%, a 30 basis point improvement from the prior year quarter.

Next page reviews our liquidity position, which remains strong and flexible. We had have continued access to the commercial paper markets, high short-term credit rating A1/P1 and we've been able to place paper with 30 day duration or longer at normal Emerson rate. We have $2.8 billion backup credit line, which expires

Gross profit dollars of 2.474 billion or 37% of sales. SG&A as 1% of sales was 19.5% as we leveraged the growth. Getting you to gets you to the OP of 1.174 billion or 17.5% of sales. Other deduction net was 133 million the increase driven by a $22 million increase related to restructuring and a 22 million charge related to the appliance control business.

Interest expense of 41 million getting you to the pre-tax line of 1 billion or 14.9 of sales. Tax rate in the quarter was 31% bring the full year rate to 31.7% in line with prior guidance.

Page 6, restructuring, amortized structures continuously throughout the business cycle with restructuring programs supporting geographic expansion and that cost of country program. We've accelerated restructuring throughout '08 as 2009 economy looked tougher.

Page seven, operating cash flow and balance sheet detail. Operating cash flow of 1.295 billion increased 4% driven by increased earning. Capital expenditures of 253 million get you to a free cash flow of 1.042 billion. Free cash flow was a 151% of net earnings in the quarter. The strong balance sheet with 72.9% cash flow to total debt.

Trade working capital balances at the bottom of the page with the ratio of trade working capital as a percent of sales of 15.9%, a 30 basis point improvement from the prior year quarter.

Next page reviews our liquidity possession which remains strong and flexible. We had have continue access to the commercial paper market, high short-term credit read in A1 P1 and we've been able to price paper with 30 day durational longer at normal emersion rate. We have a 2.8 billion back up credit line which expires

Gross profit dollars of 2.474 billion or 37% of sales. SG&A as 1% of sales was 19.5% as we leveraged the growth. Getting you to gets you to the OP of 1.174 billion or 17.5% of sales. Other deduction net was 133 million the increase driven by a $22 million increase related to restructuring and a 22 million charge related to the appliance control business.

Interest expense of 41 million getting you to the pre-tax line of 1 billion or 14.9 of sales. Tax rate in the quarter was 31% bring the full year rate to 31.7% in line with prior guidance.

Page 6, restructuring, amortized structures continuously throughout the business cycle with restructuring programs supporting geographic expansion and that cost of country program. We've accelerated restructuring throughout '08 as 2009 economy looked tougher.

Page seven, operating cash flow and balance sheet detail. Operating cash flow of 1.295 billion increased 4% driven by increased earning. Capital expenditures of 253 million get you to a free cash flow of 1.042 billion. Free cash flow was a 151% of net earnings in the quarter. The strong balance sheet with 72.9% cash flow to total debt.

Trade working capital balances at the bottom of the page with the ratio of trade working capital as a percent of sales of 15.9%, a 30 basis point improvement from the prior year quarter.

Next page reviews our liquidity possession which remains strong and flexible. We had have continue access to the commercial paper market, high short-term credit read in A1 P1 and we've been able to price paper with 30 day durational longer at normal emersion rate. We have a 2.8 billion back up credit line which expires

Gross profit dollars of 2.474 billion or 37% of sales. SG&A as 1% of sales was 19.5% as we leveraged the growth. Getting you to gets you to the OP of 1.174 billion or 17.5% of sales. Other deduction net was 133 million the increase driven by a $22 million increase related to restructuring and a 22 million charge related to the appliance control business.

Interest expense of 41 million getting you to the pre-tax line of 1 billion or 14.9 of sales. Tax rate in the quarter was 31% bring the full year rate to 31.7% in line with prior guidance.

Page 6, restructuring, amortized structures continuously throughout the business cycle with restructuring programs supporting geographic expansion and that cost of country program. We've accelerated restructuring throughout '08 as 2009 economy looked tougher.

Page seven, operating cash flow and balance sheet detail. Operating cash flow of 1.295 billion increased 4% driven by increased earning. Capital expenditures of 253 million get you to a free cash flow of 1.042 billion. Free cash flow was a 151% of net earnings in the quarter. The strong balance sheet with 72.9% cash flow to total debt.

Trade working capital balances at the bottom of the page with the ratio of trade working capital as a percent of sales of 15.9%, a 30 basis point improvement from the prior year quarter.

Next page reviews our liquidity possession which remains strong and flexible. We had have continue access to the commercial paper market, high short-term credit read in A1 P1 and we've been able to price paper with 30 day durational longer at normal emersion rate. We have a 2.8 billion back up credit line which expires

Gross profit dollars of 2.474 billion or 37% of sales. SG&A as 1% of sales was 19.5% as we leveraged the growth. Getting you to gets you to the OP of 1.174 billion or 17.5% of sales. Other deduction net was 133 million the increase driven by a $22 million increase related to restructuring and a 22 million charge related to the appliance control business.

Interest expense of 41 million getting you to the pre-tax line of 1 billion or 14.9 of sales. Tax rate in the quarter was 31% bring the full year rate to 31.7% in line with prior guidance.

Page 6, restructuring, amortized structures continuously throughout the business cycle with restructuring programs supporting geographic expansion and that cost of country program. We've accelerated restructuring throughout '08 as 2009 economy looked tougher.

Page seven, operating cash flow and balance sheet detail. Operating cash flow of 1.295 billion increased 4% driven by increased earning. Capital expenditures of 253 million get you to a free cash flow of 1.042 billion. Free cash flow was a 151% of net earnings in the quarter. The strong balance sheet with 72.9% cash flow to total debt.

Trade working capital balances at the bottom of the page with the ratio of trade working capital as a percent of sales of 15.9%, a 30 basis point improvement from the prior year quarter.

Next page reviews our liquidity possession which remains strong and flexible. We had have continue access to the commercial paper market, high short-term credit read in A1 P1 and we've been able to price paper with 30 day durational longer at normal emersion rate. We have a 2.8 billion back up credit line which expires

Gross profit dollars of 2.474 billion or 37% of sales. SG&A as 1% of sales was 19.5% as we leveraged the growth. Getting you to gets you to the OP of 1.174 billion or 17.5% of sales. Other deduction net was 133 million the increase driven by a $22 million increase related to restructuring and a 22 million charge related to the appliance control business.

Interest expense of 41 million getting you to the pre-tax line of 1 billion or 14.9 of sales. Tax rate in the quarter was 31% bring the full year rate to 31.7% in line with prior guidance.

Page 6, restructuring, amortized structures continuously throughout the business cycle with restructuring programs supporting geographic expansion and that cost of country program. We've accelerated restructuring throughout '08 as 2009 economy looked tougher.

Page seven, operating cash flow and balance sheet detail. Operating cash flow of 1.295 billion increased 4% driven by increased earning. Capital expenditures of 253 million get you to a free cash flow of 1.042 billion. Free cash flow was a 151% of net earnings in the quarter. The strong balance sheet with 72.9% cash flow to total debt.

Trade working capital balances at the bottom of the page with the ratio of trade working capital as a percent of sales of 15.9%, a 30 basis point improvement from the prior year quarter.

Next page reviews our liquidity possession which remains strong and flexible. We had have continue access to the commercial paper market, high short-term credit read in A1 P1 and we've been able to price paper with 30 day durational longer at normal emersion rate. We have a 2.8 billion back up credit line, which expires April 2011 that has never been drawn against.

At the bottom of the page, you'll see we have strong operating cash flow to debt ratio. Our cash position is in excess of our short term debt, and we have nice debt ladder going on several years.

Next slide, the business segment P&L. This is a segment EBIT of $1.06 billion up 6%. The segment EBIT was impacted by $22 million restructuring increase and $22 million appliance control business impairment charge, as well ass the dilutive impact from acquisition.

Difference in accounting methods up $60 million, corporate and other in the quarter was $105 million down 19 million driven by lower incentive share expense. Interest expense up $41 million in the quarter, which gets you to the pretax line of $1 billion up 11 %.

On slide 10, we'll review individual business segment starting with process management. A very strong quarter with sales up $1.888 billion an increase of 13%

Underlying sales were up 12% with currency adding two points and a divestiture net of an acquisition subtracting one point.

By region you have the U.S up 9%, Asia up 23%, Europe up 8%, and Middle-East Africa up 5%. EBIT dollars in the quarter up $416 million or 22% of sales.

We had good margin expansion in the quarter driven by cost reduction programs and sales volume leverage. For the full year process management delivered another exceptional year with sales up 17% and EBITDA up 23%.

We have not seen an increased level of project cancellations. Longer cycle projects and process management still provide favorable business outlook as we enter fiscal year 2009.

Next slide, industry automation, sales of $1.28 billion an increased of 4%.... 14%. Underlying sales ware up 9% and currency added five points. By region the U.S was up 11%, Europe up 4%, Asia up 22%. We continue to see good growth driven by the power generating alternative business and also the fluid automation and materials joining businesses.

EBIT in the quarter of $199 million or 15.6% of sales with sales volume leverage and pricing more then offset by material inflation, as well as an increased level of restructuring.

Fiscal year 2008 was the best consecutive year of double-digit sales increases for industry automation with underlying sales growth up 7%. The 2009 demand is expected to flow due to flowing global growth fixed investment and tougher comparisons.

Next slide, network power. Sales in the quarter of $1.714 billion, an increase of 19% Underlying sales were up 9%. Acquisition added eight points and currency added two points.

By region the U.S was flat, Asia was up 19% and Europe was up 2%. EBIT dollars up $215 million or 12.6% of sales. Acquisitions had a dilutive impact in the quarter of approximately 150 basis points.

In 2008, we've continued the expansion of our served market through strategic acquisition such as Aperture. As we enter '09, moderating demand is expected as global growth fixed investment weakens as '09 progresses.

Next slide, climate technologies. Sales here up $1.013 billion, up 8%. Underlying sales were up 5% and currency added three points. By geography, we have the U.S up 3%, Europe up 13%, and Asia down 3%. Europe growth was driven by the increase in heat pump compressor sales, which had an easier comparison to the fourth quarter of '07 European sales.

EBIT dollars in the quarter were $138 million or 13.6% of sales. Price increases were more than offset by material inflation and we increased restructuring ahead of a challenging '09. The geographic diversity of this business continues to improve in '08 with 45% of the fiscal year '08 sales from outside the U.S. Weak residential markets are expected to continue throughout '09.

Next slide, appliance and tools. Sales in the quarter up $975 million down 4%. Underlying sales were down 3%, a divestures subtracted two points and currency added a point. By region the U.S was down 6%, Europe down 4%, and Asia up 26%. EBIT dollars of $118 million or 12.1% of sales.

There was $22 million charge in the appliance controls business in the quarter that had a dilutive impact of approximately 230 basis points. The decision was made not to sell the appliance control business, but to create shareholder value by integrating this business with the appliance motors business.

Cost reduction programs and pricing were more than offset by material inflation and volume deleverage in the quarter. In 2008, we improve the mix of businesses and appliance and tool segment to divestitures and restructuring of the businesses. And excluding the impact of the charges related to the appliance control business EBIT margins expanded in 2008 in a difficult market environment. We expect market conditions to remain very challenging in 2009.

So with that I will turn it over to David Farr.

David N. Farr - Chairman, Chief Executive Officer and President

Thank you very much Lynne. I want to welcome everybody here this afternoon, I appreciate it. We've just finished a two day strategy session with our Board, bringing up-to-date on close of 2008, and then also what we see happening in 2009.

First of all, I want to thank all the 140,000 employees around the world who really delivered a strong performance in 2008, it was a record setting year on a many fronts. And that's on top of a tremendous five year time period. And our people out there, they're saying that the fourth quarter was weak, our fourth quarter was extremely strong, a very solid close, high quality earnings, high quality cash flow, and really a tremendous finished to our fantastic 2008.

If you look at our sales levels underlying sales growth of 7% this year, 8% in the last five years. We returned to record setting OP margins of 16.5%, which we told people we'll get to in this cycle and we've gotten there. And we've actually had a tremendous growth in earnings per share, the last five years averaging 19 plus percent, with this year 17% or $3.11.

And historical high ROTC of 21.8%, which is a tremendous performance relative to the profitability on cash flow of this corporation. And cash flow for eight year in a row free cash flow exceeded our net income, free cash flow of $2.6 billion representing 10.4% of sales. And if you look at the last five years, we have sales that increase $11 billion, operating profit of $2.1 billion.

Employees around the world of Emerson have executed and execute well for our shareholders, and had a tremendous fourth quarter up and down the P&L. And on top of that with the Board has decided today to raise the dividend 10%. We're working our 53rd year of dividend increase we can't say for sure until we do it quarter-by-quarter, but we are one of the few companies have increased dividend 53 years in a row and we're proud of that and the cash flow companies [ph] supports that.

If you look at what's going on in the environment right now. We've had a tremendous year and as you look at the last three or four month, it's gotten tougher and tougher, more challenging, and we still deliver great results. And I'd say that as we look at the last 60 days, it's been highly unusual with the financial crisis, with the bailout, with the consumers within the United States and around the world facing loss of market value, wealth, jobs, and uncertainty.

And the governments within United States around the world, just the United States government bailing, putting it over $700 billion more likely going to $1 trillion, maybe $2 trillion to support what's going on from the excesses that we have seen in the U.S and around the world for the last couple of years.

So we've had tremendous performance, up and down the P&L 2008. We are leaving this year very strong and feel very good about it. We have the strength both from our financial standpoint and a global footprint standpoint to deal with the issues that will be coming at us. And we will be highly flexible this year, because no one knows for sure what's going to come. But, if we look at our current economic models our indicators, they're also running negative.

Our employees, our customers, are all telling us that we are facing uncertain times around the world at this point in time, very unclear. It will take time in my opinion for us to have a certainty in what we're facing. But, if you look at what's going on with the financial crisis and the pullback and spending. Just look at Emerson. Back in August, September, October, telling we're going to spend somewhere around $750 million for capital for 2008.

We ended up at $714. We'll be telling you that we're going to potentially taking that down to $680 million next year based on what happens in the economy. When what happens to the economy is a little bit uncertain, but we will be flexible in that regard.

As we look at our business, you look at our emerging market business is still very good. If you look at what we see today with our key markets here in the U.S, Europe, and the other G-7. They have turned to slightly negative.

In my opinion the U.S economy is in recession or very close to recession, Europe is right they are coming behind us, Japan is right there too, so we are looking at situation where the material markets are facing in my opinion [ph] is certain recession and the emerging markets are holding up okay, and they will weaken, but still doing our growth for us as we look at 2009.

As you go forward and look at what we have is our assessment for 2009, and we look at what I say the uncertain and challenging global economics in 2009. It's very unusual for us to look at and give you this type of level forecast this year early, but I felt and discussing with the Board for the last couple of days that we should tell you what we see is a range of issues and opportunities that we will be facing in 2009.

Again it's uncertain, it's not positive, the trends are heading down. Our forecast and sales, somewhere between $23.5 billion $25.5 billion in sales. Operating margin of 16% to 16.6%. Key underlying issues here will be underlying sales growth of other plus 4% and minus 4%. Currency is negative right now if you look at the €128, we will lose approximately $1.1 billion of sales of the top line. And probably at a ratable margins somewhere on the 15% or 16% based on mix of these sales.

We will complete acquisitions, we are assuming some acquisitions they are helping our growth of about 4%, and we are adding restructuring somewhere between $125 million and $150 million in 2009. We've already increased the number of restructuring opportunities within the company in the last 30 days and we'll keep focusing hard to this and dealing with the changing environment that comes out.

Our pension expense will be neutral next year, now big issue. However, we will be funding our pension plan approximately $200 million, which is build into our operating cash flow forecast of somewhere between $3.3 billion and $3.5 billion.

Our EPS will range somewhere between $2.80 to $3.20. And as I said earlier our capital expenditure will be 680 to 725. If you look at the macro economic that we see at this point in time and the trends that are happening it's quite broad, but clear to me U.S non-residential will be trending negatively somewhere in the negative 3% to negative 5% after a several years to being positive. U.S residential remain highly negative down 15% to down 20%.

Europe's GFI will be somewhere between plus 2 and minus 1, and Japan will be somewhere between plus 1 and minus 1. China will still be positive, China has made it... has decided to invest in the infrastructure of the economy and they will be putting money into the economy keep it going. We look at the GFI somewhere in the 10% to 12% growth range and India 8% to 12% and Latin America somewhere to 5% to 7%.

Overall, a much more challenging economic environment then we have faced the last couple of years. But, you should know the management team is ready for this, we've been working on this, very diligently the last 30, 60 days. We had our top 400 people inside Emerson, and inside St. Louis about two weeks ago for 2.5 days talking about it, I was in Latin America last week. We will be in Asia in about a couple of weeks and then in Europe as we talk about what we see happening in the environment and how we will react when things change.

I will also tell you that it is very uncertain. We will not know clearly my opinion into somewhere in March or April and what we really are facing in this global economy. We will update our view of this in February when we have our Analyst Meeting, as we look at today and knowing what we know about our businesses, our customers, and our global reach, this is what we are facing.

We ended the year obviously a very strong backlogs, strong order pace in couple of the businesses, but those businesses in my opinion will continue weaken as the year progresses. And it will cause a weaker second half of 2009 then the first half of 2009.

If you look overall, we have delivered tremendous performance for our shareholders in the last year... in the last five years. Our businesses and our financial position remain very strong, and we finish 2008 with a record year. The company is well-positioned to move forward and what I call a very uncertain fiscal year 2009.

Our global footprint of 54% international, 30% emerging markets will give us the strength to deal with issues that come out of it, and able to help us grow when we get growth. And we have a very good mix of businesses right now. And they will obviously deal with the issues that come out of us. The financial strength of the company is at record levels, extremely strong and we have a flexibility deal with what we need to deal with.

The global management team is very good at this point in time and also we'll deal with any issues that come out us. Clearly, we'd loved to have another 2008 coming out to us, with the strong economy, but that's not going to happen.

Financial crises as emerge over the last 60 days, has changed the economic environment for all of us, going forward here for at least the next 12 or 18 months.

Companies like Emerson need to be flexible, we need to be a react, and we need to deal with what we have to deal with. And that's the fact. Now many of the people do not want to hear this and can handle some of this information, but that is what we're dealing with and within in this company we are operating on a plan to deliver value for our shareholders not only for the short-term, but for the long-term. So that's where we are.

I will open up the lines now to take the first question. I appreciate your time, and I look forward to your questions.

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