Emerson Sales Top $20 Billion in 2006; Earnings Per Share of $4.48

Emerson (NYSE: EMR): Fourth Quarter Sales up 19 percent to $5.5 billion Fourth Quarter Earnings per Share of $1.29, up 28 percent Operating Cash Flow for 2006 of $2.5 billion, up 15 percent Return on Total Capital of 18.4 percent, up 290 basis points from fiscal 2005 Emerson (NYSE: EMR) today announced record net sales for fiscal 2006 of $20.1 billion, an increase of 16 percent from the prior year. Sales for the fourth quarter ended September 30, 2006 were $5.5 billion, an increase of 19 percent over the $4.6 billion reported in the same period last year. The Company achieved underlying sales growth in the quarter of 11 percent, which excludes increases of 6 percent for acquisitions and 2 percent for favorable exchange rates. "The sales performance for both the year and the fourth quarter was exceptional,” said Emerson Chairman, Chief Executive Officer and President David N. Farr. "Customer adoption of our technologies has been strong all year, and our global platforms enabled Emerson to capture accelerating growth outside the United States during the fourth quarter.” Earnings per share in the fourth quarter of $1.29 represented an increase of 28 percent over the $1.01 achieved in the fourth quarter of 2005. The earnings increase was driven primarily by leverage on higher sales volumes and benefits from prior cost reduction activities. Results in the fourth quarter of 2006 included a pretax gain of $31 million, or $0.05 per share, related to the sale during the quarter of the Buehler materials testing business. This business had been part of the Industrial Automation segment. For fiscal 2006 earnings per share rose 32 percent to $4.48 from the $3.40 reported in 2005. In 2005, the Company recognized a tax expense of $63 million, or $0.15 per share, related to repatriation of foreign earnings under the American Jobs Creation Act. Excluding this expense, 2006 earnings per share increased 26 percent over 2005. "Emerson had a great year in 2006 and achieved some significant milestones,” Farr said. "Our long-term focus on growth platforms has paid off as revenue exceeded the $20 billion mark for the first time. This year also marked the 50th consecutive year of dividend increases for the Company. We are proud of these accomplishments and the value creation they have generated for our shareholders over many years.” Balance Sheet / Cash Flow Operating cash flow was $2.5 billion in 2006, a 15 percent increase from 2005. Of this record operating cash flow, 63 percent was returned to shareholders during the year in the form of dividends and share repurchases. Managing increasing working capital needs as our business expands is an important element of cash management. Emerson saw continued improvement in working capital efficiency as the average days-in-the-cash-cycle improved from 71 days in fiscal 2005 to 65 days in fiscal 2006. Return on total capital, a key measure of earnings and balance sheet performance, increased by 290 basis points to 18.4 percent in 2006. "Emerson maintains a sharp focus on having a strong and flexible balance sheet. Generating significant amounts of cash and putting that cash to the proper use is at the heart of how we create value for our shareholders,” Farr said. Fiscal 2006 Operating Highlights Process Management’s strong performance continued in 2006 as sales increased 16 percent to $4.9 billion. Underlying sales growth was 13 percent, led by 15 percent growth in the United States and Asia and 20 percent growth in Latin America. Reported sales included a 3 percent positive impact from acquisitions. Emerson Process Management continued to be recognized as the industry technology leader in 2006 as it was again named the best supplier of process management technologies in the CONTROL magazine’s Readers’ Choice Awards and was recognized by Frost & Sullivan as the Industrial Automation and Process Control Company of the Year. Margins for this business expanded by 200 basis points to 18.0 percent, driven primarily by leverage on sales volume increases. Industrial Automation experienced another strong year as global capital spending remained favorable for these businesses. Total sales were $3.8 billion, an increase of 16 percent versus the prior year. Underlying sales growth was 11 percent, with balanced growth from the United States (12 percent), Europe (10 percent) and Asia (13 percent). Reported sales growth included a positive acquisition impact of 6 percent and an unfavorable currency impact of 1 percent. The margin for this segment was 15.1 percent, an increase of 80 basis points from 2005. The margin improvement reflects primarily leverage on higher sales and benefits from prior cost reduction activities. Network Power sales were $4.4 billion in 2006, an increase of 31 percent versus the prior year. Underlying sales growth was 21 percent with the strongest growth coming from Asia (37 percent) and the United States (22 percent). Reported sales growth included a positive acquisition impact of 10 percent. End markets were strong across this segment with particular strength in the computing and data-center markets, which led to strong growth in the AC power system and precision cooling businesses. The margin for this segment was 11.1 percent, a 10 basis point decline versus the prior year. The margin decrease was primarily the result of dilution from acquisitions. Climate Technologies sales for the year increased 13 percent to $3.4 billion. Underlying sales growth was 13 percent with the strongest growth coming from the United States (14 percent) and Europe (20 percent). The Copeland Scroll™ compressor was a main driver of growth for this segment as it continued to provide energy efficiency benefits to customers in heating, ventilation and air-conditioning applications around the world. The 2006 margin for this segment was 15.3 percent, a 40 basis point improvement from 2005. Sales volume leverage and cost reduction activity were able to offset the unfavorable impact of commodity and other inflation. Appliance and Tools achieved sales of $4.3 billion, an increase of 8 percent which included underlying sales growth of 6 percent. The growth was led by strength in the tools and storage businesses and modest growth from the motors and appliance component businesses. Reported sales included a favorable impact of 2 percent from acquisitions. The margin for this segment was 12.8 percent, a decrease of 50 basis points as significant material costs and other inflation could not be offset by price increases and cost reductions. Dividend Increase and 2-for-1 Stock Split The Board of Directors has voted to increase the quarterly cash dividend from forty-four and one-half cents ($0.445) to fifty-two and one-half cents ($0.525) per share of common stock, payable December 11, 2006 to shareholders of record on November 17, 2006. This represents an increase of 18 percent. The Board of Directors also approved a 2-for-1 stock split in the form of a 100 percent stock dividend. The stock dividend will be payable December 11, 2006 to shareholders of record on November 17, 2006. The cash dividend will be paid on a pre-split basis. "Emerson is committed to delivering value to our shareholders,” Farr said. "By increasing our cash returns to shareholders and paying a stock dividend, we make ownership of Emerson shares more attractive to a broader base of investors.” Fiscal 2007 Outlook The outlook for Emerson remains positive moving into fiscal 2007. Many of Emerson’s end markets remain strong, but a moderation in growth rates is expected when compared to 2006. Underlying sales growth for fiscal 2007 is expected to be in the range of 5 to 7 percent. Reported sales growth is expected to be in the range of 7 to 11 percent. Based on this level of sales growth, the Company expects to generate 2007 earnings per share growth in the range of 12 to 15 percent above the $4.48 per share earned in 2006. First-quarter 2007 comparisons with prior year results will be affected by two key factors that were disclosed during the first quarter of 2006. Restructuring expense was unusually low during the first quarter of 2006, which benefited earnings in that period by approximately $0.03 per share. Also, the Climate Technologies business experienced unusually strong demand as a result of customer order patterns before the implementation of new energy efficiency standards, which also benefited earnings by approximately $0.03 per share. Upcoming Investor Events On Tuesday, November 7, 2006, at 4:30 p.m. EST (3:30 p.m. CST), Emerson senior management will discuss the fourth quarter and fiscal year results during an investor conference call. All interested parties may listen to the live conference call via the Internet by going to the Investor Relations area of Emerson's Web site at www.gotoemerson.com/financial and completing a brief registration form. A replay of the conference call will be available for the next three months at the same location on the Web site. Details of upcoming events will be posted as they occur in the Investor Relations Calendar of Events on the corporate Web site. On November 8, 2006, David N. Farr will present at the Robert W. Baird Industrial Conference in Chicago, Illinois. The presentation will begin at 11:05 a.m. EST and conclude at approximately 11:35 a.m. EST. All interested parties may listen to the live Web cast via the Internet by going to the Investor Relations area of Emerson's Web site at www.gotoemerson.com/financial and completing a brief registration form. A replay of the Web cast will be available for approximately one week at the same location on the Web site. On Friday morning, February 9, 2007, Emerson senior management will host Emerson's annual investment community update meeting in New York City. Additional details will be available in December. Forward-Looking and Cautionary Statements Statements in this release that are not strictly historical may be "forward-looking” statements, which involve risks and uncertainties, and Emerson undertakes no obligation to update any such statements to reflect later developments. These include economic and currency conditions, market demand, pricing, and competitive and technological factors, among others, as set forth in the Company's most recent Form 10-K filed with the SEC. The Company expects to file the Form 10-K including audited financial statements within the next 30 days. TABLE 1   EMERSON AND SUBSIDIARIES CONSOLIDATED OPERATING RESULTS (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)   Quarter Ended September 30, Percent 2005  2006  Change   Net sales $ 4,643  $ 5,516  19% Less: Costs and expenses Cost of sales 2,974  3,531  SG&A expenses 923  1,107  Other deductions, net 76  47  Interest expense, net 51  56  Earnings before income taxes 619  775  25% Income taxes 200  249  Net earnings $ 419  $ 526  26%   Diluted avg. shares outstanding (millions) 414.9  408.0    Diluted earnings per common share $ 1.01  $ 1.29  28%     Quarter Ended September 30, 2005  2006  Other deductions, net Rationalization of operations $ 28  $ 31  Amortization of intangibles 7  15  Other 41  27  Gains, net -  (26) Total $ 76  $ 47  TABLE 2   EMERSON AND SUBSIDIARIES CONSOLIDATED OPERATING RESULTS (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)   Year Ended September 30, Percent 2005  2006  Change   Net sales $ 17,305  $ 20,133  16% Less: Costs and expenses Cost of sales 11,122  12,965  SG&A expenses 3,595  4,099  Other deductions, net 230  178  Interest expense, net 209  207  Earnings before income taxes 2,149  2,684  25% Income taxes 727  839  Net earnings $ 1,422  $ 1,845  30%   Diluted avg. shares outstanding (millions) 418.9  412.2    Diluted earnings per common share $ 3.40  $ 4.48  32%     Year Ended September 30, 2005  2006  Other deductions, net Rationalization of operations $ 110  $ 84  Amortization of intangibles 28  47  Other 118  115  Gains, net (26) (68) Total $ 230  $ 178  TABLE 3   EMERSON AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN MILLIONS)   September 30, 2005  2006  Assets Cash and equivalents $ 1,233  $ 810  Receivables, net 3,256  3,716  Inventories 1,813  2,222  Other current assets 535  582  Total current assets 6,837  7,330  Property, plant & equipment, net 3,003  3,220  Goodwill 5,479  6,013  Other 1,908  2,109    $ 17,227  $ 18,672    Liabilities and Stockholders' Equity Short-term borrowings and current maturities of long-term debt $ 970  $ 898  Accounts payable 1,841  2,305  Accrued expenses 1,839  1,933  Income taxes 281  238  Total current liabilities 4,931  5,374  Long-term debt 3,128  3,128  Other liabilities 1,768  2,016  Stockholders' equity 7,400  8,154    $ 17,227  $ 18,672  TABLE 4   EMERSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN MILLIONS)   Year Ended September 30, 2005  2006  Operating Activities Net earnings $ 1,422  $ 1,845  Depreciation and amortization 562  607  Changes in operating working capital 110  (152) Pension funding (124) (124) Other 217  336  Net cash provided by operating activities 2,187  2,512    Investing Activities Capital expenditures (518) (601) Purchases of businesses, net of cash and equivalents acquired (366) (752) Other (12) 137  Net cash used in investing activities (896) (1,216)   Financing Activities Net increase in short-term borrowings 320  89  Proceeds from long-term debt 251  6  Principal payments on long-term debt (625) (266) Dividends paid (694) (730) Purchases of treasury stock (668) (862) Other 15  32  Net cash used in financing activities (1,401) (1,731)   Effect of exchange rate changes on cash and equivalents (3) 12    Decrease in cash and equivalents (113) (423)   Beginning cash and equivalents 1,346  1,233    Ending cash and equivalents $ 1,233  $ 810  TABLE 5   EMERSON AND SUBSIDIARIES SEGMENT SALES AND EARNINGS (DOLLARS IN MILLIONS)   Quarter Ended September 30, 2005  2006  Sales Process Management $ 1,168  $ 1,402  Industrial Automation 821  1,008  Network Power 941  1,252  Climate Technologies 825  901  Appliance and Tools 1,020  1,102  4,775  5,665  Eliminations (132) (149) Net Sales $ 4,643  $ 5,516    Quarter Ended September 30, 2005  2006  Earnings Process Management $ 203  $ 291  Industrial Automation 120  153  Network Power 131  118  Climate Technologies 115  141  Appliance and Tools 137  138  706  841  Differences in accounting methods 38  48  Corporate and other (74) (58) Interest expense, net (51) (56) Earnings before income taxes $ 619  $ 775    Quarter Ended September 30, 2005  2006  Rationalization of operations Process Management $ 6  $ 8  Industrial Automation 3  3  Network Power 6  10  Climate Technologies 6  3  Appliance and Tools 7  7  Total Emerson $ 28  $ 31  TABLE 6   EMERSON AND SUBSIDIARIES SEGMENT SALES AND EARNINGS (DOLLARS IN MILLIONS)   Year Ended September 30, 2005  2006  Sales Process Management $ 4,200  $ 4,875  Industrial Automation 3,242  3,767  Network Power 3,317  4,350  Climate Technologies 3,041  3,424  Appliance and Tools 4,008  4,313  17,808  20,729  Eliminations (503) (596) Net Sales $ 17,305  $ 20,133    Year Ended September 30, 2005  2006  Earnings Process Management $ 671  $ 878  Industrial Automation 464  569  Network Power 373  484  Climate Technologies 453  523  Appliance and Tools 534  550  2,495  3,004  Differences in accounting methods 145  176  Corporate and other (282) (289) Interest expense, net (209) (207) Earnings before income taxes $ 2,149  $ 2,684    Year Ended September 30, 2005  2006  Rationalization of operations Process Management $ 20  $ 14  Industrial Automation 15  12  Network Power 35  19  Climate Technologies 15  14  Appliance and Tools 24  25  Corporate 1  -  Total Emerson $ 110  $ 84  TABLE 7 Reconciliations of Non-GAAP Financial Measures   The following reconciles each non-GAAP measure with the most directly comparable GAAP measure (dollars in millions): 4Q 2006 Fiscal 2006 Net Sales Underlying Sales (Non-GAAP) 11% 12% Foreign Currency Translation 2 pts - pts Acquisitions 6 pts 4 pts Net Sales 19% 16% Expected Fiscal 2007 Underlying Sales (Non-GAAP) 5 - 7% Foreign Currency Translation / Acq. / Div. 2 - 4 pts Net Sales 7 - 11% Excl. Tax 2005  Tax Impact Reported Impact(1) (Non-GAAP) Fiscal Year 2005 Excluding Tax Charge Diluted earnings per common share $ 3.40  $ 0.15  $ 3.55  Fiscal Year 2006 percent increase 32% 26% (1) Tax expense of $63 million relating to repatriation of foreign earnings under American Jobs Creation Act.All amounts above are GAAP financial measures except as noted.