SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
/X/ Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-12
EMERSON ELECTRIC CO.
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(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules
14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of its
filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
Emerson [logo]
St. Louis, Missouri
December 10, 2003
TO THE STOCKHOLDERS OF
EMERSON ELECTRIC CO.:
The Annual Meeting of the Stockholders of Emerson Electric Co. will be
held at the office of the Company, 8000 West Florissant Avenue, St. Louis,
Missouri on Tuesday, February 3, 2004, commencing at 10:00 a.m., at which
meeting only holders of the common stock of record at the close of business
on November 24, 2003, will be entitled to vote, for the following purposes:
1. To elect five Directors;
2. To re-approve performance measures under the Emerson Electric Co.
1997 Incentive Shares Plan;
3. Ratification of Independent Auditors; and
4. To transact such other and further business, if any, as lawfully may
be brought before the meeting.
EMERSON ELECTRIC CO.
By /s/ Charles F. Knight
Chairman of the Board
/s/ W. W. Withers
Secretary
EVEN THOUGH YOU MAY PLAN TO ATTEND THE MEETING IN PERSON, PLEASE VOTE
BY TELEPHONE OR THE INTERNET, OR EXECUTE THE ENCLOSED PROXY CARD, AND MAIL
IT PROMPTLY. A RETURN ENVELOPE (WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES) IS ENCLOSED FOR YOUR CONVENIENCE. TELEPHONE AND INTERNET
VOTING INFORMATION IS PROVIDED ON YOUR PROXY CARD. SHOULD YOU ATTEND THE
MEETING IN PERSON, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON.
IMPORTANT
PLEASE NOTE THAT A TICKET IS REQUIRED FOR ADMISSION TO THE MEETING. IF
YOU PLAN TO ATTEND IN PERSON AND ARE A STOCKHOLDER OF RECORD, PLEASE CHECK
THE BOX ON YOUR PROXY CARD AND BRING THE TEAR-OFF ADMISSION TICKET WITH YOU
TO THE MEETING. IF YOUR SHARES ARE HELD BY SOMEONE ELSE (SUCH AS A BROKER)
PLEASE BRING WITH YOU A LETTER FROM THAT FIRM OR AN ACCOUNT STATEMENT
SHOWING YOU WERE A BENEFICIAL HOLDER ON NOVEMBER 24, 2003.
EMERSON ELECTRIC CO.
8000 WEST FLORISSANT AVENUE, ST. LOUIS, MISSOURI 63136
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD FEBRUARY 3, 2004
This proxy statement is furnished to the stockholders of Emerson
Electric Co. in connection with the solicitation of proxies for use at the
Annual Meeting of Stockholders to be held February 3, 2004, and at all
adjournments thereof, for the purposes set forth in the accompanying Notice
of Annual Meeting of Stockholders. This proxy statement and the enclosed
form of proxy are first being mailed to stockholders on or about
December 10, 2003.
If you have a disability which requires accommodation at the meeting,
please call 314-553-2197; requests must be received by January 13, 2004.
REGISTERED STOCKHOLDERS CAN SIMPLIFY THEIR VOTING AND SAVE THE COMPANY
EXPENSE BY CALLING 1-800-435-6710 AND VOTING BY TELEPHONE, OR VOTING BY
INTERNET AT www.proxyvoting.com. Telephone and Internet voting information
is provided on your proxy card. A Control Number, located on the proxy
card, is designed to verify your identity and allow you to vote your shares
and confirm that your voting instructions have been properly recorded.
If your shares are held in the name of a bank or broker, follow the
voting instructions on the form you receive from that firm. The
availability of telephone or Internet voting will depend on that firm's
voting processes.
IF YOU VOTE BY TELEPHONE OR INTERNET, IT IS NOT NECESSARY TO RETURN
YOUR PROXY CARD.
If you do not choose to vote by telephone or Internet, please return
your proxy card, properly signed, and the shares represented will be voted
in accordance with your directions. You can specify your choices by marking
the appropriate boxes on the proxy card. If your proxy card is signed and
returned without specifying choices, the shares will be voted FOR Proposal
1, FOR Proposal 2, FOR Proposal 3 and otherwise in the discretion of the
proxies. The Company knows of no reason why any of the nominees for
Director named herein would be unable to serve. In the event, however, that
any nominee named should, prior to the election, become unable to serve as
a Director, your proxy (unless designated to the contrary) will be voted
for such other person or persons as the Board of Directors of the Company
may recommend.
You may revoke your proxy at any time before it is voted (in the case
of proxy cards) by giving notice to the Secretary of the Company or by
executing a later-dated proxy. To revoke a proxy or change your vote by
telephone or Internet, you must do so by telephone or Internet,
respectively, (following the directions on your proxy card) by twelve
midnight Eastern time on February 2, 2004.
The close of business on November 24, 2003, has been fixed as the
record date for the determination of stockholders entitled to vote at the
Annual Meeting of Stockholders. As of the record date, there were
outstanding and entitled to be voted at such meeting 421,423,657 shares of
common stock. The holders of the common stock will be entitled to one vote
for each share of common stock held of record on the record date.
A copy of the Company's Annual Report to Stockholders for the fiscal
year ended September 30, 2003 accompanies this proxy statement.
This proxy is solicited by the Board of Directors of the Company. The
solicitation will be by mail and the expense thereof will be paid by the
Company. The Company has retained Morrow & Co., Inc. to assist in the
solicitation of proxies at an estimated cost of $10,000 plus expenses. In
addition, solicitation of proxies may be made by telephone or telegram by
Directors, officers or regular employees of the Company.
2
I. ELECTION OF DIRECTORS
NOMINEES AND CONTINUING DIRECTORS
The Board of Directors is divided into three classes, with the terms of
office of each class ending in successive years. Five Directors of the
Company are to be elected for terms ending at the Annual Meeting in 2007,
or until their respective successors have been elected and have qualified.
Certain information with respect to the nominees for election as Directors
proposed by the Company, as well as the other Directors whose terms of
office as Directors will continue after the Annual Meeting, is set forth
below.
SHARES OF
EMERSON
SERVED AS COMMON STOCK
NAME, AGE, PRINCIPAL OCCUPATION DIRECTOR BENEFICIALLY
OR POSITION, OTHER DIRECTORSHIPS SINCE OWNED(1)(2)(3)
-------------------------------- --------- --------------
NOMINEES FOR TERMS ENDING IN 2007
C. Fernandez G., 37......................................... 2001 4,483
Vice Chairman and Chief Executive Officer of Grupo Modelo,
S. A. de C. V., brewer
He is also a Director of Anheuser-Busch Companies, Inc.
and Grupo Televisa, S.A.
C. F. Knight, 67............................................ 1972 1,637,057
Chairman of the Board of Emerson
He is also a Director of Anheuser-Busch Companies, Inc.,
BP p.l.c., International Business Machines Corporation,
Morgan Stanley Dean Witter & Co. and SBC Communications
Inc.
G. A. Lodge, 71............................................. 1974 13,633
President of InnoCal Management, Inc., a venture capital
management company
R. L. Ridgway, 68........................................... 1995 8,343
Former Assistant Secretary of State for Europe and Canada
She is also a Director of The Boeing Company, Manpower,
Inc., New Perspective Fund, Inc., Sara Lee Corporation
and 3M Company
E. E. Whitacre, Jr., 62..................................... 1990 10,033
Chairman and Chief Executive Officer of SBC Communications
Inc., a communications holding company
He is also a Director of Anheuser-Busch Companies, Inc.,
Burlington Northern Santa Fe Corporation and The May
Department Stores Company
TO CONTINUE IN OFFICE UNTIL 2006
J. G. Berges, 56............................................ 1997 605,265(4)
President of Emerson
He is also a Director of PPG Industries, Inc. and MKS
Instruments, Inc.
A. A. Busch III, 66......................................... 1985 30,833(4)
Chairman of the Board of Anheuser-Busch Companies, Inc.,
brewery, container manufacturer and theme park operator
He is also a Director of SBC Communications Inc.
A. F. Golden, 57............................................ 2000 5,477
Partner of Davis Polk & Wardwell, lawyers
3
SHARES OF
EMERSON
SERVED AS COMMON STOCK
NAME, AGE, PRINCIPAL OCCUPATION DIRECTOR BENEFICIALLY
OR POSITION, OTHER DIRECTORSHIPS SINCE OWNED(1)(2)(3)
-------------------------------- --------- --------------
V. R. Loucks, Jr., 69....................................... 1979(5) 9,633
Retired Chairman and Chief Executive Officer of Baxter
International Inc., Chief Executive Officer of Segway
LLC
(manufacturer of electric human transporters)
He is also a Director of Affymetrix, Inc., Anheuser-Busch
Companies, Inc., GeneSoft, Inc. and Edwards Life
Sciences Corporation
J. B. Menzer, 52............................................ 2002 2,599
Executive Vice President of Wal-Mart Stores, Inc. and
President and Chief Executive Officer of Wal-Mart
International
He is also a Director of Wal-Mart de Mexico and The Seiyu,
Ltd. (a Japanese supermarket chain)
TO CONTINUE IN OFFICE UNTIL 2005
D. N. Farr, 48.............................................. 2000 586,286(4)
Chief Executive Officer of Emerson
He is also a Director of Delphi Corp.
D. C. Farrell, 70........................................... 1989 19,633
Retired Chairman and Chief Executive Officer of The May
Department Stores Company
W. J. Galvin, 57............................................ 2000 399,463(4)
Executive Vice President and Chief Financial Officer of
Emerson
He is also a Director of Factory Mutual Insurance Company
R. B. Horton, 64............................................ 1987 8,995
Retired Chairman of Railtrack Group PLC and Former
Chairman of Chubb plc
He is also a Director of Premier Farnell plc
C. A. Peters, 48............................................ 2000 236,964
Senior Executive Vice President of Emerson
J. W. Prueher, 60........................................... 2001 3,083
Retired Admiral, U.S. Navy, and Former U.S. Ambassador to
the People's Republic of China
He is also a Director of Merrill Lynch & Company, Inc.,
The New York Life Insurance Company, Long Shadow
Vinters, LLC and Fluor Corporation
All Directors and Executive Officers as a Group
(19 persons).............................................. 3,875,402(6)(7)
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(1) Beneficial ownership of Emerson common stock is stated as of September
15, 2003. Under rules of the Securities and Exchange Commission,
persons who have power to vote or dispose of securities, either alone
or jointly with others, are deemed to be the beneficial owners of such
securities. Accordingly, except as indicated for Mr. Berges and Mr.
Galvin in Note 4 below, shares owned separately by spouses are not
included. Each person reflected in the table has both sole voting power
and sole investment power with respect to the shares included in the
table, except as described in the footnotes below and except that with
respect to the following shares, the person named has no investment
power: Mr. Knight-190,672; Mr. Farr-210,000; Mr. Berges-140,000;
Mr. Galvin-88,000; Mr. Peters-42,000; Mr. Withers-42,000 (who is also
an executive officer of the Company named in the Summary
4
Compensation Table); Mr. Fernandez-3,283; Mr. Golden-3,477;
Mr. Menzer-1,599; Mr. Preuher-2,883; each other non-employee
Director-7,233; and all Directors and executive officers as a
group-827,878 shares.
(2) Includes the following shares which such persons have or will have
within 60 days after September 15, 2003 the right to acquire upon the
exercise of employee stock options: Mr. Knight-247,595;
Mr. Farr-299,320; Mr. Berges-297,185; Mr. Galvin-168,742;
Mr. Peters-119,449; and Mr. Withers-97,559.
(3) No person reflected in the table owns more than .5% of the outstanding
shares of Emerson common stock.
(4) Includes 35,396 shares held by the spouse and/or children of Mr. Farr;
38,681 shares held by the spouse and/or children of Mr. Berges; and
35,334 shares held by or in trust for the spouse and/or children of Mr.
Galvin, of which Mr. Galvin disclaims beneficial ownership as to 11,808
shares. Includes 75,139 shares and options exercisable with respect to
57,258 of the shares referred to in footnote 2 held by the Galvin
Family Partnership. Includes 300 shares held by Mr. Busch as co-trustee
of a trust, as to which Mr. Busch shares voting and investment power
and disclaims beneficial ownership.
(5) Mr. Loucks previously served as a Director from April 1974 to December
1975.
(6) Includes 1,282,193 shares of common stock which executive officers
have, or will have within 60 days after September 15, 2003 the right to
acquire upon exercise of employee stock options. Shares owned as a
group represents .92% of the outstanding common stock of the Company.
The shares issuable upon exercise of options were deemed to be
outstanding for purposes of calculating the percentage of outstanding
shares.
(7) The total includes shares owned by W. W. Withers, the only executive
officer of the Company named in the Summary Compensation Table not
otherwise shown individually in this table, who beneficially owned
182,572 shares.
Each of the nominees and continuing Directors has had the same position
or other executive positions with the same employer during the past five
years, except as follows:
* Mr. Loucks relinquished the position of Chief Executive Officer of
Baxter International Inc. at the end of 1998 and retired as Chairman
at the end of 1999.
* Sir Robert Horton retired as Chairman of Railtrack Group PLC in July
1999. He was named Deputy Chairman of Chubb plc in September 2002 and
Chairman in December 2002 (both are non-executive positions), and
served as Chairman of Chubb plc, which was acquired by United
Technologies, until November 2003.
* Admiral Prueher served as Ambassador to the People's Republic of
China from November 1999 to May 2002. Prior thereto he served as a
lecturer and Senior Advisor to the Stanford-Harvard Preventive
Defense Program and a Senior Fellow at the Center for Naval Analysis.
Admiral Prueher completed 35 years of service in the United States
Navy in May 1999, and was Commander-in-Chief of the U. S. Pacific
Command from 1996 until his retirement.
CERTAIN BUSINESS RELATIONSHIPS AND TRANSACTIONS
G. A. Lodge is employed by InnoCal Management, Inc. ("InnoCal
Management I"), which manages a private venture capital fund, InnoCal L.P.
("InnoCal Fund I"). The Company has committed to invest $10 million in
InnoCal II, L.P. ("InnoCal Fund II"), a separate $100 million private
venture capital fund which is managed by InnoCal Management II, LLC
("InnoCal Management II"). InnoCal Management I occasionally furnishes
management services to InnoCal Management II, for which InnoCal Management
II reimburses InnoCal Management I; InnoCal Management II is reimbursed
this amount by InnoCal Fund II. The amount of such reimbursements in the
Company's 2003 fiscal year attributable to Mr. Lodge's services to InnoCal
Management II, and payable to Mr. Lodge, was $175,000. Mr. Lodge has an
indirect interest of .175% in InnoCal Fund II, and an interest in the
investment gains of InnoCal Fund II of 3.5%.
Mr. Golden is a partner of the law firm of Davis Polk & Wardwell, which
firm the Company retained in fiscal 2003 and expects to retain in fiscal
2004.
5
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors has determined that the following members are
independent, as that term is defined under the general independence
standards in the listing standards of the New York Stock Exchange:
C. Fernandez G., G. A. Lodge, R. L. Ridgway, E. E. Whitacre, Jr., A. A. Busch
III, A. F. Golden, V. R. Loucks, Jr., J. B. Menzer, D. C. Farrell, R. B.
Horton, and J. W. Prueher. The Board has adopted categorical standards to
assist it in making determinations of independence. All directors
identified as independent in this proxy statement meet these standards; a
copy of these standards is attached as Appendix A.
The members of the Board of Directors are elected to various
committees. The standing committees of the Board (and the respective
chairmen) are: Executive Committee (Knight), Audit Committee (Busch),
Compensation and Human Resources Committee (Loucks), Corporate Governance
and Nominating Committee (Farrell), Finance Committee (Horton), Pension
Committee (Lodge) and Public Policy Committee (Whitacre).
The Audit Committee met six times in fiscal 2003. It is composed of
five Directors (A. A. Busch III, Chairman, C. Fernandez G., J. B. Menzer,
R. L. Ridgway and E. E. Whitacre, Jr.), all of whom are independent. The
functions of the Audit Committee are described under "Report of the Audit
Committee" below. The Audit Committee operates under a written charter
(attached as Appendix B) adopted by the Board of Directors. The Board of
Directors has determined that the Audit Committee members are independent,
as that term is defined under the enhanced independence standards for audit
committee members in the Securities Exchange Act of 1934 and rules
thereunder, as incorporated into the listing standards of the New York
Stock Exchange. The Board of Directors has also determined that J. B.
Menzer is an Audit Committee Financial Expert as that term is defined in
the rules issued pursuant to the Sarbanes-Oxley Act of 2002.
The Compensation and Human Resources Committee discharges the Board's
responsibilities related to compensation of the Company's executives;
administration of the Company's stock option and incentive shares plans;
determining if necessary when service by officers and Directors with
another entity is eligible for indemnification under the Company's Bylaws;
and authorizing Company contributions to benefit plans, and adopting and
terminating benefit plans not the prerogative of management. The Committee
met four times in fiscal 2003. The members of the Compensation and Human
Resources Committee are V. R. Loucks, Jr., Chairman, D. C. Farrell, and
E. E. Whitacre, Jr., all of whom are independent. See the "Report of the
Compensation and Human Resources Committee of the Board of Directors on
Executive Compensation" at page 12 below.
The Corporate Governance and Nominating Committee reviews the Company's
corporate governance principles and independence standards; oversees the
annual evaluation of the Board and its committees; discharges the Board's
responsibilities related to compensation of Directors; identifies and
evaluates individuals for Board and committee membership and chairs; makes
recommendations to the Board concerning the selection of director nominees
and makes recommendations as to the size and composition of the Board and
its committees. It will consider director nominee recommendations by
stockholders provided the names of such nominees, accompanied by relevant
biographical information, are properly submitted in writing to the
Secretary of the Company in accordance with the manner described for
stockholder nominations in "V. Stockholders' Proposals" below on page 16.
The Corporate Governance and Nominating Committee was formed in fiscal
2004. Thus, it did not meet in fiscal 2003; however, its predecessor, the
Nominating Committee, met one time in fiscal 2003. The members of the
Corporate Governance and Nominating Committee are D. C. Farrell (Chairman),
A. F. Golden, V. R. Loucks, Jr. and G. A. Lodge, all of whom are
independent.
The Company's Corporate Governance Principles and Practices and the
charters of the Audit, Compensation and Human Resources, Corporate
Governance and Nominating, and Public Policy Committees are available on
the Company's Web site at www.gotoemerson.com, Investor Relations,
Corporate Governance.
There were eight meetings of the Board of Directors during fiscal 2003.
All of the Directors attended at least 75% of the meetings of the Board and
committees on which they served.
The Board of Directors has appointed a Discussion Leader who will chair
meetings of non-management directors, as provided in the Company's
Corporate Governance Principles and Practices. The Discussion Leader
position will rotate among the chairs of each of the independent Board
Committees in the following order: Public Policy, Audit, Pension,
Compensation and Human Resources, Corporate Governance and Nominating, and
Finance. Stockholders and other interested persons may contact the
Discussion Leader in writing c/o Emerson Electric Co.,
6
8000 West Florissant Avenue, St. Louis, MO 63136, Attention Secretary. All
such letters will be forwarded to the Discussion Leader.
DIRECTOR COMPENSATION
Directors who are employees of the Company do not receive any
compensation for service as Directors. Each non-employee Director is
currently paid an annual retainer of $120,000 and fees of $1,500 plus
expenses for attendance at each Board meeting. Each committee chairman is
currently paid an annual retainer of $5,000, except the chair of the Audit
Committee who is paid an annual retainer of $10,000, and each committee
member is paid $1,250 plus expenses for attendance at each committee
meeting.
Directors may elect to defer all or a part of such cash compensation;
such deferred amounts are credited with interest quarterly at the prime
rate charged by Bank of America, N.A. In the alternative, Directors may
elect to have deferred fees converted into units equivalent to shares of
Emerson common stock and their accounts credited with additional units
representing dividend equivalents. All deferred fees are payable only in
cash.
The Company has eliminated its Continuing Compensation Plan for
Non-Management Directors who assumed office on or after June 4, 2002. A
non-employee Director who assumed office prior to June 4, 2002, and who
serves as a Director for at least five years will, after the later of
termination of service as a Director or age 72, receive for life a
percentage of the annual $30,000 cash retainer for Directors in effect on
June 4, 2002. Such percentage is 50% for five years' service and increases
by 10% for each additional year of service to 100% for ten years' or more
service. In the event that service as a covered Director terminates because
of death, the benefit will be paid to the surviving spouse for five years.
C. F. Knight, Chairman of the Board, is an employee of the Company.
Under the terms of his employment agreement, after his retirement as an
officer and employee of the Company Mr. Knight will be available at
management's request to consult with the Company up to 30 days per year,
for a period of not less than 15 years, and will be compensated with a
daily consulting fee based on his daily salary rate at the time of his
retirement. He will also continue to have access to Company facilities and
services, including the Company's aircraft, car, driver, financial planning
and club memberships if he meets certain conditions including not competing
with the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company's Directors and executive officers are required, pursuant
to Section 16(a) of the Securities Exchange Act of 1934, to file statements
of beneficial ownership and changes in beneficial ownership of common stock
of the Company with the Securities and Exchange Commission and the New York
Stock Exchange and to furnish copies of such statements to the Company.
Based solely on a review of the copies of such statements furnished to
the Company and written representations that no other such statements were
required, the Company believes that during fiscal year 2003 its Directors
and executive officers complied with all such requirements, except: (i) Mr.
Loucks, who filed one Form 4 reporting late one transaction; and (ii) Mr.
Farrell, who filed one Form 4 reporting late three transactions in Emerson
common stock by the Farrell Family Partnership, of which he is a general
partner.
CODE OF ETHICS
The Company has adopted a Code of Ethics that applies to the Company's
chief executive officer, chief financial officer, chief accounting officer,
and controller; has posted such Code of Ethics on its Web site; and intends
to satisfy the disclosure requirement under Item 10 of Form 8-K by posting
such information on its Internet Web site, which is available on the
Company's Web site at www.gotoemerson.com, Investor Relations, Corporate
Governance. The Company has adopted a Code of Business Ethics for
directors, officers and employees, which is available on the Company's Web
site at www.gotoemerson.com, Investor Relations, Corporate Governance.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee assists the Board in providing oversight of the
systems and procedures relating to the integrity of the Company's financial
statements, the Company's financial reporting process, its systems of
internal accounting and financial controls, the internal audit process, the
annual independent audit process of the Company's
7
annual financial statements, the Company's compliance with legal and
regulatory requirements and the qualification and independence of the
Company's independent auditors. Management has the responsibility for the
implementation of these activities. In fulfilling its oversight
responsibilities, the Committee reviewed the audited financial statements
in the Annual Report on Form 10-K with management, including a discussion
of the quality and the acceptability of the Company's financial reporting
and controls.
The Committee reviewed with the independent auditors, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with accounting principles generally accepted in the
United States of America, their judgments as to the quality and the
acceptability of the Company's financial reporting and such other matters
as are required to be discussed with the Committee under auditing standards
generally accepted in the United States of America. In addition, the
Committee has discussed with the independent auditors the auditors'
independence from management and the Company, including the impact of
non-audit-related services provided to the Company and the matters in the
auditors' written disclosures required by Standard No. 1 of the
Independence Standards Board.
The Committee also discussed with the Company's internal and
independent auditors the overall scope and plans for their respective
audits. The Committee meets periodically with the internal and independent
auditors, with and without management present, to discuss the results of
their examinations, their evaluations of the Company's internal controls,
and the overall quality of the Company's financial reporting.
In reliance on the reviews and discussions referred to above, the
Committee recommended to the Board of Directors that the audited financial
statements be included in the Annual Report on Form 10-K for the fiscal
year ended September 30, 2003 for filing with the Securities and Exchange
Commission. The Committee also reappointed the Company's independent
auditors for fiscal 2004.
Audit Committee
A. A. Busch III, Chairman
C. Fernandez G.
J. B. Menzer
R. L. Ridgway
E. E. Whitacre, Jr.
FEES PAID TO KPMG LLP
The following fees were paid to KPMG LLP, the Company's independent
auditors, for services rendered in 2002 and 2003 ($ in Millions):
2002 2003
----- -----
Audit Fees.............................................. $ 8.5 $11.0
Audit Related Fees...................................... 2.4 1.9
Tax Fees................................................ 6.8 5.7
All Other Fees.......................................... 0.1 0
----- -----
Total KPMG LLP Fees................................. $17.8 $18.6
===== =====
Audit Fees primarily represent amounts expected to be paid for the
audit of the Company's annual financial statements, reviews of SEC Forms
10-Q and 10-K and statutory audit requirements at certain non-U.S.
locations.
Audit Related Fees are primarily related to audits of Employee Benefit
Plans, Acquisition/Divestiture due diligence, internal control reviews and
certification of statutory filings.
Tax Fees are for tax compliance, tax consulting and expatriate tax
compliance.
All Other Fees include amounts paid for statistical analysis.
8
The Audit Committee's pre-approval policies and procedures are included
within the Audit Committee Charter attached hereto as Appendix B.
EXECUTIVE COMPENSATION
The following information relates to compensation received or earned by
the Company's Chief Executive Officer and each of the other four most
highly compensated executive officers of the Company for the last fiscal
year of the Company and the compensation received or earned by them for the
two prior fiscal years.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION(1)
-----------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUT
---------------------------------------------------------------------------------------------------
SECURITIES LONG-
OTHER UNDERLYING TERM ALL
ANNUAL RESTRICTED OPTIONS/ INCENTIVE OTHER
NAME AND FISCAL COMPEN- STOCK SARS PLAN COMPEN-
PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION($)(2) AWARD(S)($)(3) (#) PAYOUTS($)(4) SATION($)(5)
------------------ ------ --------- -------- ------------ -------------- ---------- ------------- ------------
D. N. Farr 2003 1,000,000 1,000,000 56,804 2,251,000 -- -- 37,755
Chief Executive Officer(6) 2002 925,000 500,000 40,135 929,600 125,000 1,867,335 36,915
2001 700,000 540,000 18,692 6,681,250 100,000 -- 32,757
J. B. Berges 2003 872,500 540,000 -- -- -- -- 34,715
President 2002 812,500 500,000 -- -- 100,000 2,347,485 34,382
2001 700,000 540,000 -- 6,013,125 100,000 -- 33,236
W. J. Galvin 2003 568,750 432,000 -- 900,400 -- -- 24,723
Executive Vice President and 2002 518,750 400,000 -- -- 85,000 2,082,735 24,184
Chief Financial Officer 2001 425,000 430,000 -- 1,870,750 -- -- 22,932
W. W. Withers 2003 440,000 350,000 -- 500,000 -- -- 20,032
Senior Vice President, 2002 405,000 330,000 -- -- 50,000 1,153,145 19,719
Secretary and General Counsel 2001 345,000 350,000 -- 801,750 -- -- 19,488
C. A. Peters 2003 418,750 335,000 -- -- -- -- 18,599
Senior Executive Vice 2002 387,500 315,000 -- -- 50,000 1,087,275 18,182
President 2001 350,000 320,000 -- 2,806,125 30,000 -- 18,096
--------
(1) The Company's stock option plans, incentive shares plans and
supplemental executive retirement and savings investment plans
generally provide for acceleration of vesting in the event of a change
in control of the Company.
(2) Consistent with applicable regulations, certain non-cash compensation
need not be reported.
(3) The number of shares of restricted stock held by the named executive
officers at the end of fiscal 2003, and the aggregate value of such
shares, are as follows: D. N. Farr, 210,000 shares having a value of
$11,056,500; J. G. Berges, 140,000 shares having a value of $7,371,000;
W. J. Galvin, 88,000 shares having a value of $4,633,200;
W. W. Withers, 42,000 shares having a value of $2,211,300; and C. A.
Peters, 42,000 shares having a value of $2,211,300. The Company pays
dividends on restricted stock. All restricted stock awards have a
restriction period and are earned over a period of three to ten years
and vest at the end of such period; the shares are payable only if the
executive is employed with the Company and in good standing at the end
of the restriction period. The amounts shown in the table represent the
dollar value based on the stock price per share at award date and do
not reflect any payment to the individual.
(4) Long-term performance awards paid in fiscal 2002 were based on
achievement of performance objectives over a five-year period.
9
(5) Includes for fiscal 2003: (a) no premiums were paid by the Company for
the named individuals in the Company's "split dollar" insurance
program; however, the value of the benefit to the named individuals
was: D. N. Farr-$255; J. G. Berges-$403; W. J. Galvin-$504; W. W.
Withers-$782 and C. A. Peters-$255; (b) contributions by the
Company on behalf of the named individuals to the Company's matched
savings plan in the following amounts: D. N. Farr-$37,500; J. G.
Berges-$34,312; W. J. Galvin-$24,219; W. W. Withers-$19,250; and C. A.
Peters-$18,344.
(6) Mr. Farr was also the Company's Chief Operating Officer until November
1, 2001.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS/SARS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION -------------------------------------
NAME GRANTED FISCAL YEAR ($/SH) DATE 0% ($) 5% ($) 10% ($)
---- ------------ ------------ ----------- ---------- ------ ------ -------
D. N. Farr............... 0 N/A N/A N/A N/A N/A N/A
J. G. Berges............. 0 N/A N/A N/A N/A N/A N/A
W. J. Galvin............. 0 N/A N/A N/A N/A N/A N/A
W. W. Withers............ 0 N/A N/A N/A N/A N/A N/A
C. A. Peters............. 0 N/A N/A N/A N/A N/A N/A
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END(#) AT FY-END($)(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE (#) REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- --------------- ----------- ------------- ----------- -------------
D. N. Farr.............. 0 0 207,657 133,339 698,033 163,712
J. G. Berges............ 13,966 348,015 213,854 116,672 560,479 163,712
W. J. Galvin............ 0 0 123,745 73,337 534,184 163,712
W. W. Withers........... 0 0 70,894 43,336 317,007 98,225
C. A. Peters............ 0 0 87,784 48,336 437,397 49,113
-------
(1) The values represent the difference between the exercise price of the
options and the market price of the Company's common stock at fiscal
year-end.
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
ESTIMATED FUTURE
PAYOUTS UNDER
PERFORMANCE OR NON-STOCK
NUMBER OF OTHER PERIOD PRICE-BASED PLANS
PERFORMANCE UNTIL MATURATION TARGET/MAXIMUM
NAME UNITS OR PAYOUT (# OF SHARES)
---- ----------- ---------------- -----------------
D. N. Farr...................................... N/A N/A N/A
J. G. Berges.................................... N/A N/A N/A
W. J. Galvin.................................... N/A N/A N/A
W. W. Withers................................... N/A N/A N/A
C. A. Peters.................................... N/A N/A N/A
10
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth aggregate information regarding the
Company's equity compensation plans as of September 30, 2003:
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES WEIGHTED-AVERAGE FUTURE ISSUANCE UNDER
TO BE ISSUED UPON EXERCISE PRICE OF EQUITY COMPENSATION
EXERCISE OF OUTSTANDING PLANS (EXCLUDING
OUTSTANDING OPTIONS, OPTIONS, WARRANTS SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS AND RIGHTS AND RIGHTS COLUMN (a))
------------- ------------------- ----------------- -----------------------
(a) (b) (c)
Equity compensation plans approved by
security holders(1)..................... 11,235,837 $50.12 13,792,516
Equity compensation plans not approved by
security holders(2)..................... -- -- --
Total..................................... 11,235,837 $50.12 13,792,516
-------
(1) Includes the Company's Stock Option and Incentive Shares Plans.
Included in column (a) are 1,107,877 rights to receive common shares
that have been awarded and are contingent upon accomplishing certain
objectives by 2005. These rights were disregarded for purposes of
computing the weighted-average exercise price in column (b). Included
in column (c) are 3,475,988 shares remaining available for award under
the Incentive Shares Plans.
(2) Excludes 17,763 outstanding options assumed in connection with
acquisitions with a weighted-average exercise price of $32.83.
Information regarding stock option plans and incentive shares plans set
forth in Note 13 of Notes to Consolidated Financial Statements of the 2003
Annual Report is hereby incorporated by reference.
PENSION PLAN TABLE
The following table shows the annual benefits payable upon retirement
at age 65 for various compensation and years of service combinations under
the Emerson Electric Co. Retirement Plan and a related supplemental
executive retirement plan.
ANNUAL RETIREMENT BENEFIT AT AGE 65 AFTER
---------------------------------------------------------------------------------------
10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
AVERAGE ANNUAL OF OF OF OF OF OF
COMPENSATION SERVICE SERVICE SERVICE SERVICE SERVICE SERVICE
-------------- -------- -------- -------- -------- -------- --------
$ 650,000................ $ 95,302 $142,952 $190,603 $238,254 $ 285,905 $ 333,556
900,000................ 132,802 199,202 265,603 332,004 398,405 464,806
1,150,000................ 170,302 255,452 340,603 425,754 510,905 596,056
1,400,000................ 207,802 311,702 415,603 519,504 623,405 727,306
1,650,000................ 245,302 367,952 490,603 613,254 735,905 858,556
1,900,000................ 282,802 424,202 565,603 707,004 848,405 989,806
2,150,000................ 320,302 480,452 640,603 800,754 960,905 1,121,056
2,400,000................ 357,802 536,702 715,603 894,504 1,073,405 1,252,306
Retirement benefits under the plans are computed on the basis of an
annuity with five years certain, unless the participant elects another
method of payment. The benefit amounts in the Pension Plan Table above have
already been adjusted for Social Security (or any other benefits). The
dollar amounts in the salary and bonus columns of the Summary Compensation
Table above are substantially the same as the compensation covered by the
plans, but deferred bonuses may cause such amounts to vary from the amounts
shown in the Summary Compensation Table.
The credited years of service covered by the plans for each of the
persons named in the Summary Compensation Table above are as follows: D. N.
Farr, 23; J. G. Berges, 28; W. J. Galvin, 31; W. W. Withers, 14; and C. A.
Peters, 24.
11
Payment of the specified retirement benefits is contingent upon continuation
of the plans in their present form until the employee retires.
The benefits of certain employees may be reduced under the Emerson
Electric Co. Retirement Plan to meet the limits of the Internal Revenue
Code. An employee who is subject to a reduction of benefits under the
Internal Revenue Code may be selected to participate in the supplemental
executive retirement plan. Participation in the supplemental plan is by
award, subject to the sole approval by the Compensation and Human Resources
Committee. D. N. Farr, J. G. Berges, W. J. Galvin, and W. W. Withers have
been selected to participate in the supplemental plan. The estimated annual
retirement benefits payable upon retirement at age 65 to D. N. Farr, J. G.
Berges, W. J. Galvin, W. W. Withers, and C. A. Peters are 56%, 52%, 54%,
22%, and 18%, respectively, of the dollar amounts shown in the salary and
bonus columns of the Summary Compensation Table for fiscal year 2003.
REPORT OF THE COMPENSATION AND HUMAN RESOURCES COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Compensation and Human Resources Committee of the Board of
Directors (the "Committee"), composed of three independent Directors,
establishes and administers the executive compensation program for the
Company's top executives. The program supports the Company's commitment to
enhancing stockholder value. It is designed to attract and retain
high-quality executives, to encourage them to make career commitments to
the Company, and to accomplish the Company's short- and long-term
objectives. The executive compensation program has uniquely served the
Company's stockholders since 1977 by rewarding and motivating executives
for the accomplishment of the Company's objectives. The executive
compensation program is a focused, well-defined management tool that
reinforces the Company's culture and commitment to stockholders.
The Committee has historically viewed compensation as a total package
that includes base salary and variable short- and long-term
(performance-based) compensation. The total program is structured to
deliver a significant percentage of pay through at-risk pay programs which
reward executives if the performance of the Company warrants. Basic
principles underlying the pay programs are the following:
* Maximize stockholder value.
* Retain, reward and motivate key executives.
* Compensate for performance rather than create a sense of entitlement.
* Reward team results.
* Build executive stock ownership.
COMPONENTS OF EXECUTIVE COMPENSATION
To determine the competitive level of total compensation (including
total annual cash and long-term incentives), the Committee sets the total
pay target in a competitive compensation range as benchmarked against
published survey data and data derived through special studies of
comparable industries, including those shown in the peer group performance
graph.
TOTAL ANNUAL CASH COMPENSATION: Cash compensation consists of base
salary and annual cash incentives (bonuses), with the sum of the two
referred to as "Total Cash Compensation." Currently, approximately 1,200
key executives participate in the Total Cash Compensation program. A Total
Cash Compensation target, including base salary and incentive, is
established for each executive officer position using benchmark survey
comparisons. Annual increases, if any, are based on individual merit and
Company affordability. The annual incentive opportunity represents from 25%
to 60% of Total Cash Compensation. Payment of the annual cash incentive
portion is based on the financial performance of the Company versus
pre-established targets. The Committee annually establishes and approves
short-term financial targets which are important to the Company and its
stockholders. Typical targets include sales, earnings per share, pre-tax
earnings and net profits, return on equity, and asset management. The
relative importance of each target is determined each year by the
Committee, and may vary depending upon the Company's financial objectives
for that year.
12
LONG-TERM COMPENSATION INCENTIVES: Long-term incentive awards,
consisting of performance shares, stock options and restricted stock, are a
substantial portion of the total compensation packages of certain key
senior executives and are specifically focused on the Company's longer-term
strategic objectives. Long-term programs are paid primarily in stock. The
Company's continuing philosophy is that executives are expected to hold
stock earned under the Company's programs. The value of current executive
stock holdings is significant, in absolute terms and in relation to base
pay, though the Company does not establish specific ownership targets.
Long-term plan participation and size of awards are determined by the
individual's potential to make significant contributions to the Company's
financial results, level of management responsibility and individual
performance and potential.
PERFORMANCE SHARES: The performance shares program reinforces the
Company's long-term objectives and rewards executives for achieving those
objectives. The Company has had continuing performance shares programs
since 1977. Participation in this program is limited, and only executives
who can most directly influence the Company's long-term financial success
are included. Awards are denominated in share units with no dividend
payments during the performance period. The Committee approves the
performance measures and evaluates the performance of the Company against
those measures. Historically, the Company's plans have targeted earnings
per share growth objectives and other financial measures deemed appropriate
to accomplish the Company's performance targets. The final payout (paid
partially in cash but primarily in stock) can range from 0% to 100% of the
target award, depending upon the level of achievement of the established
financial targets.
STOCK OPTIONS: The stock option program provides the long-term focus
for a larger group of key employees. Currently, approximately 2,500 key
employees are eligible to be considered for participation in the stock
option program. Awards are intended to be made approximately every three
years and are generally vested one-third each year. Options are granted at
100% of the fair market value of the Company's common stock on the date of
grant and expire ten years from the date of grant. In fiscal 2003 the
Company began expensing stock options for grants awarded after October 1,
2002.
RESTRICTED STOCK: The restricted stock program was designed primarily
to retain key executives and potential top management of the Company while
building stock ownership, long-term equity and linking pay directly with
stockholder return. Participation has been highly selective and limited to
a very small group of executives. The Committee views this program as an
important management succession planning and retention tool. The
restriction period for most awards is three to ten years.
The Company's incentive compensation programs are designed to reward
executives for achievement of the Company's performance objectives. The
plans, as approved by stockholders, are designed to comply with Internal
Revenue Code Section 162(m) to ensure tax deductibility. The Committee
considers it important to retain the flexibility to design compensation
programs that are in the best interest of the Company and the stockholders.
CEO COMPENSATION
The Committee reviewed Mr. Farr's 2003 performance as Chief Executive
Officer. In reviewing his performance in 2003, the Committee determined Mr.
Farr provided outstanding leadership in another challenging year, improving
Emerson's global competitive position and helping ensure long-term
stockholder value. Under Mr. Farr's guidance, Emerson strengthened the
balance sheet and delivered on objectives for global market penetration
gains, sales and margin improvement, and increased capital efficiency. In
doing so, Mr. Farr also sustained investment in technology, people, and
projects necessary to achieve the Company's long-term strategic, financial,
and operational goals. Mr. Farr's intense focus on improving competitive
advantage and increasing customer value through industry leading
technology, global scope, solutions and services, and improved customer
interfaces serves Emerson and all its stakeholders well. As a result, the
Committee awarded Mr. Farr a fiscal year 2003 bonus of $1,000,000. He
received a base salary of $1,000,000. He also received an award of
restricted stock, the value of which is reflected in the Summary
Compensation Table.
Compensation and Human Resources Committee
V. R. Loucks, Jr., Chairman
D. C. Farrell
E. E. Whitacre, Jr.
13
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The functions and members of the Compensation and Human Resources
Committee are set forth above under "Board of Directors and Committees."
None of the Committee members has served as an officer or employee of the
Company or a subsidiary of the Company.
E. E. Whitacre, Jr., Chairman and Chief Executive Officer of SBC
Communications Inc., served as a Director and member of the Compensation
and Human Resources Committee of the Company; and C. F. Knight, Chairman of
the Board of the Company, served as a Director of SBC Communications Inc.
during the last fiscal year.
PERFORMANCE GRAPH
The following graph compares cumulative total returns (assuming
reinvestment of dividends) on the Company's common stock against the
Standard & Poor's Composite 500 Stock Index (S&P 500) and the Dow Jones
Electrical Components and Equipment Index (DJEE) for the five-year period
ended September 30, 2003 and the Compound Annual Growth Rate (CAGR).
[GRAPH]
1998 1999 2000 2001 2002 2003 CAGR
---- ---- ---- ---- ---- ---- ----
EMERSON $100 $104 $113 $ 81 $ 78 $ 96 -0.8%
S&P 500 100 128 145 106 85 105 1.0
DJEE 100 149 175 69 44 69 -7.0
The information above in the Report of the Audit Committee, the Report
of the Compensation and Human Resources Committee of the Board of Directors
on Executive Compensation, and the Performance Graph shall not be deemed to
be "soliciting material" or to be "filed" with the Securities and Exchange
Commission or subject to Regulation 14A or 14C or to the liabilities of
Section 18 of the Exchange Act, nor shall it be deemed to be incorporated
by reference into any filing under the Securities Act of 1933 or the
Exchange Act, except to the extent that the Company specifically
incorporates this information by reference.
14
II. RE-APPROVAL OF PERFORMANCE MEASURES UNDER THE EMERSON
ELECTRIC CO. 1997 INCENTIVE SHARES PLAN
The Company is asking stockholders to reaffirm the performance measures
for the 1997 Incentive Shares Plan ("Plan"), approved by the Company's
stockholders at the February 4, 1997 meeting of stockholders. No additional
shares or other amendments are being requested. Your approval is necessary
for the Company to meet the requirements for tax deductibility under
Section 162(m) of the Internal Revenue Code.
ELIGIBILITY AND AWARDS. The Plan is part of a continuing program of key
----------------------
executive incentive compensation first authorized by the Company's Board of
Directors in 1977 and approved by stockholders in 1997. Participants in the
Plan are employees of the Company or any of its subsidiaries or affiliates
who are determined by the Committee to be management personnel in senior
executive positions who are important to the development of the Company's
business and influence the achievement of the Company's strategic growth
objectives. There are approximately 280 persons eligible to participate in
the Plan. The remaining number of shares which may be issued under the Plan
is approximately 3.5 million (subject to anti-dilution). The maximum award
of performance shares for any individual for any performance period is
400,000 (subject to anti-dilution).
PERFORMANCE MEASURES. The Plan permits the Compensation and Human
--------------------
Resources Committee (the "Committee") of the Company's Board of Directors
to structure a performance share award (an "Award") as performance-based
compensation such that the Award will not be paid unless designated
performance measures are satisfied. The performance period for Awards may
not be less than three years, subject to acceleration upon a change of
control. The Plan permits the Committee to designate performance measures
from among the following: sales, earnings, earnings per share, pre-tax
earnings, return on equity, and asset management, and may include or
exclude specified items of an unusual, non-recurring or extraordinary
nature including, without limitation, changes in accounting methods,
changes in inventory methods, changes in corporate taxation, unusual
accounting gains and losses, changes in financial accounting standards or
other extraordinary events causing dilution or diminution in the Company's
earnings. Performance objectives need not be the same for all participants,
and may be established for the Company as a whole or for its various
groups, divisions, subsidiaries and affiliates. If the applicable
performance objective is achieved, a participant will receive an amount
equal to the then market value of one share of Company common stock
multiplied by the number of performance shares held. Payment may be made in
shares of common stock and cash or in any combination, as determined by the
Committee. The Committee, at the time it establishes performance
objectives, may establish a minimum performance target and provide for
reduced payment if the performance objective is not achieved but the
minimum performance target is met.
BOARD RECOMMENDATION. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
--------------------
VOTE FOR RE-APPROVAL OF THE MATERIAL TERMS OF PERFORMANCE MEASURES UNDER
---
THE 1997 INCENTIVE SHARES PLAN.
III. RATIFICATION OF INDEPENDENT AUDITORS
In accordance with its charter, the Audit Committee has selected KPMG
LLP, independent auditors, to audit the Company's consolidated financial
statements for fiscal 2004. KPMG LLP served as the Company's independent
auditors for fiscal 2003. The Audit Committee is asking the stockholders to
ratify the appointment of KPMG LLP as the Company's independent auditors
for the fiscal year ending September 30, 2004.
In the event stockholders fail to ratify the appointment, the Audit
Committee may reconsider this appointment. Even if the appointment is
ratified, the Audit Committee, in its discretion, may direct the
appointment of a different independent accounting firm at any time during
the year if the Audit Committee determines that such a change would be in
the Company's and the stockholders' best interests.
The Audit Committee has approved all services provided by KPMG LLP. A
member of KPMG LLP will be present at the meeting with the opportunity to
make a statement and/or respond to appropriate questions from stockholders.
BOARD AND AUDIT COMMITTEE RECOMMENDATION. THE BOARD OF DIRECTORS AND
----------------------------------------
AUDIT COMMITTEE UNANIMOUSLY RECOMMEND A VOTE FOR THE RATIFICATION OF THE
---
APPOINTMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
15
IV. VOTING
Shares may be represented by proxy at the meeting by completing and
returning the proxy card or voting by telephone or by Internet. The
affirmative vote of a majority of the shares entitled to vote which are
present in person or represented by proxy at the 2004 Annual Meeting is
required to elect Directors, to re-approve the performance measures under
the Company's 1997 Incentive Shares Plan, to ratify the appointment of KPMG
LLP as the Company's independent auditors for fiscal 2004 and to act on any
other matters properly brought before the meeting. Shares represented by
proxies which are marked or voted "withhold authority" with respect to the
election of any one or more nominees for election as Directors, proxies
which are marked or voted "abstain" on the proposals to re-approve the
performance measures under the Company's 1997 Incentive Shares Plan and to
ratify the appointment of KPMG LLP as the Company's independent auditors
for fiscal 2004 and proxies which are marked or voted to deny discretionary
authority on other matters will be counted for the purpose of determining
the number of shares represented by proxy at the meeting. Such proxies will
thus have the same effect as if the shares represented thereby were voted
against such nominee or nominees, against the proposals to re-approve the
performance measures under the Company's 1997 Incentive Shares Plan and to
ratify the appointment of KPMG LLP as the Company's independent auditors
for fiscal 2004 and against such other matters, respectively. If a broker
indicates on the proxy that it does not have discretionary authority as to
certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter.
The Company knows of no other matters to come before the meeting. If
any other matters properly come before the meeting, the proxies solicited
hereby will be voted on such matters in the discretion of the persons
voting such proxies, except proxies which are marked to deny discretionary
authority.
V. STOCKHOLDERS' PROPOSAL
Proposals of stockholders intended to be presented at the 2005 Annual
Meeting scheduled to be held on February 1, 2005, must be received by the
Company by August 11, 2004 for inclusion in the Company's proxy statement
and proxy relating to that meeting. Upon receipt of any such proposal, the
Company will determine whether or not to include such proposal in the proxy
statement and proxy in accordance with regulations governing the
solicitation of proxies.
In order for a stockholder to nominate a candidate for Director, under
the Company's Bylaws timely notice of the nomination must be received by
the Company in advance of the meeting. Ordinarily, such notice must be
received not less than 90 nor more than 120 days before the meeting, i.e.,
between October 4 and November 3, 2004 for the 2005 Annual Meeting (but if
the Company gives less than 100 days' (1) notice of the meeting or (2)
prior public disclosure of the date of the meeting, then such notice must
be received within 10 days after notice of the meeting is mailed or other
public disclosure of the meeting is made). The stockholder filing the
notice of nomination must describe various matters regarding the nominee,
including, but not limited to, such information as name, address,
occupation and shares held.
In order for a stockholder to bring other business before a stockholder
meeting, timely notice must be received by the Company within the time
limits described above. Such notice must include a description of the
proposed business, the reasons therefor, and other specified matters. These
requirements are separate from the requirements a stockholder must meet to
have a proposal included in the Company's proxy statement. The foregoing
time limits also apply in determining whether notice is timely for purposes
of rules adopted by the Securities and Exchange Commission relating to the
exercise of discretionary voting authority.
In each case the notice must be given to the Secretary of the Company,
whose address is 8000 West Florissant Avenue, P.O. Box 4100, St. Louis,
Missouri 63136. Any stockholder desiring a copy of the Company's Bylaws
will be furnished one without charge upon written request to the Secretary.
A copy of the amended Bylaws is filed as an exhibit to the Company's Annual
Report on Form 10-K for the 2001 fiscal year and is available at the
Securities and Exchange Commission Internet site (www.sec.gov).
16
VI. MISCELLANEOUS
HOUSEHOLDING OF PROXIES
The Securities and Exchange Commission has adopted rules that permit
companies and intermediaries such as brokers to satisfy delivery
requirements for annual reports and proxy statements with respect to two or
more stockholders sharing the same address by delivering a single annual
report and/or proxy statement addressed to those stockholders. This
process, which is commonly referred to as "householding," potentially
provides extra convenience for stockholders and cost savings for companies.
The Company and some brokers household annual reports and proxy materials,
delivering a single annual report and/or proxy statement to multiple
stockholders sharing an address unless contrary instructions have been
received from the affected stockholders.
Once you have received notice from your broker or the Company that your
broker or the Company will be householding materials to your address,
householding will continue until you are notified otherwise or until you
revoke your consent. You may request to receive at any time a separate copy
of our annual report or proxy statement, by sending a written request to
Emerson Electric Co., Attention: Investor Relations, 8000 West Florissant
Avenue, P.O. Box 4100, St. Louis, Missouri 63136 or by telephoning
314-553-2197.
If, at any time, you no longer wish to participate in householding and
would prefer to receive a separate annual report and/or proxy statement in
the future, please notify your broker if your shares are held in a
brokerage account or the Company if you hold registered shares. You can
notify the Company by sending a written request to Emerson Electric Co.,
Attention: Investor Relations, 8000 West Florissant Avenue, P.O. Box 4100,
St. Louis, Missouri 63136 or by telephoning 314-553-2197.
If, at any time, you and another stockholder sharing the same address
wish to participate in householding and prefer to receive a single copy of
the Company's annual report and/or proxy statement, please notify your
broker if your shares are held in a brokerage account or the Company if you
hold registered shares. You can notify the Company by sending a written
request to Emerson Electric Co., Attention: Investor Relations, 8000 West
Florissant Avenue, P.O. Box 4100, St. Louis, Missouri 63136 or by
telephoning 314-553-2197.
ADDITIONAL FILINGS
The Company's Forms 10-K, 10-Q, 8-K and all amendments to those reports
are available without charge through the Company's Web site on the Internet
as soon as reasonably practicable after they are electronically filed with,
or furnished to, the Securities and Exchange Commission. They may be
accessed as follows: www.gotoemerson.com, Investor Relations, SEC filings.
17
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APPENDIX A
EMERSON DIRECTOR INDEPENDENCE STANDARDS
In order to be considered independent under the rules of the New York
Stock Exchange, the Board must determine that a director does not have any
direct or indirect material relationship with Emerson Electric Co.
("Emerson"). The Board has established the following guidelines to assist
it in determining director independence under the NYSE rules. Any Director
who meets the following standards will be deemed independent by the Board:
1. The Director was not employed by Emerson, and no immediate family
member of the Director was employed by Emerson as an executive officer,
within the preceding three years;
2. The Director was not affiliated with or employed by Emerson's
independent auditor, and no immediate family member of the Director was
affiliated with or employed in a professional capacity by Emerson's
independent auditor, within the preceding three years;
3. The Director was not employed by, and no immediate family member of
the Director was employed as an officer by, any company for which any
Emerson executive officer served as a member of such company's compensation
committee within the preceding three years;
4. Neither the Director, nor any member of the Director's immediate
family received during any of Emerson's last three fiscal years direct
compensation in excess of $100,000 from Emerson other than regular director
compensation, pension and other deferred payments that are not in any way
contingent on continued service to Emerson, and compensation received by an
immediate family member for service as a non-executive officer of Emerson;
5. If the Director is an executive officer or an employee of, or if
any immediate family member is an executive officer of, another
organization that does business with Emerson, the annual sales to, or
purchases from, Emerson by such company in each of the last three fiscal
years were less than the greater of two percent of the annual revenues of
such company or $1,000,000;
6. If the Director is an executive officer of another organization
which is indebted to Emerson, or to which Emerson is indebted, the total
amount of either company's indebtedness to the other is less than two
percent of the total consolidated assets of the company the Director serves
as an executive officer;
7. If the Director is, or is a director, executive officer or greater
than 10% owner of an entity that is, a paid advisor, paid consultant or
paid provider of professional services to Emerson, any member of Emerson's
senior management or any immediate family member of a member of Emerson's
senior management, the amount of such payments is less than the greater of
2% of such firm's annual revenues or $1,000,000 during Emerson's current
fiscal year;
8. If the Director is a partner, principal or counsel in a law firm
that provides professional services to Emerson, the amount of payments for
such services is less than the greater of 2% of such law firm's annual
revenues or $1,000,000 during Emerson's current fiscal year;
9. If the Director serves as an officer, director or trustee of a
charitable organization to which Emerson makes contributions: (i) Emerson's
discretionary contributions to such organization are less than the greater
of two percent of such organization's total annual charitable receipts or
$1 million; (ii) Emerson's contributions are normal matching charitable
gifts and similar programs available to all employees and independent
directors; or (iii) the charitable donation goes through the normal
corporate charitable donation approval processes, and is not made "on
behalf of" a Director;
10. The Director's ownership of Emerson stock, direct or indirect, is
less than 1% of the total outstanding Emerson stock;
11. If the Director is affiliated with, or provides services to, an
entity in which Emerson has an ownership interest, such ownership interest
is less than 20%; and
12. Any other relationship between the Director and Emerson not covered
by the standards set forth above is an arrangement that is usually and
customarily offered to customers of Emerson.
If any relationship exists between Emerson and any Director that is not
addressed by the standards set forth above, the Directors meeting these
standards shall determine whether such relationship impairs the
independence of such Director.
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APPENDIX B
REVISED/EFFECTIVE NOVEMBER 4, 2003
AUDIT COMMITTEE CHARTER
-----------------------
ORGANIZATION
This charter governs the operation of the Audit Committee (the
"Committee"). The Committee shall review and reassess the adequacy of this
charter at least annually and obtain the approval of the Board of Directors
for any proposed changes to the charter. The Committee and its Chair shall
be appointed by the Board of Directors, to serve at the discretion of the
Board, and shall be comprised of at least three Directors, each of whom
meets the independence requirements set forth in applicable rules of the
Securities and Exchange Commission ("SEC") and the New York Stock Exchange
("NYSE"). All Committee members shall be financially literate, and at least
one member shall be an "audit committee financial expert" as that term is
defined by applicable rules of the SEC.
MEETINGS
The Committee shall meet regularly, or more frequently as the Committee
as a whole or the Chair may from time to time determine to be appropriate.
At all meetings of the Committee a majority of the Committee members shall
be necessary to constitute a quorum for the transaction of business.
Members of the Committee may participate in meetings by means of conference
telephone or similar communications equipment whereby all persons
participating in the meeting can hear each other, and such participation
shall constitute presence in person at the meeting. The Committee may also
act as otherwise permitted by law or the Company's Bylaws.
STATEMENT OF POLICY
The Audit Committee shall assist the Board in providing oversight of
the systems and procedures relating to the integrity of the Company's
financial statements, the Company's financial reporting process, its
systems of internal accounting and financial controls, the internal audit
process, the annual independent audit process of the Company's annual
financial statements, the Company's compliance with legal and regulatory
requirements and the qualification and independence of the Company's
primary independent audit firm (the "Auditor"). The Committee is not
responsible for the implementation of the foregoing activities. Such
implementation is the sole responsibility of management. In discharging its
oversight role, the Committee is empowered to investigate any matter
brought to its attention with full access to all books, records,
facilities, and personnel of the Company and authority to engage
independent legal, accounting or other advisors as it deems necessary to
carry out its duties, at Company expense.
Management and the Auditor are responsible for planning and conducting
audits and determining that the audited financial statements are complete,
accurate and in accordance with U. S. Generally Accepted Accounting
Principles. The Committee, in carrying out its oversight responsibilities,
shall discuss with the Auditor and management their respective judgments
regarding the quality and the acceptability of the Company's financial
reporting.
RESPONSIBILITIES AND PROCESSES
The following shall be the principal recurring processes of the Audit
Committee in carrying out its oversight responsibilities:
Independent Auditor
-------------------
* The Auditor reports directly to the Committee. Annually, the
Committee shall evaluate and appoint the Auditor. The Committee shall
have the sole authority to select, evaluate and, where it deems
appropriate, replace or rotate the Auditor. The Committee shall
receive from the Auditor an annual report on (1) the Auditor's
quality control procedures, (2) any material issues raised by the
most recent internal quality control review, or peer review, of the
Auditor, or by any inquiry or investigation by governmental or
professional authorities, within the preceding five years, with
respect to audits carried out by the Auditor, (3) as necessary, the
timetable for the rotation of partners under legal requirements, (4)
all relationships between the Auditor and the Company, and (5) such
other reports as the Committee deems appropriate from the Auditor
regarding
B-1
the Auditor's independence, and discuss with the Auditor such reports
and the matters included in the written disclosures required by the
Independence Standards Board Standard No. 1. If necessary, the
Committee shall take appropriate action with respect to the
independence of the Auditor.
* The Committee shall pre-approve all audit and non-audit services (and
related fees) provided by the Company's Auditor, as outlined below,
and implement procedures so that the Auditor does not perform any
service that is prohibited under the NYSE and SEC rules.
Audit Fees:
-----------
Annually, the Committee will review and approve the audit services and
the estimated audit fees for the following fiscal year. The
projections will be updated quarterly and the Committee will
pre-approve any amounts exceeding the original estimates.
Non-Audit Services and Fees:
----------------------------
Annually, and otherwise as necessary, the Committee will review and
approve all non-audit services and the estimated fees for such
services for the current fiscal year. For recurring services such as
employee benefit plans, tax compliance, due diligence, expatriate tax
returns, internal control reviews, statutory filings and
import/export reviews, the Committee will review and approve the
services and estimated total fees therefor by category of service.
The projections will be updated quarterly and the Committee will
pre-approve any amounts exceeding the original estimates. For
non-recurring services such as tax or other consulting, the Committee
will review and approve the services and estimated fees by category
of service and all individual projects exceeding an amount determined
by the Committee from time to time. The projections will be updated
quarterly and the Committee will pre-approve any amounts exceeding
the original estimates and any new projects exceeding an amount
determined by the Committee from time to time.
Approval Matrix:
----------------
Should an engagement need pre-approval before the next Committee
meeting, authority to grant such approval is delegated to the Audit
Committee Chairman. Such approval will be reviewed with the entire
Committee at the next quarterly meeting.
* The Committee shall monitor management's compliance with the
following hiring policy for employees and former employees of the
Auditor. The Company shall not hire an employee or former employee of
the Auditor who has provided audit, review, or attest services for
the Company during the last two previous fiscal years into an
"accounting role or financial reporting oversight role" as defined by
the SEC. This definition includes the following Corporate positions:
Members of the Board of Directors, Chief Executive Officer,
President, Chief Financial Officer, Chief Operating Officer, General
Counsel, Chief Accounting Officer, Controller, Director of Internal
Audit, VP of Internal Audit, Director of Financial Reporting, and
Treasurer.
Internal Controls and Audit Process
-----------------------------------
The audit function is designed to provide a check that a system of
internal controls is maintained throughout the Company which protects the
assets of the Company and provides the proper authorization and recording
of transactions such that the financial information is reliable and
materially accurate; and financial statements fairly present, in all
material respects, the financial condition and results of operations of the
Company in accordance with U. S. Generally Accepted Accounting Principles
("GAAP").
* The Committee shall discuss with the internal auditors and the
Auditor the overall scope and plans for their respective audits.
Also, the Committee shall discuss with management, the internal
auditors and the Auditor the adequacy and effectiveness of the
Company's accounting and financial controls.
The Committee shall discuss with the Auditor the responsibilities,
budget and staffing of the Company's internal audit department.
The Committee shall review with management the Company's major
financial risk exposures and the steps management has taken to
monitor, mitigate and control such exposures.
B-2
Annual Audit and Quarterly Reviews
----------------------------------
* The Committee will discuss with the Auditor the results of the annual
audit and quarterly reviews, the Company's critical accounting
policies and practices, all alternative treatments within GAAP
discussed with management (including ramifications of use of
alternatives, and the preferred method of the Auditor), other written
material communication (including any management letter or schedule
of unadjusted differences), any audit problems or difficulties and
management's response, and any other matters required to be
communicated to the Committee by the Auditor under Generally Accepted
Auditing Standards.
Financial Reporting
-------------------
* The Committee shall review with management and the Auditor the
audited financial statements to be included in the Company's Annual
Report on Form 10-K, and the Company's quarterly financial
statements, including any disclosure by the Company under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations." Based on these reviews, the Committee shall
annually report to the Board whether the Committee recommends
inclusion of the audited financial statements in the Company's Annual
Report and Form 10-K.
* The Committee shall discuss the types of information to be included
in, and the type of presentation of, earnings press releases and
financial information and earnings guidance provided to analysts and
ratings agencies. The Committee shall be informed by management of
financial information and earnings guidance that have been provided
to analysts and ratings agencies.
Proxy Report
------------
* The Committee shall approve the report of the Committee required to
be included in the Company's annual proxy statement by the rules of
the Securities and Exchange Commission.
Other Responsibilities
----------------------
* The Committee shall establish procedures for the receipt, retention
and treatment of complaints made to the Company, by employees and
non-employees, regarding accounting, internal accounting controls or
auditing matters and for the confidential, anonymous submission by
employees of concerns regarding questionable accounting or auditing
matters.
* At least quarterly, the Committee shall meet separately with
representatives from the Auditor, the internal auditors and
management.
Other Matters
-------------
* The Committee and its members shall have unrestricted access to
management. The Committee shall have sole discretion, in its areas of
responsibility, at Company expense, to retain and terminate
independent advisors, including sole authority to approve the fees
and retention terms for such advisors, if it shall determine the
services of such advisors to be necessary or appropriate. Should any
member of the Committee believe that participation of management or
independent advisors in any discussion of a particular subject at any
meeting would be advisable, they are free to make such request.
* The Committee may, when appropriate in its discretion, delegate
authority with respect to specific matters to one or more members,
provided that all decisions of any such members are presented to the
full Committee at its next scheduled meeting.
REPORTS TO BOARD AND PERFORMANCE EVALUATION
The Committee shall report to the Board of Directors regularly
regarding issues that arise in connection with the performance of its
responsibilities outlined herein, including, but not limited to, issues
that arise with respect to the quality or integrity of the Company's
financial statements, the Company's compliance with legal or regulatory
requirements, the performance and independence of the Auditor or the
performance of the internal audit function. The Committee shall perform an
annual evaluation of its performance.
B-3
[LOGO]
EMERSON
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned does hereby appoint C. F. KNIGHT, W. W. WITHERS, and
H. M. SMITH, or any of them, with full powers of substitution, the true and
lawful attorneys in fact, agents and proxies of the undersigned to represent
the undersigned at the Annual Meeting of the Stockholders of EMERSON
ELECTRIC CO., to be held on February 3, 2004, commencing at 10:00 A.M.,
St. Louis Time, at the headquarters of the Company at 8000 West Florissant
Avenue, St. Louis, Missouri, and at any and all adjournments of said
meeting, and to vote all the shares of Common Stock of the Company standing
on the books of the Company in the name of the undersigned as specified and
in their discretion on such other business as may properly come before the
meeting.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
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ADDRESS CHANGE/COMMENTS (MARK THE CORRESPONDING BOX ON THE REVERSE SIDE)
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FOLD AND DETACH HERE
[LOGO]
EMERSON
ADMISSION TICKET
ANNUAL MEETING OF STOCKHOLDERS
Tuesday, February 3, 2004
10:00 A.M.
Emerson Electric Co. Headquarters
8000 W. Florissant Avenue
St. Louis, MO 63136
==============================
PLEASE PRESENT THIS
NON-TRANSFERABLE TICKET
AT THE REGISTRATION DESK
UPON ARRIVAL
==============================
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION Please / /
IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL 1, FOR Mark Here
PROPOSAL 2 AND FOR PROPOSAL 3. for Address
Change or
Comments
SEE REVERSE SIDE
MANAGEMENT RECOMMENDS A VOTE FOR THE FOLLOWING:
---
1. ELECTION OF DIRECTORS
FOR all nominees WITHHOLD AUTHORITY
listed below to vote for the
(except as marked nominees
to the contrary) listed below
/ / / /
01 C. Fernandez G. 02 C. F. Knight 03 G. A. Lodge
04 R. L. Ridgway 05 E. E. Whitacre, Jr.
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list above.)
MANAGEMENT RECOMMENDS A VOTE FOR THE FOLLOWING:
---
2. Re-approval of performance measures under the FOR AGAINST ABSTAIN
Emerson Electric Co. 1997 Incentive Shares Plan / / / / / /
MANAGEMENT RECOMMENDS A VOTE FOR THE FOLLOWING:
---
3. Ratification of Independent Auditors FOR AGAINST ABSTAIN
/ / / / / /
I PLAN TO ATTEND
THE ANNUAL MEETING / /
The undersigned hereby acknowledges receipt of Notice of Annual Meeting
and accompanying Proxy Statement.
SIGNATURE SIGNATURE DATE
------------------------ --------------------- ---------
NOTE: PLEASE SIGN AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN.
WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE AS SUCH.
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FOLD AND DETACH HERE
VOTE BY INTERNET OR TELEPHONE OR MAIL
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET AND TELEPHONE VOTING IS AVAILABLE THROUGH 11PM EASTERN TIME
THE DAY PRIOR TO ANNUAL MEETING DAY.
YOUR INTERNET OR TELEPHONE VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR
SHARES IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
------------------------- ---------------------- -----------------
INTERNET TELEPHONE MAIL
http://www.eproxy.com/emr 1-800-435-6710 Mark, sign and
Use the Internet to vote Use any touch-tone date your proxy
your proxy. Have your OR telephone to vote your OR card and return
proxy card in hand when proxy. Have your proxy it in the
you access the web site. card in hand when you enclosed postage-
call. paid envelope.
------------------------- ---------------------- -----------------
IF YOU VOTE YOUR PROXY BY INTERNET OR BY TELEPHONE,
YOU DO NOT NEED TO MAIL BACK YOUR PROXY CARD.
PLEASE ADMIT:
APPENDIX
Page 14 of the printed proxy statement contains a Stock Performance
Graph. The information contained within the graph is presented in a tabular
format immediately following the graph.