EMERSON ELECTRIC CO.
EMPLOYEE SAVINGS INVESTMENT PLAN
Statements of Changes in Net Assets Available for Benefits
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Year Ended September 30
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2018
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2019
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Plan interest in Master Trust investment
income, net (Note 8)
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$
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339,664,494
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24,175,073
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Interest income on loans receivable from participants
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775,425
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954,833
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Transfers from other plans, net (Note 4)
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128,323,628
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1,417,969
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Participant contributions
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98,912,973
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113,310,326
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Rollover contributions
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17,445,217
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17,543,390
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Employer contributions
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47,591,286
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45,313,095
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Benefits paid to participants
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(198,681,645
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)
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(232,116,752
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)
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Increase (decrease) in net assets available for benefits
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434,031,378
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(29,402,066
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)
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Net assets available for benefits, beginning of year
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2,728,631,973
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3,162,663,351
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Net assets available for benefits, end of year
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$
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3,162,663,351
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3,133,261,285
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See accompanying Notes to Financial Statements.
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EMERSON ELECTRIC CO.
EMPLOYEE SAVINGS INVESTMENT PLAN
Notes to Financial Statements
(1) DESCRIPTION OF PLAN
The following description of the Emerson Electric Co. (Emerson or the Company) Employee Savings Investment Plan (the Plan) provides only general information. Participants should refer to the Plan prospectus and the Plan document for additional information.
General
The Plan is a defined contribution plan subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA). In general, any non-excludable employee of a Company business unit which participates in the Plan is eligible to participate. The Management Review Committee is responsible for oversight and administrative responsibility for the investment management and funding of the Plan. At September 30, 2019, there were 16,147 employees participating in the Plan.
Participant Accounts
The Plan maintains a separate account for each participant. Within the account, the participant's interest in each of the Plan's investments is recorded for participant contributions, Company matching contributions, and any dividends, investment earnings or losses.
Contributions
Eligible participants may generally elect to have up to 40% of compensation, in increments of 1%, contributed to the Plan, while highly compensated employees may be subject to further limits. Contributions may be made on a pretax, after-tax, or Roth basis, as elected by the participant and subject to certain ERISA and Plan limitations. New employees are automatically enrolled in the Plan, after 45 days with an initial employee contribution rate of 6% of pre-tax eligible compensation. These automatic contributions are invested in an age appropriate Vanguard Target Retirement Trust, unless each such participant makes an election to affirmatively opt out in accordance with procedures established by the Company. On January 1, 2019, and at such other times as the Plan Administrator may elect, for participants who are not currently contributing, Emerson implemented an approach in which an automatic election of 3% of pre-tax income will be contributed and invested in an age appropriate Vanguard Target Retirement Trust, unless elected otherwise. In addition, participants have the ability to set an automatic annual increase of their elective deferrals.
Eligible participants may receive Company matching contributions equal to a percentage of a portion of each participant's contribution. Additionally, certain participants who are not eligible for or are no longer accruing benefits in the Company’s principal U.S. defined benefit plan also receive a nonelective Company contribution and increased match each year in the Plan. Unvested Company contributions forfeited by terminated employees may be allocated to reduce future matching contributions or pay Plan expenses. Forfeitures of $1,383,983 and $934,030 were used to reduce Employer contributions in 2019 and 2018, respectively. Forfeitures used to pay Plan expenses were insignificant in both years. Net Assets Available for Benefits included unallocated forfeitures of $620,259 and $550,854 as of September 30, 2019 and 2018, respectively.
In September 2018, eligible U.S. Emerson employees received a one-time $1,000 contribution from the Company into their 401(k) account. Employees who met the following requirements were eligible: (1) be on a U.S. payroll as an active employee on August 1, 2018 and (2) be actively employed when the contribution was made. The $1,000 contribution will fully vest after 5 years of Emerson service (20% vested per year), with vesting credit for prior service.
EMERSON ELECTRIC CO.
EMPLOYEE SAVINGS INVESTMENT PLAN
Notes to Financial Statements
Vesting
Participant contributions and any related dividends, earnings and losses are always 100% vested. Company matching contributions, the one-time $1,000 contribution, and any related dividends, earnings or losses generally vest at the rate of 20% per year of service for the first 5 years for most employees. Thereafter, any new matching contributions are fully vested. The nonelective Company contributions cliff vest after three years. All amounts fully vest upon attaining retirement age, or due to death, total and permanent disability, or termination of the Plan.
Investment Options
Participants designate the portion of their total contribution to be invested in the various Plan investment funds in 1% increments. Participants may change their investment elections at any time, and transfer any part of an existing account balance to any other investment fund, as permitted by Plan and fund policies. Transfers are made in 1% increments. A maximum of six transfers may be made per quarter. No advance notice is required for transfers. Certain restrictions exist on transfers into or out of the Emerson Common Stock Fund by the Company's executive officers.
For some participants, the Company’s matching contributions are invested according to the participant’s actual or default investment allocation for elective contributions. For other participants, the Company’s matching contributions are invested in the Emerson Common Stock Fund. Participants are allowed to immediately transfer any Company matching contributions to other funds offered in the Plan, subject to the number of allowed fund transfers within a quarter. The portion of participants’ total contribution allocated to the Emerson Common Stock Fund is limited to 20%. Additionally, participants are not able to complete investment exchanges or rollovers into the Emerson Common Stock Fund if the portion of their total account balance held in the Emerson Common Stock Fund exceeds 20%, or will after the transaction is completed.
Available mutual fund investments as of September 30, 2019 included the following: equity and equity index funds investing primarily in common stocks – Dodge & Cox Stock Fund, Primecap Odyssey Aggressive Growth Fund, Vanguard U.S. Growth Fund, Vanguard Selected Value Fund, Vanguard Extended Market Index Fund, Vanguard Growth Index Fund, Vanguard Emerging Markets Stock Index Fund, Vanguard Total International Stock Index Fund and Vanguard Value Index Fund; a fixed income index fund investing in a diversified portfolio of bonds – Vanguard Short-Term Bond Index Fund. Collective funds and trusts, which are private, include the following: equity funds investing primarily in common stocks – Capital Group U.S. and International Equity Funds, and the Vanguard Institutional 500 Index Trust; balanced trusts investing in a mix of stocks, bonds and cash – The Vanguard Target Retirement Trusts ranging from 2015 to 2065 and the Vanguard Target Retirement Income Trust; fixed income trusts investing primarily in a diversified portfolio of bonds – Loomis Sayles Core Plus Fixed Income Trust and the Vanguard Institutional Total Bond Market Index Trust. Participants may also invest in the JP Morgan 100% U.S. Treasury Securities Money Market Fund and the Emerson Common Stock Fund. All funds may temporarily invest in cash and cash equivalents and also hold cash for liquidity.
The Vanguard Morgan Growth Fund merged into the Vanguard U.S. Growth Fund on April 5, 2019. The merged funds will retain the latter name.
The Vanguard Mid-Cap Growth Fund was closed and eliminated from the Plan on June 26, 2018, with participant balances transferred to the Primecap Odyssey Aggressive Growth Fund.
EMERSON ELECTRIC CO.
EMPLOYEE SAVINGS INVESTMENT PLAN
Notes to Financial Statements
Loans Receivable from Participants in Master Trust
Participants can borrow from the Plan at a rate of 1% over the Prime Rate on the date of borrowing as received by Vanguard from Reuters. Interest rates on loans outstanding at September 30, 2019, which includes loans transferred from other plans and loans deemed distributed per ERISA, vary between 0.45% and 10.5%. Loans are secured by the balance in the participant’s account, with payment terms generally between one and four years. With certain exceptions, participants can borrow the lesser of 50% of their vested account balance or $50,000, reduced by the highest outstanding loan balance during the prior 12 months. Loans are not made to participants who already have a loan outstanding. Participant loans are valued at amortized cost plus accrued interest. Under ERISA guidelines, certain delinquent loans are deemed to be distributed for Internal Revenue Service (IRS) Form 5500 reporting.
Benefit Payments
Upon a participant's retirement after age 55, death, disability or other termination of employment with the Company, the entire vested balance in the participant's account is available for distribution. Each participant's distribution under the Plan is payable as a lump sum. Partial distributions (up to one per quarter) are permitted with a minimum amount of $1,000. Participants may elect to receive lump sum distributions entirely in cash, or in a combination of cash and shares of Emerson common stock. Distribution of vested account balances of at least $5,000 may be deferred by retired employees until age 70½, at which time required minimum distributions under ERISA must begin.
Participants who are actively employed by the Company may withdraw all or a portion of their after-tax contributions, vested matching contributions that have been in the Plan at least two years, and amounts transferred or rolled-over from another plan qualified under Section 401 of the Internal Revenue Code (the Code). If a participant is at least age 59½, all contributions in the Plan can be withdrawn. Roth 401(k) withdrawals must fulfill the five year participation period.
Actively-employed participants may request, subject to approval, a withdrawal of all or a portion of their pretax contributions subject to demonstration of substantial financial hardship.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared on the accrual basis of accounting. Purchases and sales of securities are recorded on a trade-date basis. Dividends are recorded on the ex-dividend date. Benefit payments are recorded when paid as all assets are available to pay benefits.
Investment Valuation and Income Recognition
See Notes 8 and 9 regarding investments in the Master Trust.
Risks and Uncertainties
The Plan invests in securities and mutual funds which are exposed to various risks, including interest rate, market and credit risks. Due to the level of risk associated with certain investments, it is at least reasonably possible that significant changes in the values of investment securities could occur in the near term. Such changes could materially affect participants’ account balances and the amounts reported in the Statement of Net Assets Available for Benefits.
Operating Expenses
Administrative expenses necessary for the operation and management of the Plan are shared by the Company and Plan participants. The Company has not paid transaction costs for brokerage commissions for the Emerson Common Stock Fund, or investment management fees and expenses charged directly against the investment funds.
EMERSON ELECTRIC CO.
EMPLOYEE SAVINGS INVESTMENT PLAN
Notes to Financial Statements
Use of Estimates
Certain amounts included in the financial statements are estimated based on currently available information and management’s judgment as to the outcome of future conditions and circumstances. While every effort is made to ensure the accuracy of such estimates, including the use of third-party specialists where appropriate, actual results could differ from these estimates.
The IRS has determined, and informed the Company by a letter dated May 16, 2017, that the Plan and its related trust are designed in accordance with applicable sections of the Code. Plan amendments have been made subsequently which were not specifically covered by the 2017 letter. The Plan administrator and the Plan tax counsel believe that the Plan is designed and currently being operated in compliance with the applicable requirements of the Code, and therefore remains tax qualified. As of September 30, 2019, there are no uncertain tax positions.
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(4)
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TRANSFERS TO OR FROM OTHER PLANS
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During 2018, net assets of $86,046,647, $32,229,199 and $10,032,425 were transferred into the Plan due to the acquisitions of Valves & Controls, Paradigm and Cooper Atkins, respectively.
In 2019 and 2018, certain participant accounts were transferred to or from other Company or third-party benefit plans, as those participants transferred from one Company business unit to another.
Certain investments in the Master Trust, including some mutual funds and collective funds, are managed by Vanguard, the Plan’s trustee and recordkeeper. Additionally, the Company is the Plan sponsor and the Emerson Common Stock Fund is an investment option. These transactions qualify as “party-in-interest” transactions and are allowed under ERISA regulations.
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions and terminate the Plan at any time, subject to the provisions of ERISA. In the event of Plan termination, participants become fully vested in their accounts.
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(7)
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RECONCILIATION OF FINANCIAL STATEMENTS TO IRS FORM 5500
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Following is a reconciliation of Net Assets Available for Benefits per the financial statements to the Plan’s IRS Form 5500.
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September 30
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2018
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2019
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Net Assets Available for Benefits per the financial statements
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$
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3,162,663,351
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3,133,261,285
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Participant loans deemed distributed, end of year
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(492,575
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)
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(473,622
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)
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Amount allocated to withdrawing participants
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(335,871
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)
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(14,140
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)
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Net Assets Available for Benefits per IRS Form 5500
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$
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3,161,834,905
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3,132,773,523
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EMERSON ELECTRIC CO.
EMPLOYEE SAVINGS INVESTMENT PLAN
Notes to Financial Statements
Following is a reconciliation of benefits paid to participants per the financial statements to the Plan’s IRS Form 5500.
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Year Ended September 30
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2018
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2019
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Benefits paid to participants per the financial statements
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$
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198,681,645
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232,116,752
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Participant loans deemed distributed, end of year
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492,575
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473,622
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Participant loans deemed distributed, beginning of year
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(434,707
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)
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(492,575
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)
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Amount allocated to withdrawing participants, end of year
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335,871
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14,140
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Amount allocated to withdrawing participants, beginning of year
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(9,705
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)
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(335,871
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)
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Benefits paid to participants per IRS Form 5500
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$
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199,065,679
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231,776,068
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Amounts are allocated to withdrawing participants on IRS Form 5500 for benefit claims that have been processed and approved for payment, but not yet paid as of September 30, 2019 and 2018.
All of the Plan’s investments are held in a Master Trust, consisting of the Plan and other defined contribution plans of Emerson Electric Co. and subsidiaries. All Plan income or loss is derived from Master Trust investment appreciation or depreciation.
Each participating plan’s interest in the assets of the Master Trust is based on participant account balances. Additionally, loans receivable from participants are included in the Master Trust. At September 30, 2019 and 2018, the Plan’s interest in the net assets of the Master Trust was approximately 60%. Master Trust investment income and expenses are allocated to participating plans based on respective balances.
The Plan’s investments in the Master Trust are stated at fair value. The fair values of mutual funds and Emerson common stock are based on quoted market prices in active markets. Money market funds are stated at cost, which approximates fair value. Investments measured using the net asset value as a practical expedient (NAV) are primarily collective funds and trusts where the underlying securities have observable prices available from active markets. There are no redemption restrictions or unfunded commitments related to these investments. The cost basis of investments held under the Plan is determined using the average cost method of accounting.
The following table presents the fair values of all investments in the Master Trust.
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September 30
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2018
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2019
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Mutual funds
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$
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1,259,388,122
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1,166,724,512
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Collective funds and trusts
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3,115,560,645
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3,247,873,402
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Emerson Common Stock Fund
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632,953,288
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541,997,288
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Money market funds
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173,746,197
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209,325,878
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Total Master Trust investments at fair value
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$
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5,181,648,252
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5,165,921,080
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Plan’s share of Master Trust investments at fair value
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$
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3,138,389,682
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3,106,122,128
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EMERSON ELECTRIC CO.
EMPLOYEE SAVINGS INVESTMENT PLAN
Notes to Financial Statements
Investment income for the entire Master Trust follows.
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Year Ended September 30
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2018
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2019
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Net appreciation of investments
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527,608,807
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64,974,236
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Interest, net of fees
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2,098,305
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4,774,311
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Total Master Trust investment income
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$
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529,707,112
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69,748,547
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Plan’s share of Master Trust investment income
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$
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339,664,494
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24,175,073
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(9)
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FAIR VALUE MEASUREMENTS
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Under ASC 820 Fair Value Measurement, a formal hierarchy and framework exists for measuring fair value and making disclosures about fair value measurements and the reliability of valuation inputs. Within the hierarchy, Level 1 instruments use observable market prices for the identical item in active markets and have the most reliable valuations. Level 2 instruments, of which there are none, are valued through broker/dealer quotation or through market-observable inputs for similar items in active markets, including forward and spot prices, interest rates and volatilities. Level 3 instruments, of which there are none, are valued using inputs not observable in an active market, such as entity-developed future cash flow estimates, and are considered the least reliable.
Following is a categorization of all Master Trust investments (see Note 8) by level within the ASC 820 fair value hierarchy. Investments valued based on the net asset value practical expedient are excluded from the fair value hierarchy. There were no asset transfers between levels during either year shown.
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September 30, 2019
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Level 1
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Measured at NAV
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Total
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Mutual funds
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$
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1,166,724,512
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—
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1,166,724,512
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Collective funds and trusts
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—
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3,247,873,402
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3,247,873,402
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Emerson Common Stock Fund
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541,997,288
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—
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541,997,288
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Money market funds
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209,325,878
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—
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209,325,878
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Total
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$
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1,918,047,678
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3,247,873,402
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5,165,921,080
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September 30, 2018
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Level 1
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Measured at NAV
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Total
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Mutual funds
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$
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1,259,388,122
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|
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—
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1,259,388,122
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Collective funds and trusts
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—
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3,115,560,645
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3,115,560,645
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Emerson Common Stock Fund
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632,953,288
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—
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632,953,288
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Money market funds
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173,746,197
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—
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173,746,197
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|
|
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Total
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$
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2,066,087,607
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|
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3,115,560,645
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5,181,648,252
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EMERSON ELECTRIC CO.
EMPLOYEE SAVINGS INVESTMENT PLAN
Notes to Financial Statements
The Plan has evaluated subsequent events through February 17, 2020, the date the financial statements were available to be issued.
EXHIBITS
(a) Exhibits (Listed by numbers corresponding to the Exhibit Table of Item 601 in Regulation S-K).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Management Review Committee has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
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EMERSON ELECTRIC CO.
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EMPLOYEE SAVINGS INVESTMENT PLAN
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by:
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/s/ Michael J. Baughman
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Michael J. Baughman, on behalf of the
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Management Review Committee
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|
Date: February 17, 2020
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Supplemental Schedule
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EMERSON ELECTRIC CO. EMPLOYEE SAVINGS INVESTMENT PLAN
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Schedule of Assets Held for Investment Purposes at End of Year – Attachment for IRS Form 5500, Schedule H, Line 4i
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As of September 30, 2019
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Emerson Electric Co. Employee Savings Investment Plan
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Identity of Issue
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Investment Type
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Cost***
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Current Value**
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*
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Participant Loan Fund
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Interest Rate Range: 0.45% - 7.00%**
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$
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18,857,792
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*
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Party-in-Interest
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**
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Current value and the range of interest rates exclude participant loans deemed distributed in accordance with IRS Form 5500 instructions for Schedule H, Line 4i.
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***
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Cost excluded in accordance with IRS Form 5500 instructions for Schedule H, Line 4i.
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