Form: 10-K

Annual report [Section 13 and 15(d), not S-K Item 405]

December 23, 1998

Documents

ANNUAL REPORT

Published on December 23, 1998



EXHIBIT 13

22

Financial Review

Results of Operations

Net Sales

Sales for 1998 were a record $13.4 billion, an increase of $1.1 billion or 9.3
percent from 1997. The strong sales growth reflected balanced performance
from the Company's segments and the contribution of acquisitions (see note
2). All businesses reported underlying sales growth in 1998. This growth was
achieved despite the impact of a stronger dollar that reduced reported sales
growth by more than 2 percent. Slightly more than half of the sales increase
was attributable to solid underlying domestic growth and modest international
demand. Domestic sales increased approximately $1.0 billion or 14 percent,
benefiting from very strong gains in the electronics business, strong growth
in the fractional motors and appliance business and acquisitions.
International sales increased approximately $140 million, or 3 percent.
Demand was solid throughout the year in the United States and Europe, which
account for more than three-quarters of consolidated revenue. New product
sales, from products introduced in the past five years, increased
approximately $490 million or 13 percent to a record $4.4 billion,
representing 33 percent of sales. Acquisitions completed throughout fiscal
1998 and the first quarter 1999 acquisition of the Westinghouse Process
Control Division are expected to have total sales of $1 billion in fiscal
1999.

In 1997, sales were $12.3 billion, up $1,149 million or 10.3 percent from
1996. Approximately half of the sales increase was attributable to solid
international demand and modest domestic growth with the remainder due to
acquisitions. All businesses reported sales growth in 1997. Domestic sales
increased approximately $770 million or 12 percent, benefiting from
acquisitions, solid gains in the tools business, very strong gains in the
electronics business and slight price increases. International sales
increased approximately $380 million, reflecting moderate growth in Europe,
continued strength in Asia-Pacific and Latin America, strong growth in Canada
and acquisitions, partially offset by unfavorable foreign currency translation
of approximately $235 million. New product sales increased approximately $520
million or 15 percent to $3.9 billion, representing 32 percent of sales.

International Sales

International sales, including U.S. exports, increased approximately 3 percent
to a record $5.4 billion in 1998, representing 40 percent of the Company's
total sales. Solid demand in Europe and the strong growth in other regions of
the world, led by Latin America, more than offset the impact of significant
weakness in Asian economies. Sales by non-U.S. subsidiaries were $4.4 billion
in 1998, up $228 million or 5 percent from 1997. U.S. exports decreased 8
percent to $968 million in 1998 compared to the record export sales in 1997,
reflecting weakness in Asia-Pacific. International subsidiary sales increased
approximately 6 percent excluding acquisitions and the unfavorable impact of
currency translation of approximately $250 million.



In 1997, international sales increased 8 percent to $5.2 billion, representing
43 percent of the Company's total sales. Sales by non-U.S. subsidiaries were
$4.2 billion in 1997, up $209 million or 5 percent from 1996. U.S. exports
exceeded $1 billion for the first time in 1997, increasing 19 percent to
$1,054 million, reflecting strong sales gains in the process and the heating,
ventilating and air conditioning businesses and acquisitions. International
sales increased approximately 7 percent excluding acquisitions and the
unfavorable impact of currency translation as all major geographic regions
achieved sales growth, with particular strength in Asia-Pacific, Latin America
and Canada.



















































23

Industry Segment Sales

Sales in the Commercial and Industrial segment were $8.1 billion, up $737
million or 10.0 percent from 1997, reflecting moderate demand and
acquisitions, partially offset by the stronger dollar. The electronics
business continued its very strong underlying sales growth, reflecting broad
strength across product lines and service offerings. In addition, sales of
the business benefited from the acquisition of Hiross, an Italian manufacturer
of precision environmental control and site monitoring products. Sales of the
industrial motors and drives business grew solidly, excluding the negative
impact of foreign currency, as a result of strong international demand outside
of Asia and the contribution of the Computational Systems, Inc. acquisition.
The industrial components and equipment business reported modest underlying
sales growth on a fixed rate basis, and the majority-owned joint venture
formed with General Signal's Electrical Group in September 1997 further
enhanced sales growth. Excluding the effects of currency translation, the
process business reported moderate sales growth as demand was balanced across
the major geographic regions it serves.

Sales in the Appliance and Construction-Related segment were $5.3 billion, up
$411 million or 8.3 percent from 1997, reflecting solid domestic growth and
acquisitions, partially offset by weak Asian demand. Sales of the underlying
fractional motors and appliance components business grew solidly, benefiting
from robust demand in the United States. Strong gains in the tools business
reflect the 1997 acquisition of InterMetro Industries and modest underlying
growth. The heating, ventilating and air conditioning business reported
modest sales growth, as very strong demand in the U.S. and Europe was
partially offset by the impact of weak Asian economies on U.S. export sales.

In 1997, sales in the Commercial and Industrial segment were $7.4 billion, up
$730 million or 11.0 percent from 1996, reflecting solid international demand,
moderate domestic gains and acquisitions. The electronics business achieved
very strong underlying sales growth, reflecting broad strength across product
lines and service offerings. During the second quarter of 1997, the Company
increased its ownership and began consolidating the results of Astec (BSR)
Plc. The process business reported modest sales gains as solid international
demand was limited by the impact of the strengthening dollar. Sales of the
industrial motors and drives business increased moderately over a very strong
prior year, as the contribution of 1996 acquisitions helped offset the effects
of sluggish European economies and unfavorable currency translation. The
industrial components and equipment business reported modest sales gains, as
solid international demand was offset by unfavorable exchange rates.

In 1997, sales in the Appliance and Construction-Related segment were $4.9
billion, up $419 million or 9.3 percent from 1996, reflecting slight domestic
gains, strong international demand, the impact of the 1996 Vermont American
consolidation and other acquisitions. Sales of the underlying tools business
increased solidly, reflecting strong domestic demand and the success of new
products. The heating, ventilating and air conditioning business reported
slight sales gains as strong international demand offset the significant
impact of cool weather on U.S. markets. Sales of the fractional motors and
appliance components business increased slightly as the cool weather reduced
demand for motors used in room air-conditioners and fans.




Total Costs and Expenses

Cost of sales for 1998 was $8.6 billion, an increase of 9.3 percent, due
primarily to increased sales volume. In 1997, cost of sales was $7.9 billion,
compared to $7.2 billion in 1996, an increase of 9.8 percent. Cost of sales
as a percent of net sales was 63.9 percent in 1998 compared to 64.0 percent
and 64.3 percent in 1997 and 1996, respectively. Gross profit margins have
improved as a result of the Company's ongoing commitment to cost reduction and
containment efforts and productivity improvement programs.



















































Selling, general and administrative (SG&A) expenses were $2.7 billion, $2.5
billion, and $2.2 billion in 1998, 1997 and 1996, respectively. As a percent
of net sales, SG&A expenses were 19.9 percent in 1998 and 1997, and 19.6
percent in 1996. These increases in SG&A expenses reflect increased
investment in new product development and other revenue growth programs and
acquisitions, offset by ongoing cost reduction efforts. The Company continued
its commitment to new product development by increasing engineering and
development expense 10.4 percent to a record $491 million in 1998, compared to
$445 million and $399 million in 1997 and 1996, respectively.

Interest expense increased to $152 million in 1998 from $121 million in 1997,
reflecting higher average borrowings resulting from acquisitions and share
repurchases. In 1997, interest expense decreased from $127 million in 1996,
reflecting lower interest rates.

Other deductions, net, including amortization of intangibles, were $100
million in 1998, compared to $78 million and $57 million in 1997 and 1996,
respectively. The fourth quarter of 1997 included a gain of approximately $80
million from the formation of the joint venture between Emerson's Appleton
Electric division and General Signal's Electrical Group. The fourth quarter of
1996 included a $78 million gain from the disposition of Emerson's interest in
the S-B Power Tool joint venture. These gains were substantially offset by
other non-recurring items. See note 2 for additional information.

Income Before Income Taxes

Income before income taxes increased $140 million, or 7.8 percent, to $1.9
billion in 1998, reflecting increased sales and improvement in underlying
margins, partially offset by increased interest expense. Income before
interest expense and income taxes in the Commercial and Industrial segment
increased $110 million, or 10.9 percent, to $1,123 million in 1998. Income of
the segment was 13.9 percent and 13.8 percent of net sales in 1998 and 1997,
respectively. These results reflect worldwide sales growth, acquisitions and
ongoing cost reduction efforts. Income in the Appliance and Construction-
Related segment increased $127 million, or 15.6 percent, to $940 million in
1998. As a percent of net sales, income of the segment was 17.6 percent in
1998 and 16.5 percent in 1997. This improvement is primarily the result of
solid domestic sales growth and ongoing cost reduction efforts.

Income before income taxes increased $175 million, or 10.9 percent, to $1.8
billion in 1997, reflecting increased sales and improved margins. Income
before interest expense and income taxes in the Commercial and Industrial
segment increased $103 million, or 11.3 percent, to $1,013 million in 1997.
This improvement is primarily a result of solid international demand, moderate
domestic sales growth and acquisitions. Income of the segment was 13.8
percent and 13.7 percent of net sales in 1997 and 1996. Income in the
Appliance and Construction-Related segment increased $71 million, or 9.6
percent, to $813 million in 1997. As a percent of net sales, income of the
segment was 16.5 percent in 1997 and 16.4 percent in 1996. These results
reflect increased worldwide sales volume, acquisitions and ongoing cost
reduction efforts. See note 13 for additional information by industry segment
and geographic area.






Income Taxes

Income taxes were $695 million, $662 million and $590 million in 1998, 1997,
and 1996, respectively. The effective income tax rate was 36.1 percent in
1998, compared to 37.1 percent in 1997 and 36.7 percent in 1996, reflecting
the impact of global tax planning strategies and acquisitions.























































Net Earnings and Return on Equity

Net earnings for 1998 were a record $1.2 billion, up 9.5 percent from $1.1
billion in 1997. Net earnings as a percent of sales was 9.1 percent in 1998
and 1997. Diluted earnings per common share were a record $2.77 in 1998, up
10.8 percent from $2.50 in 1997. Emerson achieved a return on average
stockholders' equity of 21.9 percent compared to 20.8 percent and 19.9 percent
in 1997 and 1996, respectively. Net earnings for 1997 were up 10.2 percent
from $1.0 billion in 1996. Diluted earnings per common share in 1997 were up
11.1 percent from $2.25 in 1996.

Financial Position, Capital Resources and Liquidity

The Company continues to generate substantial cash from operations and remains
in a strong financial position with resources available for reinvestment in
existing businesses, strategic acquisitions and managing the capital structure
on a short- and long-term basis.

Cash Flow

Emerson generated record operating cash flow of $1.7 billion in 1998, an
increase of 10.2 percent compared to 1997. Operating cash flows were $1.5
billion and $1.3 billion in 1997 and 1996, respectively. Operating working
capital was approximately 17 percent of sales in 1998 and 1997, and 18 percent
of sales in 1996. Initiatives to reduce working capital during the year
contributed to solid improvements in the underlying company's inventory
turnover and days sales outstanding.

Capital expenditures were $603 million, $575 million and $514 million in 1998,
1997 and 1996, respectively. These expenditures increase the Company's global
capacity to leverage opportunities within the heating, ventilating and air
conditioning and stand-by power generation industries, as well as improve
manufacturing productivity in a number of our businesses. The Company
continued work on a $200 million project focused on a new compressor and motor
plant in Suzhou, China. Cash paid in connection with Emerson's purchase
acquisitions was $573 million, $319 million and $300 million in 1998, 1997 and
1996, respectively.

Dividends were a record $521 million ($1.18 per share) in 1998, compared with
$481 million ($1.08 per share) in 1997 and $439 million ($.98 per share) in
1996. In November 1998, the Board of Directors voted to increase the
quarterly cash dividend 10.2 percent to an annualized rate of $1.30 per share.

Leverage/Capitalization

Total debt increased to $2.6 billion in 1998 from $2.0 billion in 1997 and
$1.7 billion in 1996, reflecting the impact of acquisitions and the Company's
share repurchase program. The program, initiated in fiscal 1997, authorizes
the repurchase of up to 40 million shares of the Company's outstanding common
stock, with more than 16 million shares repurchased through September 30,
1998. Net purchases of treasury stock totaled $499 million and $377 million
in 1998 and 1997, respectively. See notes 2, 3 and 4 for additional
information.





The total debt-to-capital ratio was 30.8 percent at year-end 1998, compared to
27.1 percent in 1997 and 24.5 percent in 1996. At September 30, 1998, net
debt (total debt less cash and equivalents and short-term investments) was
29.0 percent of net capital, compared to 24.9 percent in 1997 and 22.9 percent
in 1996. The Company's interest coverage ratio (income before income taxes,
non-recurring items and interest expense divided by interest expense) was
13.7 times in 1998, compared to 15.8 times in 1997 and 13.7 times in 1996, as
a result of higher average borrowings in 1998, partially offset by earnings
growth.




















































26

At year-end 1998, the Company and its subsidiaries maintained lines of credit
amounting to $1.8 billion to support commercial paper and had available
non-U.S. bank credit facilities of $585 million to support non-U.S.
operations. Lines of credit totaling $900 million are effective until 2003,
with the remainder through June 1999. These lines of credit and bank credit
facilities assure the availability of funds at prevailing interest rates. In
addition, the Company increased its shelf registration with the Securities and
Exchange Commission subsequent to year end to permit the issuance of up to $1
billion of additional debt securities. See note 3.

Financial Instruments

The Company is exposed to market risk related to changes in interest rates and
European and other foreign currency exchange rates, and selectively uses
derivative financial instruments, including forwards, swaps and purchased
options, to manage these risks. The Company does not hold derivatives for
trading purposes. The value of market risk sensitive derivative and other
financial instruments is subject to change as a result of movements in market
rates and prices. Sensitivity analysis is one technique used to evaluate
these impacts. Based on a hypothetical ten-percent increase in interest rates
or ten-percent weakening in the U.S. dollar across all currencies, the
potential losses in future earnings, fair value and cash flows are immaterial.
This methodology has limitations; for example, a weaker U.S. dollar would
benefit future earnings through favorable translation of non-U.S. operating
results. See notes 1, 3, 4 and 5.

Year 2000 Readiness

The Company has developed a comprehensive Year 2000 plan that includes
assessment, hardware and software remediation, and testing. The Company has
substantially completed the assessment phase, which included review of
internal computer applications and information systems, products, facilities
and equipment, as well as products and services provided by third parties.
Remediation and testing activities at the Company's divisions are at various
stages, with more than half of the work completed on critical systems.
Substantially all computer applications and systems are expected to be Year
2000 compliant by September 30, 1999. Numerous third parties have been
contacted to assess and monitor their compliance and remediation efforts, with
particular emphasis placed on more than 3,000 key suppliers. The estimated
costs of the Year 2000 compliance program are not material to the Company's
operating results or financial position.

The Company is supplementing existing emergency recovery plans with Year 2000-
specific procedures to mitigate the impact of any unsuccessful remediation or
third party failures. Management believes that the diversity of the Company's
operations and systems reduces overall exposure and expects that the
consequences of any unsuccessful remediation will not be significant. However,
there can be no assurance that the Company's efforts or those of other
entities will be successful, or that any potential failure would not have a
material adverse effect on the Company's operating results or financial
condition.





27

Consolidated Statements of Earnings

Emerson Electric Co. and Subsidiaries

Years ended September 30
(Dollars in millions except per share amounts)




1998 1997 1996
--------- -------- --------

Net sales $13,447.2 12,298.6 11,149.9
--------- -------- --------
Costs and expenses:
Cost of sales 8,595.6 7,865.6 7,165.0
Selling, general and administrative expenses 2,676.7 2,450.9 2,192.0
Interest expense 151.7 120.9 126.9
Other deductions, net 99.7 77.6 57.0
--------- -------- --------
Total costs and expenses 11,523.7 10,515.0 9,540.9
--------- -------- --------
Income before income taxes 1,923.5 1,783.6 1,609.0
Income taxes 694.9 661.7 590.5
--------- -------- --------
Net earnings $ 1,228.6 1,121.9 1,018.5
========= ======== ========
Basic earnings per common share $ 2.80 2.52 2.27
========= ======== ========
Diluted earnings per common share $ 2.77 2.50 2.25
========= ======== ========


See accompanying notes to consolidated financial statements.























28

Consolidated Balance Sheets

Emerson Electric Co. and Subsidiaries

September 30
(Dollars in millions except per share amounts)




Assets
1998 1997
--------- --------

Current assets
Cash and equivalents $ 209.7 221.1
Receivables, less allowances of $54.6 in 1998
and $54.0 in 1997 2,416.1 2,200.2
Inventories:
Finished products 858.6 789.6
Raw materials and work in process 1,137.9 1,092.0
--------- --------
Total inventories 1,996.5 1,881.6
Other current assets 379.0 413.9
--------- --------
Total current assets 5,001.3 4,716.8
--------- --------

Property, plant and equipment
Land 173.4 167.0
Buildings 1,205.5 1,066.0
Machinery and equipment 4,373.5 3,928.9
Construction in progress 318.3 271.8
--------- --------
6,070.7 5,433.7
Less accumulated depreciation 3,059.1 2,698.3
--------- --------
Property, plant and equipment, net 3,011.6 2,735.4
--------- --------

Other assets
Excess of cost over net assets of purchased businesses,
less accumulated amortization of $617.5 in 1998 and $509.5 in 1997 3,702.7 3,116.0
Other 944.2 895.1
--------- --------
Total other assets 4,646.9 4,011.1
--------- --------
$12,659.8 11,463.3
========= ========


See accompanying notes to consolidated financial statements.





29



Liabilities and Stockholders' Equity
1998 1997
--------- --------

Current liabilities
Short-term borrowings and current
maturities of long-term debt $ 1,524.4 1,445.1
Accounts payable 1,036.7 942.1
Accrued expenses 1,252.7 1,241.9
Income taxes 207.9 213.3
--------- --------
Total current liabilities 4,021.7 3,842.4
--------- --------
Long-term debt 1,056.6 570.7
--------- --------
Other liabilities 1,778.2 1,629.5
--------- --------
Stockholders' equity
Preferred stock of $2.50 par value per share.
Authorized 5,400,000 shares; issued - none -- --
Common stock of $.50 par value per share. Authorized
1,200,000,000 shares; issued 476,677,006 shares in
1998 and 1997 238.3 238.3
Additional paid-in capital 27.9 3.3
Retained earnings 7,056.5 6,348.9
Cumulative translation adjustments (236.2) (205.9)
--------- --------
7,086.5 6,384.6
Less cost of common stock in treasury, 38,452,823
shares in 1998 and 35,873,321 shares in 1997 1,283.2 963.9
--------- --------
Total stockholders' equity 5,803.3 5,420.7
--------- --------
$12,659.8 11,463.3
========= ========




















Consolidated Statements
of Stockholders' Equity

Emerson Electric Co. and Subsidiaries

Years ended September 30
(Dollars in millions except per share amounts)



1998 1997 1996
--------- ------- -------

Common stock $ 238.3 238.3 238.3
--------- ------- -------

Additional paid-in capital
Beginning balance 3.3 12.3 15.0
Stock plans (43.4) (2.8) .1
Treasury stock issued for acquisitions and other 68.0 (6.2) (2.8)
--------- ------- -------

Ending balance 27.9 3.3 12.3
--------- ------- -------

Retained earnings
Beginning balance 6,348.9 5,707.7 5,128.3
Net earnings 1,228.6 1,121.9 1,018.5
Cash dividends (per share: 1998, $1.18;
1997, $1.08; 1996, $.98) (521.0) (480.7) (439.1)
--------- ------- -------

Ending balance 7,056.5 6,348.9 5,707.7
--------- ------- -------

Cumulative translation adjustments
Beginning balance (205.9) (29.2) 17.0
Translation adjustments (30.3) (176.7) (46.2)
--------- ------- -------

Ending balance (236.2) (205.9) (29.2)
--------- ------- -------

Treasury stock
Beginning balance (963.9) (575.7) (527.8)
Acquired (498.4) (427.2) (99.5)
Issued under stock plans 108.5 18.3 14.2
Issued for acquisitions and other 70.6 20.7 37.4
--------- ------- -------

Ending balance (1,283.2) (963.9) (575.7)
--------- ------- -------

Total stockholders' equity $ 5,803.3 5,420.7 5,353.4
========= ======= =======


See accompanying notes to consolidated financial statements.

Consolidated Statements of Cash Flows

Emerson Electric Co. and Subsidiaries

Years ended September 30
(Dollars in millions)




1998 1997 1996
--------- ------- -------

Operating activities

Net earnings $ 1,228.6 1,121.9 1,018.5
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 562.5 511.6 464.6
Changes in operating working capital (81.0) (42.6) (131.6)
Other (58.5) (92.3) (34.2)
--------- ------- -------
Net cash provided by operating activities 1,651.6 1,498.6 1,317.3
--------- ------- -------

Investing activities

Capital expenditures (602.6) (575.4) (513.5)
Purchases of businesses, net of cash and equivalents acquired (572.9) (319.2) (299.8)
Divestiture of business interests and other, net 76.2 34.0 272.3
--------- ------- -------
Net cash used in investing activities (1,099.3) (860.6) (541.0)
--------- ------- -------

Financing activities

Net increase (decrease) in short-term borrowings 145.4 321.8 (363.8)
Proceeds from long-term debt 452.0 5.8 249.9
Principal payments on long-term debt (132.5) (13.1) (77.0)
Net purchases of treasury stock (499.4) (376.6) (120.3)
Dividends paid (521.0) (480.7) (439.1)
--------- ------- -------
Net cash used in financing activities (555.5) (542.8) (750.3)
--------- ------- -------

Effect of exchange rate changes on cash and equivalents (8.2) (23.1) 5.7
--------- ------- -------

Increase (decrease) in cash and equivalents (11.4) 72.1 31.7

Beginning cash and equivalents 221.1 149.0 117.3
--------- ------- -------
Ending cash and equivalents $ 209.7 221.1 149.0
========= ======= =======





Changes in operating working capital

Receivables $ (76.1) (117.3) (124.3)
Inventories (27.7) (64.4) (18.0)
Other current assets 19.7 (19.5) 7.8
Accounts payable .9 28.0 43.7
Accrued expenses (2.8) 88.6 (16.5)
Income taxes 5.0 42.0 (24.3)
--------- ------- -------
$ (81.0) (42.6) (131.6)
========= ======= =======


See accompanying notes to consolidated financial statements.














































32


Notes to Consolidated Financial Statements

Emerson Electric Co. and Subsidiaries

(Dollars in millions except per share amounts)


(1) Summary of Significant Accounting Policies

Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its controlled affiliates. All significant intercompany transactions, profits
and balances are eliminated in consolidation. Other investments of 20 to 50
percent are accounted for by the equity method. Investments of less than 20
percent are carried at cost.

Foreign Currency Translation
The functional currency of nearly all of the Company's non-U.S. subsidiaries
is the local currency. Adjustments resulting from the translation of
financial statements are reflected as a separate component of stockholders'
equity.

Cash Equivalents
Cash equivalents consist of highly liquid investments with original maturities
of three months or less.

Inventories
Inventories are stated at the lower of cost or market. The majority of
inventory values are based upon standard costs which approximate average
costs, while the remainder are principally valued on a first-in, first-out
basis. Standard costs are revised at the beginning of the fiscal year, and
variances incurred during the year are allocated between inventories and cost
of sales.

Property, Plant and Equipment
The Company records investments in land, buildings, and machinery and
equipment at cost. Depreciation is computed principally using the straight-
line method over estimated service lives. Service lives for principal assets
are 30 to 40 years for buildings and 8 to 12 years for machinery and
equipment.

Excess of Cost Over Net Assets of Purchased Businesses
Assets and liabilities related to business combinations accounted for as
purchase transactions are recorded at their respective fair values. Excess of
cost over net assets of purchased businesses is amortized on a straight-line
basis to other deductions over the periods estimated to be benefited, not
exceeding 40 years. Long-lived assets are reviewed for impairment whenever
events and changes in business circumstances indicate the carrying value of
the assets may not be recoverable. Impairment losses are recognized if
expected future cash flows of the related assets are less than their carrying
values.





Revenue Recognition
The Company recognizes nearly all of its revenues from the sale of
manufactured products as shipped.

Financial Instruments
The net amount to be paid or received under interest rate swap agreements is
accrued over the life of the agreement as a separate component of interest
expense. Gains and losses on purchased currency option and forward exchange
contracts that qualify for deferral accounting are recognized in income with
the underlying hedged transactions; otherwise, the contracts are recorded in
the balance sheet, and changes in fair value are recognized immediately in
other deductions, net. Currency fluctuations on non-U.S. dollar obligations
that have been designated as hedges of non-U.S. net asset exposures are
included in cumulative translation adjustments.

Income Taxes
No provision is made for U.S. income taxes on the undistributed earnings of
non-U.S. subsidiaries (approximately $950 at September 30, 1998), primarily
because retention of a significant portion of these earnings is considered
essential for continuing operations. In those cases in which distributions
have been made, additional income taxes, if any, have been minimal due to
available foreign tax credits.

Financial Statement Presentation
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts and related disclosures. Actual
results could differ from those estimates. All share and per share data
reflect the 1997 two-for-one stock split.































33


(2) Acquisitions and Divestitures

Cash paid in connection with the Company's purchase acquisitions, which
include several smaller businesses, follows:



1998 1997 1996
------ ----- -----


Fair value of assets acquired............................. $947.0 359.4 402.1
Less liabilities assumed.................................. 214.5 38.2 79.3
Less notes and common stock issued to sellers............. 159.6 2.0 23.0
------ ----- -----
Cash paid (net of cash and equivalents acquired)........ $572.9 319.2 299.8
====== ===== =====


During the first quarter of 1998, the Company purchased Computational Systems,
Inc. ("CSI") for approximately $160, primarily in common stock. CSI is a
supplier of condition monitoring and diagnostic products and services for
motors and other rotational equipment. During the fourth quarter of 1998,
Astec (BSR) Plc, a subsidiary of Emerson, purchased the Advanced Power Systems
("APS") business from Northern Telecom Limited for approximately $325. APS
manufactures power conversion products for a wide variety of
telecommunications applications. In addition, the Company purchased Plaset
SpA, a European manufacturer of appliance drain pumps, and acquired a majority
interest in Hiross, an Italian manufacturer of precision environmental control
and site monitoring products. Several smaller businesses were also purchased
in 1998. The companies acquired in 1998 had annualized sales of approximately
$775.

During the second quarter of 1997, Emerson acquired a majority interest in
Astec (BSR) Plc through additional share purchases and began consolidating its
results. Astec had annual sales of approximately $600 in calendar 1996.
During the fourth quarter of 1997, the Company purchased InterMetro Industries
for approximately $275 and acquired Clairson International Corporation. These
two companies produce free-standing and wall-mounted ventilated shelving and
specialty storage products. Emerson previously owned a controlling interest
in Clairson through Vermont American Corporation ("V.A."), the Company's joint
venture with Robert Bosch GmbH. InterMetro and Clairson had combined annual
sales of more than $300. Several smaller businesses were also purchased or
sold in 1997.

In addition, in the fourth quarter of 1997, the Company and General Signal
Corporation formed a joint venture combining Emerson's Appleton Electric
operations and General Signal's Electrical Group. Emerson holds a controlling
interest in this venture, and the transaction resulted in a pretax gain of
approximately $80, which was substantially offset by costs arising from
relocation of several production facilities, asset impairments and litigation.




Emerson began consolidating V.A. in the second quarter of 1996 as a result of
an agreement in which Emerson acquired control over the venture. At September
30, 1998, Emerson had guaranteed V.A.'s indebtedness of approximately $255. If
required to perform under the guarantee, the Company will be indemnified for
up to approximately $90 by Bosch. In addition, the Company purchased
Kop-Flex, Inc., a manufacturer of flexible couplings, and Dieterich Standard,
a manufacturer of flow measurement sensors, along with several smaller
businesses in 1996.

In the fourth quarter of 1996, Emerson received $200 from the disposition of
its fifty-percent interest in the S-B Power Tool Company joint venture. The
transaction resulted in a pretax gain of $78 in 1996, which was substantially
offset by costs arising from divestiture of operations, write-off of
discontinued product line assets and relocation of several production
facilities.

The results of operations of these businesses have been included in the
Company's consolidated results of operations since the respective dates of the
acquisitions and prior to the dates of divestiture.

(3) Short-term Borrowings and Lines of Credit

Short-term borrowings consist of commercial paper, notes issued to sellers in
connection with business combinations and non-U.S. bank borrowings as follows:




United States Non-U.S.
---------------- -------------
1998 1997 1998 1997
-------- ----- ----- -----


Borrowings at year end.........................$1,005.5 907.1 505.0 411.1

Weighted average interest rate at year end..... 5.7% 5.9% 4.4% 4.1%


In 1998, the Company entered into an interest rate agreement which caps the
rate on $250 of commercial paper at 6.0 percent through September 1999. In
1997, the Company entered into a five-year interest rate swap which fixed the
rate on $250 of commercial paper at 6.1 percent. The Company had 152 million
and 163 million of British pound notes with a weighted average interest rate
of 7.5 and 6.7 percent swapped to $257 and $260 at U.S. commercial paper rates
at September 30, 1998 and 1997, respectively.















34

The Company and its subsidiaries maintained lines of credit amounting to
$1,800 with various banks at September 30, 1998, to support commercial paper
and to assure availability of funds at prevailing market interest rates.
Lines of credit totaling $900 are effective until 2003 with the remainder
through June 1999. There were no borrowings against U.S. lines of credit in
the last three years. The Company's non-U.S. subsidiaries maintained bank
credit facilities in various currencies approximating $835 ($585 unused) at
September 30, 1998. In some instances, borrowings against these credit
facilities have been guaranteed by the Company to assure availability of funds
at favorable interest rates. In addition, as of September 30, 1998, the
Company could issue up to $500 of additional debt securities under its shelf
registration with the Securities and Exchange Commission. Subsequent to year
end, the Company issued $175 of 5%, 10-year notes which were used to reduce
outstanding U.S. commercial paper, and increased its shelf registration to $1
billion.

(4) Long-term Debt

Long-term debt is summarized as follows:




1998 1997
-------- -----

Commercial paper with a weighted average interest rate of
5.5 percent at September 30, 1998......................... $ 252.6 255.5

6.3% notes due 2006......................................... 250.0 250.0

5 1/2% notes due 2008....................................... 250.0 --

Term loan due 2000 through 2003 with a weighted average
interest rate of 6.0 percent at September 30, 1998........ 200.0 --

7 7/8% Eurodollar notes due 1998............................ -- 100.0

8% convertible subordinated debentures due through 2011..... 9.5 14.0

Other....................................................... 108.4 78.1
-------- -----
1,070.5 697.6
Less current maturities..................................... 13.9 126.9
-------- -----
Total..................................................... $1,056.6 570.7
======== =====









The Company has the ability to refinance commercial paper on a long-term basis
through its credit lines, and the obligation is included in long-term debt.

The 7 7/8% Eurodollar notes and $55 of U.S. commercial paper were effectively
exchanged for non-U.S. dollar obligations due in 1998. The non-U.S. dollar
obligations had an effective weighted average interest rate of 4.7 percent at
September 30, 1997, and were composed of 136 million Dutch guilders, 5 billion
Japanese yen and 27 million Swiss francs. These non-U.S. dollar obligations
were designated as a partial hedge of the Company's non-U.S. dollar net asset
exposure.

Long-term debt maturing during each of the four years after 1999 is $62.9,
$61.1, $73.5 and $310.6, respectively. Total interest paid related to
short-term borrowings and long-term debt was approximately $138, $108 and $120
in 1998, 1997 and 1996, respectively.

(5) Financial Instruments

The Company selectively uses derivative financial instruments to manage
interest costs and minimize currency exchange risk. The Company does not hold
derivatives for trading purposes. No credit loss is anticipated as the
counterparties to these agreements are major financial institutions with high
credit ratings.

As part of its currency hedging strategy, the Company utilizes purchased
option and forward exchange contracts to minimize the impact of currency
fluctuations on transactions, cash flows and firm commitments. The Company
and its subsidiaries had approximately $335 and $575 of contracts (primarily
options) outstanding at September 30, 1998 and 1997, respectively. These
contracts for the sale or purchase of European and other currencies generally
mature within one year, and deferred gains and losses are not material.

Fair values of the Company's financial instruments are estimated by reference
to quoted prices from market sources and financial institutions, as well as
other valuation techniques. At September 30, 1998 and 1997, respectively, the
market value of the Company's convertible debentures was $44 and $60, compared
to the related carrying value of $10 and $14. Common stock has been reserved
for the conversion of these debentures (see note 8). The fair values of
derivative financial instruments were not material at September 30, 1998 and
1997, and the estimated fair value of each of the Company's other classes of
financial instruments approximated the related carrying value at September 30,
1998 and 1997.



















35
(6) Retirement Plans

The Company sponsors retirement plans covering substantially all employees.
Benefits are provided to employees under defined benefit pay-related and flat-
dollar plans which are primarily noncontributory. Annual contributions to
retirement plans equal or exceed the minimum funding requirements of the
Employee Retirement Income Security Act or applicable local regulations.

The Company also sponsors defined contribution plans and participates in
multiemployer plans for certain union employees. Benefits are determined and
funded annually based on terms of the plans or as stipulated in collective
bargaining agreements.

Retirement plan expense includes the following components:




U.S. Plans Non-U.S. Plans
------------------------ -------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----

Defined benefit plans:
Service cost (benefits earned during the period)............ $ 33.2 31.7 30.1 7.9 8.0 8.3
Interest cost............................................... 106.1 94.3 88.1 16.4 16.3 15.9
Actual return on plan assets................................ 23.5 (182.3) (185.0) (27.6) (37.8) (25.4)
Net amortization and deferral............................... (178.0) 44.1 60.1 9.9 19.7 9.2
-------- ------ ------ ----- ----- -----
Net periodic pension expense (income)..................... (15.2) (12.2) (6.7) 6.6 6.2 8.0
Defined contribution and multiemployer plans.................. 54.6 48.5 43.4 9.4 8.1 7.4
-------- ------ ------ ----- ----- -----
Total retirement plan expense............................... $ 39.4 36.3 36.7 16.0 14.3 15.4
======== ====== ====== ===== ===== =====























The actuarial present value of benefit obligations and the funded status of
the Company's defined benefit pension plans follow:




U.S. Plans Non-U.S. Plans
------------------- ---------------
1998 1997 1998 1997
-------- ------- ----- -----

Accumulated benefit obligation........................................ $1,247.1 1,065.1 226.9 199.0
======== ======= ===== =====
Vested benefits included in accumulated benefit obligation............ $1,180.4 1,003.9 192.7 167.6
======== ======= ===== =====
Projected benefit obligation.......................................... $1,437.9 1,248.4 263.2 231.1
Plan assets at fair value (primarily corporate equity
and fixed income securities)........................................ 1,515.5 1,544.1 232.6 205.3
-------- ------- ----- -----
Plan assets in excess of (less than) projected benefit obligation. 77.6 295.7 (30.6) (25.8)
Unamortized transition amount......................................... (29.2) (36.4) (2.0) (2.4)
Unrecognized net loss (gain).......................................... 89.3 (143.3) (32.4) (31.4)
Unrecognized prior service costs...................................... 23.7 20.2 1.6 1.9
-------- ------- ----- -----
Pension asset (liability) recognized in the balance sheet........... $ 161.4 136.2 (63.4) (57.7)
======== ======= ===== =====


In 1998, the Company changed the measurement date for the defined benefit
pension plans from September 30 to June 30 to improve administrative
efficiencies and the timeliness and accuracy of its financial reporting and
planning process. The effect of the change on retirement plan expense was
immaterial. The fair value of plan assets decreased approximately $145 in the
quarter ended September 30, 1998, reflecting the impact of the equity market
decline; this change will be offset by an increase in the unrecognized net
loss.

For 1998, the assumed discount rate, rate of increase in compensation levels
and expected long-term rate of return on plan assets used in the actuarial
calculations were, respectively, 7.5 percent, 4.0 percent and 10.5 percent for
U.S. plans; and an average of 6.8 percent, 3.7 percent and 8.6 percent for
non-U.S. plans. For 1997, the assumed discount rate, rate of increase in
compensation levels and expected long-term rate of return on plan assets were,
respectively, 8.0 percent, 5.0 percent and 10.5 percent for U.S. plans; and an
average of 7.4 percent, 4.1 percent and 8.7 percent for non-U.S. plans.
















36

(7) Postretirement Plans

The Company sponsors unfunded postretirement benefit plans (primarily health
care) for U.S. retirees and their dependents. Net postretirement plan expense
for the years ended September 30, 1998, 1997 and 1996, follows:



1998 1997 1996
----- ---- ----

Service cost......................................... $ 4.1 3.6 4.0
Interest cost........................................ 20.2 19.0 18.4
Net amortization and deferral........................ (3.6) (4.2) (4.4)
----- ---- ----
$20.7 18.4 18.0
===== ==== ====


The actuarial present value of accumulated postretirement benefit obligations
as of September 30, 1998 and 1997, follows:



1998 1997
------ -----

Retirees............................................. $181.2 167.0
Fully eligible active plan participants.............. 19.8 18.7
Other active plan participants....................... 78.6 74.3
------ -----
Accumulated postretirement benefit obligation...... 279.6 260.0
Unrecognized net gain................................ 25.0 39.9
Unrecognized prior service benefit................... 8.2 9.6
------ -----
Postretirement benefit liability recognized in
the balance sheet................................ $312.8 309.5
====== =====


The assumed discount rate used in measuring the obligation as of September 30,
1998, was 7.25 percent; the initial assumed health care cost trend rate was
7.0 percent, declining to 4.5 percent in the year 2004. The assumed discount
rate used in measuring the obligation as of September 30, 1997, was 7.75
percent; the initial assumed health care cost trend rate was 8.0 percent,
declining to 5.0 percent in the year 2004. A one-percentage-point increase in
the assumed health care cost trend rate for each year would increase the
obligation as of September 30, 1998, by approximately 4 percent and increase
the 1998 postretirement plan expense by approximately 5 percent.







(8) Common Stock

The Company has various stock option plans which permit certain officers and
employees to purchase common stock at specified prices. Options are granted
at 100% of the market value of the Company's common stock on the date of
grant, vest one-third each year and expire ten years from the date of grant.
At September 30, 1998, 8.3 million options were available for grant under
these plans. Changes in the number of shares subject to option during 1998,
1997 and 1996, follow (shares in thousands):



1998 1997 1996
--------------- --------------- ---------------
Average Average Average
Price Shares Price Shares Price Shares
------- ------ ------ ------ ------- ------

Beginning of year........................ $34.77 6,698 $25.47 4,523 $22.39 4,483
Options granted........................ 57.71 974 45.09 3,398 38.54 791
Assumed options of acquired company.... 26.08 330 -- -- -- --
Options exercised...................... 25.91 (1,198) 22.55 (794) 19.60 (662)
Options canceled....................... 45.23 (196) 41.02 (429) 30.20 (89)
----- ----- -----
End of year.............................. 39.02 6,608 34.77 6,698 25.47 4,523
----- ----- -----
Exercisable at year end.................. 3,479 2,727 2,614
===== ===== =====


































37

Summarized information regarding stock options outstanding and exercisable at
September 30, 1998, follows (shares in thousands):



Outstanding Exercisable
-------------------------------------- ------------------
Range of Average Average Average
Exercise Prices Shares Contractual Life Price Shares Price
- --------------- ------ ---------------- ------- ------ -------

up to $25.................. 911 2.8 years $ 15.87 911 $ 15.87
$26 to 43.................. 1,809 5.9 30.98 1,649 30.30
$44 to 65.................. 3,888 8.3 48.18 919 45.14
------ ------
Total.................. 6,608 6.9 39.02 3,479 30.44
====== ======


The Company's Incentive Shares Plans authorize the distribution of common
stock to key management personnel. At September 30, 1998, 2,321,098 shares
are outstanding with restriction periods of three to ten years, including
371,000 shares issued in 1998. In addition, 2,287,854 rights to receive
common shares have been awarded, including 213,543 shares awarded in 1998,
which are contingent upon accomplishing certain objectives by 2001. Upon
accomplishment of the five-year performance objectives, 2,688,444 shares were
distributed to participants in 1998, including 685,983 shares paid in cash and
972,674 shares subject to a three-year restriction period. At September 30,
1998, approximately 6 million shares remained available for award under these
plans.

The Company applies Accounting Principles Board Opinion No. 25 in accounting
for its stock plans. The compensation expense charged against income for the
Company's incentive shares plans was immaterial. Had compensation expense for
the Company's stock plans been determined in accordance with Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," net earnings and diluted earnings per common share,
respectively, would have been $1,215 and $2.74 per share in 1998, $1,110 and
$2.47 per share in 1997, and $1,017 and $2.25 per share in 1996. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants: risk-free interest rate of 5.7%, 6.4% and 6.0%,
dividend yield of 2.0%, 2.4% and 2.7%, expected volatility of 16%, 16% and 17%
for 1998, 1997 and 1996, respectively, and expected life of 5 years for all
years. The weighted average fair value of options granted was $12.01, $9.46
and $7.59 for 1998, 1997 and 1996, respectively.

At September 30, 1998, 23,931,571 shares of common stock were reserved,
including 23,223,493 shares for issuance under the Company's stock plans and
708,078 shares for conversion of the outstanding 8% convertible subordinated
debentures at a price of $13.49 per share. During 1998, 8,384,870 treasury
shares were acquired and 5,805,368 treasury shares were issued.



Approximately 1.2 million preferred shares are reserved for issuance under a
Preferred Stock Purchase Rights Plan. Under certain conditions involving
acquisition of or an offer for 20 percent or more of the Company's common
stock, all holders of Rights, except an acquiring entity, would be entitled
(i) to purchase, at an exercise price of $260, common stock of the Company or
an acquiring entity with a value twice the exercise price, or (ii) at the
option of the Board, to exchange each Right for one share of common stock. The
Rights remain in existence until November 1, 2008, unless earlier redeemed (at
one-half cent per Right), exercised or exchanged under the terms of the plan.

(9) Earnings Per Common Share

In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share," (SFAS 128) which
establishes standards for computing and presenting earnings per share. Basic
earnings per common share considers only the weighted average of common shares
outstanding while diluted earnings per common share considers the dilutive
effects of stock options, incentive shares and convertible securities.
Previously reported earnings per share amounts have been restated to conform
to SFAS 128 requirements. Reconciliations of basic earnings per common share
and diluted earnings per common share follow (shares in millions):



1998 1997 1996
------------------------------ ------------------------------ ------------------------------
Weighted Earnings Weighted Earnings Weighted Earnings
Average Per Average Per Average Per
Earnings Shares Share Earnings Shares Share Earnings Shares Share
-------- -------- -------- -------- -------- -------- -------- -------- --------

Basic........................ $1,228.6 439.2 $ 2.80 $1,121.9 445.0 $ 2.52 $1,018.5 448.1 $ 2.27
======== ======== ========
Convertible debt............. .6 .9 .9 1.3 1.5 2.4
Stock plans.................. 4.0 3.2 2.3
-------- -------- -------- -------- -------- --------
Diluted...................... $1,229.2 444.1 $ 2.77 $1,122.8 449.5 $ 2.50 $1,020.0 452.8 $ 2.25
======== ======== ======== ======== ======== ======== ======== ======== ========
























38


(10) Income Taxes

The principal components of income tax expense follow:



1998 1997 1996
------- ------ -----

Federal:
Current......................................................... $ 453.4 447.8 393.0
Deferred........................................................ 35.9 10.1 7.4
State and local................................................... 51.4 48.2 53.0
Non-U.S........................................................... 154.2 155.6 137.1
------- ------ -----
Income tax expense.............................................. $ 694.9 661.7 590.5
======= ====== =====


The federal corporate statutory rate is reconciled to the Company's effective
income tax rate as follows:



1998 1997 1996
-------- ------- ------

Federal corporate statutory rate.................................. 35.0% 35.0% 35.0%
State and local taxes, less federal tax benefit................. 1.7 1.8 2.1
Other........................................................... (.6) .3 (.4)
-------- ------- ------
Effective income tax rate......................................... 36.1% 37.1% 36.7%
======== ======= ======


The principal components of deferred tax assets (liabilities) follow:



1998 1997
------- ------

Property, plant and equipment and intangibles..................... $(344.1) (321.3)
Leveraged leases.................................................. (185.4) (191.1)
Pension........................................................... (69.3) (62.2)
Accrued liabilities............................................... 255.9 237.6
Postretirement and postemployment benefits........................ 129.1 128.9
Employee compensation and benefits................................ 99.4 108.8
Other............................................................. 84.0 92.7
------- ------
Total deferred tax assets (liabilities)......................... $ (30.4) (6.6)
======= ======


At September 30, 1998 and 1997, respectively, net current deferred tax assets
were $248.3 and $268.3, and net noncurrent deferred tax liabilities were
$278.7 and $274.9. Total income taxes paid were approximately $665, $645 and
$575 in 1998, 1997 and 1996, respectively.

(11) Other Financial Data

Items charged to earnings during the years ended September 30, 1998, 1997 and
1996, included the following:



1998 1997 1996
------- ------ -----

Research, new product development and product improvement costs... $ 491.3 445.1 398.7

Rent expense...................................................... 170.4 156.9 144.8

Amortization of intangibles....................................... 122.8 114.0 104.1


The Company leases computers, transportation equipment and various other
property under operating lease agreements. The minimum annual rentals under
noncancelable long-term leases, exclusive of maintenance, taxes, insurance and
other operating costs, will approximate $88 in 1999 and decline substantially
thereafter.

Other assets include an investment in leveraged leases of $187.5 and $190.9 at
September 30, 1998 and 1997, respectively. Accrued expenses include employee
compensation of $295.2 and $344.2, and other liabilities include minority
interests in consolidated subsidiaries of $619.9 and $523.1 at September 30,
1998 and 1997, respectively.




























39


(12) Contingent Liabilities and Commitments

At September 30, 1998, there were no known contingent liabilities (including
guarantees, pending litigation, taxes and other claims) that management
believes will be material in relation to the Company's financial position, nor
were there any material commitments outside the normal course of business.

(13) Industry Segment Information

The Company is engaged principally in the worldwide design, manufacture and
sale of a broad range of electrical, electromechanical and electronic products
and systems. The products manufactured by the Company are classified into the
following industry segments: Commercial and Industrial Components and Systems,
and Appliance and Construction-Related Components. The Commercial and
Industrial segment includes process control instrumentation, valves and
systems; industrial motors and drives; industrial machinery, equipment and
components; and electronics. Products of this segment are sold to commercial
and industrial distributors and end-users for manufacturing and commercial
applications. The Appliance and Construction-Related segment consists of
fractional motors and appliance components; heating, ventilating and air
conditioning components; and tools. This segment includes components sold to
distributors and original equipment manufacturers for inclusion in end
products and systems (ultimately sold through commercial and residential
building construction channels), and construction-related products which
retain their identity and are sold through distributors to consumers and the
professional trades. Summarized information about the Company's operations in
each industry segment and geographic area follows:

Industry Segments
(See note 2)



Net Sales to Income Before
Unaffiliated Customers Income Taxes Total Assets
--------------------------- ----------------------- --------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------- ------ ------ ----- ----- ----- ------ ------ ------

Commercial and Industrial.................... $ 8,102 7,365 6,635 1,123 1,013 910 7,769 6,879 6,336
Appliance and Construction-
Related.................................... 5,345 4,934 4,515 940 813 742 4,396 4,100 3,544
Corporate and other items.................... -- -- -- 13 79 84 495 484 601
Interest expense............................. -- -- -- (152) (121) (127) -- -- --
------- ------ ------ ----- ----- ----- ------ ------ ------
Total...................................... $13,447 12,299 11,150 1,924 1,784 1,609 12,660 11,463 10,481
======= ====== ====== ===== ===== ===== ====== ====== ======










Depreciation and Capital
Amortization Expense Expenditures
-------------------- --------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----

Commercial and Industrial............................................................ $325 300 280 279 252 236
Appliance and Construction-Related................................................... 230 206 179 309 305 246
Corporate and other items............................................................ 8 6 6 15 18 32
---- --- --- --- --- ---
Total.............................................................................. $563 512 465 603 575 514
==== === === === === ===


Geographic Areas
(By origin)



Net Sales to Income Before
Unaffiliated Customers Income Taxes Total Assets
--------------------------- ----------------------- --------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------- ------ ------ ----- ----- ----- ------ ------ ------

United States................................ $ 9,028 8,108 7,168 1,570 1,342 1,193 7,638 7,147 6,159
Europe....................................... 3,205 2,951 2,919 337 318 316 3,416 2,947 3,023
Other areas.................................. 1,214 1,240 1,063 156 166 143 1,469 1,199 913
Corporate and other items.................... -- -- -- 13 79 84 495 484 601
Interest expense............................. -- -- -- (152) (121) (127) -- -- --
Eliminations................................. -- -- -- -- -- -- (358) (314) (215)
------- ------ ------ ----- ----- ----- ------ ------ ------
Total...................................... $13,447 12,299 11,150 1,924 1,784 1,609 12,660 11,463 10,481
======= ====== ====== ===== ===== ===== ====== ====== ======


























40


(14) Quarterly Financial Information (Unaudited)

Financial Results



Net Sales Gross Profit Net Earnings
-------------------- ----------------- ----------------
1998 1997 1998 1997 1998 1997
--------- -------- ------- ------- ------- -------

First Quarter...... $ 3,171.5 2,830.6 1,141.7 1,025.2 282.3 254.9
Second Quarter..... 3,382.4 3,103.5 1,222.7 1,116.1 307.6 280.4
Third Quarter...... 3,465.2 3,208.4 1,254.1 1,141.4 324.8 296.6
Fourth Quarter..... 3,428.1 3,156.1 1,233.1 1,150.3 313.9 290.0
--------- -------- ------- ------- ------- -------

Fiscal Year...... $13,447.2 12,298.6 4,851.6 4,433.0 1,228.6 1,121.9
========= ======== ======= ======= ======= =======




Basic Diluted
Earnings per Earnings per Dividends per
Common Share Common Share Common Share
------------ ------------ -------------
1998 1997 1998 1997 1998 1997
----- ---- ---- ---- ---- ----

First Quarter...... $ .64 .57 .64 .57 .295 .27
Second Quarter..... .70 .63 .69 .62 .295 .27
Third Quarter...... .74 .67 .73 .66 .295 .27
Fourth Quarter..... .72 .65 .71 .65 .295 .27
----- ---- ---- ---- ---- ----
Fiscal Year...... $2.80 2.52 2.77 2.50 1.18 1.08
===== ==== ==== ==== ==== ====


See Note 2 for information regarding non-recurring items and the Company's
acquisition and divestiture activities.

- --------------------------------------------------------------------------------











Stock Prices



Price Range Per Common Share
----------------------------------------
1998 1997
------------------- -----------------
High Low High Low
--------- ------- ------ -------

First Quarter...................... $ 58 1/4 49 3/4 51 3/4 43 3/4
Second Quarter..................... 66 1/4 55 1/2 52 5/8 45
Third Quarter...................... 67 7/16 58 9/16 57 1/2 45
Fourth Quarter..................... 63 3/4 54 1/2 60 3/8 52 5/16

Fiscal Year...................... $ 67 7/16 49 3/4 60 3/8 43 3/4



Emerson Electric Co. common stock (Symbol EMR) is listed on the New York Stock
Exchange and Chicago Stock Exchange.








































41


Independent Auditors' Report

The Board of Directors and Stockholders
Emerson Electric Co.:

We have audited the accompanying consolidated balance sheets of Emerson
Electric Co. and subsidiaries as of September 30, 1998 and 1997, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended September 30, 1998.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Emerson
Electric Co. and subsidiaries as of September 30, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1998, in conformity with generally
accepted accounting principles.


/s/ KPMG Peat Marwick LLP

St. Louis, Missouri
November 2, 1998



















48

Safe Harbor Statement

This Annual Report contains various forward-looking statements and includes
assumptions concerning Emerson's operations, future results and prospects.
These forward-looking statements are based on current expectations, are
subject to risk and uncertainties and Emerson undertakes no obligation to
update any such statement to reflect later developments. In connection with
the "safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995, Emerson provides the following cautionary statement identifying
important economic, political and technological factors, among others, the
absence of which could cause the actual results or events to differ materially
from those set forth in or implied by the forward-looking statements and
related assumptions.

Such factors include the following: (i) continuation of the current and
projected future business environment, including interest rates and capital
and consumer spending; (ii) competitive factors and competitor responses to
Emerson initiatives; (iii) successful development and market introductions of
anticipated new products; (iv) stability of government laws and regulations,
including taxes; (v) stable governments and business conditions in emerging
economies; (vi) successful penetration of emerging economies; (vii)
continuation of the favorable environment to make acquisitions, domestic and
foreign, including regulatory requirements and market values of candidates and
(viii) timely resolution of the Year 2000 issues by the Company, its customers
and suppliers.