Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Emerson Third Quarter Fiscal 2010 Results Conference Call. [Operator Instructions] Emerson's commentary and responses to your questions may contain forward-looking statements, including the company's outlook for the remainder of the year. Information on factors that could cause actual results to vary materially from those discussed today is available at Emerson's most recent annual report on Form 10-K, as filed with the SEC. At this time, Emerson's management will discuss non-GAAP measurements about the company's performance, and the reconciliation of those to the most directly comparable GAAP measures. Contained within this presentation is posted on the Investor Relations of Emerson's website at www.emerson.com/financial. I would now like to turn the conference over to our host, Ms. Lynne Maxeiner. Please go ahead.

Thank you, Jeremy. I am joined today by David Farr, Chairman, Chief Executive Officer and President of Emerson; and Frank Dellaquila, Senior Vice President and Chief Financial Officer. Today's call will summarize Emerson's third quarter 2010 results. A conference call slide presentation will accompany my comments, and is available in the Investor Relations section of Emerson's corporate website. A replay of this conference call and slide presentation will be available on the website after the call for the next three months. I will start with the highlights of the quarter as shown on Page 2 of the conference call slide presentation. Third quarter sales were up 11% to $5.6 billion with increases in all five segments, underlying sales growth of 7% with growth resuming in the U.S. and Europe. Operating profit margin improved 330 basis points to 18%, which is a modern-day record for Emerson. Business segment EBIT margin, up strongly increasing 460 basis points to 16.9%. Earnings per share from continuing operations of $0.78, up 53%. Operating cash flow of $703 million and free cash flow of $581 million. Our free cash flow conversion year-to-date is 122%. Strong trade working capital performance in the quarter with trade working capital as a percent of sales improving from 19.4% to 16.3%. We do believe the recovery will be gradual and reasonably steady, and we do not expect a double-dip recession. Next slide, the P&L. Sales in the quarter of $5.641 billion, again up 11%. Underlying sales increased 7%, acquisitions added three points and currency added one point. Operating profit of $1.017 billion or 18% of sales, the increase driven by cost reduction benefits and volume leverage. We are seeing our investments in new products and technologies paying off here, and we continue to increase investments in technology and growth. Earnings from…

Thank you very much, Lynne. I want to welcome everybody to the call. I appreciate you being with us today. As you can see that we had a very strong third quarter and continuing our recovery from what we have been undertaking the last 18 months. The people across Emerson have continued to have strong execution relative to our order pace, which is running at 18-plus percent levels on a real underlying basis. Sales now turning positive, with a positive 7% underlying growth in the third quarter, and anticipating a higher level of underlying growth in the fourth quarter as we look at the current pace of business. Operating margins at record levels. Cash flow, strong. Restructuring undertaken the last 18 months clearly starting to pay back quickly in many of our marketplaces. And then our emerging market investments, which we have been accelerating the last six months as this recovery continues, continue to benefit us from a growth standpoint and also our best cost positioning standpoint. It's pretty clear to me as I look at the industrial world, the trends are continuing to be positive. They will be moderate. These are no different trends than I anticipated as we look at our business back in early this year. We expected the business to have an inventory surge and then start slowing down, but we continue to see pretty good growth across the world. As company after company like Emerson invest in next-generation technology, they invest in their capacity, they're investing in repositioning their company and we're seeing the money being spent by companies, which have generated enormous amount of cash flow as they position themselves for this recovery. I would expect our Gross Fixed Investment indicators, which we look at, GFI, to be positive in the 4% to 5%…

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Our first question comes from the line of Scott Davis with Morgan Stanley.

Can you talk a little bit about these big margins though? I mean, coming back, I went back and looked at about 10 years of data, I don't think we've ever seen incrementals at this magnitude. And obviously, last year's restructuring is really paying off. So what do you think about sustainability and kind of that balance between making additional investments and keeping those margins up?

There's a couple of things going on as we look and analyze from a profitability standpoint. The repositioning, the restructuring has really helped us from a cost standpoint, plus we've been repositioning into businesses, which generate higher levels of margin and we're moving away from lower margin, so that helps us a little bit. The second thing that helped us, and it's very, very difficult to anticipate or quantify how much it means to us. But if you remember, Scott, last year, we were greatly decreasing inventory. We took out about $700 million in inventory, as our sales dropped. We've got that inventory out by the end of the fiscal year, and then our business has stabilized from the standpoint of our run rate and our inventory. And so now as we move into a growth mode for production, we are replenishing and building inventory live, and we're building it in very low-cost, best-cost locations, and that productivity is really helping. That's helping us a little bit. In the third quarter, there's two other things that helped us that I would say gave us, what I would say, an extraordinary margin at the 18% level. Number one, from the perspective of currency, the currency markets swung a little bit on a transactional standpoint. And because of the way the euro moved from very strong to very weak, it gave us the benefit of some of our transactional hedging that we do at a divisional level that gave us a margin improvement, in particular companies like the Process business got this benefit. But as I look at the fundamentals right now, and I look at this fundamental margin, I fundamentally believe as I said to you in February, we will drive this peak above 17%. We are not cutting corners relative to our long-term investments. It's just that we are fundamentally mixing the business to give us a higher margin and allow us to sustain that and still have sustainable investments. So there's a lot of things going our way right now this quarter. Not as many will go that way next quarter, so typically our third to fourth quarter, we'd see margin expansion. I think it will be very good for us, if we have a flat margin or a slightly tick up higher margin, as I look at that fourth quarter based on what benefits we had in the third quarter. But I like where we are right now. We're running at levels unseen ever at Emerson.

Dave, you mentioned you just got back from China and are making bigger investments there. Can you give us maybe a state of the union on what you're seeing in the local environment there and sustainability and that will be my last question.

From the perspective of China, I think the market is still going to -- we're going to still pretty good growth. It slowing down. The government's clearly modulating what they're going to invest in. I think the economic growth will still be very positive next year. We are making investments primarily in the Process business, our Climate business, some of our Industrial business and a bit on one of our Storage businesses and some unique positioning that we want to go after the mid-tier market in China and both for China, but also expanding across Asia Pacific. So I think the China market right now, it's clearly slowing. I still feel okay about it. As we move into next year, I think it will continue to slow but we'll still -- I think, we'll still drive maybe 8%, 9%, 10%, 11% in China. I am not worried about China at this point in time.

And our next question comes from the line of Steven Winoker with Sanford Bernstein.

The first one is, just trying to get a sense for what's changed and improved in your outlook or what's driven the improvement over the last since I think the beginning of June, when you look at sort of Europe and the macro situation in Europe and the U.S. and the impact that would have on China. What I'm hearing in this call, is really just more concern about the Middle East, but frankly more positive sentiment around these other areas.

I think that from the U.S. standpoint, the economic stability is there from the industrial world as we had cut back so deeply for so long. And now as the companies decided, okay, we need to invest in productivity. We need to invest in some incremental capacity. We need to do certain things for new products. That momentum is going to continue, and we have the cash to be able to do that. If you open the balance sheet of most of our customers in this space, they're very strong. And many of these customers have global businesses, which are now improving and they're starting to export. So that is changed in the last, I would say, the last 90 days, that has continued. I expect that modest momentum to continue. I'm not looking for sharp, sharp numbers recovery, but a modest type of recovery. And it's clearly concerned at all times is something that is going to hiccup that. But at this point in time, just looking at my own investments that we're doing internally, which we held off. We now are to the point that as we restructured, repositioned, we need to make incremental investments both from a technology, from new products and capacity standpoint. In Europe, they've gone through very difficult two-year time period. The governments are attacking. I think there are issues relative to some of their cost positions, their debt positions. And with the weaker euro, even at the $1.30, $1.35 level, they have become a stronger export engine around the world and we will benefit from that as we look at the order pace. And so I would anticipate Europe to have a very nice recovery, even though the economic numbers may not be that robust. So that's my view of this right now. And I think that companies feel comfortable, our customers feel comfortable and they're starting to invest. If there's a change, we'll see that in the next 60 to 90 days. But if you look at our order pace, our order pace on a month-by-month basis has continued to sequentially get better. I anticipate within the next two months, this month here or the next month, that pace will start slowing down. But I still think it's going to move down towards that 8%, 9% level, as we look at where things are going at this point in time. It's a modest recovery but a recovery that is supported by companies that have the cash and the investment needs to be made.

I guess from a capital perspective, you talked in the prior call about looking for return of invested capital framework kind of having this 9% to 11% for strategic acquisition. I know you can't go into too much detail, but how are you thinking about that in the context of Chloride?

We will beat that. We will beat it.

And our next question comes from the line of Eli Lustgarten with Longbow Securities.

Can we talk specifically about the big -- Climate Technologies had a huge volume gains, certainly bigger than what I expected, phenomenal margins and I don't think we've ever seen that. What's driving that? And what caused that big step up from profitability? You're talking about sustainability but this is a new level for that part of the business.

There's a couple of things going on. You'll remember probably two or three years ago, that we made the decision to move forward and create some very best-cost manufacturing locations in the Climate business. We did that both in Eastern Europe, we did that in -- we expanded in China, we expanded in Thailand and we built our new facility in Mexico. We obviously got hit with that in the downturn, and I took the blame for that because I made the decision to move forward. We are now getting this tremendous benefit of that cost structure as we recovers. That's helping us. We made the investments, we made the decision to reposition. And now we're getting the benefit of that cost structure. Secondly, if you look at all of the markets, we had gone for three years, what I would say, challenging markets in the space and people had to start buying it again, and so we saw a recovery. Even if the housing markets not recovering, people had to make investments in their heating and cooling systems, and we get the benefit of that. Even if they don't replace the whole system, we get the benefit of it from a compressor and a technology standpoint. And the third thing is as the efficiencies have changed and they've had to go into more higher-level of scroll or higher level of electronics and higher end type of products, that's a good mix both from our customer, and then also from our self. From a standpoint of higher dollar values, we get that benefit for growth and also higher profitability. So we've had a lot of good things come our way here in the last 12 months. I anticipate the business still will be good, but the growth rates will moderate, and we'll have to try to invest. We could start seeing some of mix change in the margin a little bit, but we have set a new level of profitability like we did in Process. And I believe it will be one of these nice levels that we stood out there. We're drip back down and things slow down, but it's a nice level of profitability.

You didn't use the China standards that went into this part of this thing, was that a major deal in the quarter.

I mean, for my perspective, that started a year ago. It definitely was a help. There was no doubt about it. It was part of the whole efficiency standards, I said improvement. So we have that going on in Europe, in the United States and in China. So all those things helped us from that mix standpoint, and we have a market recovery. This business will cycle from quarter-to-quarter, but right now, it's been in a pretty good sweet spot for the last 12 months. It started recovering at this time last year, so we're now starting getting the tougher comparisons, but the management team has executed extremely well in new products. They brought a lot of new technology into play, and we have the best, best cost locations in the world now for this business.

Something in Process Management, the 20.6% margin you've got, that mix from MRO plus you mentioned currency, was that a percentage of the margin? And will that go back down a little bit towards the high teens with more likely in the future.

For my perspective, we have the couple of things going on our way in the process world. The Process Management team did a great job starting, mid last year, restructuring, and they really got behind it and got it done and we're seeing that benefit. Two, we did get a benefit from currency. In the quarter, they are clearly one of our more international companies in particular in Europe and they had some transactional hedging, which moved our way. Some quarters that moves our way, some quarter moves against us, right? This quarter move for us that did help us from a margin standpoint. Third, MRO was really strong in North America. Again, as companies had held off last year, they started spending. And the large projects really haven't started kicking in yet, which will start kicking in probably in the first half of 2011. And I anticipate the profit margins in Process to stay at pretty good levels, and maybe in the 18% to 20% level here as we go forward here the next couple of quarters. But you know, this business has run a 20% build out before. People always question can we do it. We invest a lot of money, we have a very good mix of our business, and we are also very aggressive relative to repositioning our cost base. So we drive hard to deliver this 18% to 20% operating profit margins in this business, and I think we can continue to do that.

And our next question comes from the line of John Inch with Merrill Lynch.

Dave, just picking up on Climate, I want to get your thoughts in terms of the hot weather that Northeast has been experiencing the last few weeks. Has that played into the results into any meaningful degree? And perhaps if not this quarter, what about the September quarter and maybe a little bit of potential channel fill or inventory restock or something like that?

I think the channel right now in supplying this industry, the supplier base is probably stressed as far as you can go. I don't think there's much upside. I think what it means is hot weather. We'll liquidate inventory, which will allow us to stay stronger probably in the first four, five months in the next fiscal year. We've been running very strong. I think right now as I look at what's going on in the supply chain out there, I think there's some tension. That means some of the guys are having struggle to keep up. We're not having any problems at this point in time because we put the capacity on two or three years ago, but there are other people that are having trouble keeping up. We're not the only supplier to the HVAC industry. And so I would anticipate the hot weather will liquidate inventory. I anticipate that we will not see a lot of surges in the upside right now. I think we'll see a stronger first fiscal quarter or fourth calendar quarter because of the liquidation of inventory. That's what I see at this point in time.

And then thinking about that timeline, Dave, where does your capacity stand? I know you talked about Eastern Europe and Mexico. I mean, if you do see a surge later, call it in fiscal '11, are you prepared to meet that upside demand or are you having to look to put capacity in there, where does that stand?

Right now, one more reason I took my trip to China is because we are about to put -- expanding China both from a manufacturing of compressors, but also for the next-generation technology investments. I want making sure we get protected, which I've got the commitment. So we will be protected, and we will be significantly expanding Xuzhou relative to technology and all manufacturing. We're also putting expansion in Mexico at this point in time, and so we are already looking into 2012. I'm okay for 2011. From our perspective, John, in this industry, we look out about two to three years. And so I'm already making investments for 2012 and 2013. We're okay.

Industrial Automation, the volume levels, if you think of sort of the run rate, Dave, they're so much below where they were at the peak. I'm just thinking kind of once we get through the whole comps issue, we're rolling into next year, shouldn't that business be running on an order rate perspective kind of above the 8-ish percent that you think the underlying company can do? How do you think about that business basically going forward?

John, your observations are right on the mark. This business has went really deep, and I think we'll continue to run at very high levels here probably for 18 to 24 months. It will modulate at the high end of our growth rate in the recovery mode, which is starting to kick in to right now. And so as I look at the investments around a little bit, the type of investments we're in. I think it's going to be pretty good market place for us. And that will allow us -- I think it's still going to take three or four years to get back to levels that we were in 2008. But I think because of our restructuring, our profitability is going to come back much faster.

And our next question comes from the line of Rich Kwas with Wells Fargo Securities.

Question on projects. In terms of what you're seeing out there, do you expect a surge here once we get into the fall, where companies feel better about 2011 and the spending really picks up or just going to be kind of more gradual in terms of, I think, pick up.

I think it will be more gradual. We're seeing, there are a handful, probably 10, let's say, very large projects around the world, primarily in emerging market like Brazil. Several large ones is going on in Brazil, couple in India, couple in China. Most of the projects we see right now, what I'd call small medium-size, not the $100 million to $200 million level projects, but more to $10 million to $25 million level projects. And I don't think we're going to see a surge. I think we're going to see a gradual improvement. We're seeing that going on right now. We see that both in Process, I see that in Industrial and I see that in Network Power. The activity level is increasing and getting stronger as people get more and more comfortable relative to the investments they're going to make. So I feel right now based on talking to CEOs around the world, they have the money, they've held back. And so therefore, they're going to start inching this capital out like we're doing right now with a little bit improvement every quarter. And as long as they're getting the payback, and let's say in the growth, they're going to keep going this way. So that's why I feel reasonably comfortable that we're going to see a modest recovery. I feel modestly optimistic about it, and I like our cost position. I like where our position, a global basis. That's where my basis comes from for this recovery, not some economic models.

On Climate, I don't recall seeing Commercial being mentioned as an area of strength here recently. What are you seeing there, are you more encouraged with what you're seeing on the Commercial side as it relates to Climate?

The answer is yes. Commercial has continued to improve both here in the U.S. and also in Asia. And I think we're going to start seeing improvement in Europe starting about now. And one of that -- because the Commercial business in Europe has also been in our investment for the last couple of years, and you're going to see some of the market places, in particular, the export market places the Western Europe surge will be better. So I think our Climate business is going to shift a little bit here. It's going to go from less residential, less of that area to more commercial as that growth rate modulates and that will help us also from a profitability standpoint.

Supply-chain and Network Powers, and discussion around some supply-chain issues, what are you seeing when do you think that gets fixed up?

And along the electronic component area, primarily the active electronic component area, I see this first sign of stabilizing. I believe that it will probably take into the rest of this calendar year, early couple of months of 2011, but I start seeing it stabilized now as the capacities coming on from the suppliers there. And clearly, we could have more sales, but I think it's going to take us a lot to get our work through there.

And our next question comes from the line of Christopher Glynn with Oppenheimer. Christopher Glynn - Oppenheimer & Co. Inc.: Dave, you mentioned the Climate Tech margins being kind of reset along the lines of the Process Management in the past. Can you give a little bit of a framework for thinking about how Network Power might come along into that solutions higher margin pathway overtime.

Yes, as I've talked about before, historically, our Network Power business would go down to that 8% to 9%, and move it's way up, say, the 13%, 14%. I believe the work we're undertaking right now and with the acquisition of Chloride, that range is going to be -- we will drive above 15% as we get into the peaks of those recovery. It may take us -- there's a couple of more years before that recovery happens, but I believe that we're trying to drive this business to be in the 10% to 15% level. And I think that's where we're going to go from that range. And I would like to see in this cycle get to that 15% level which we've not reached before on an annual basis. Christopher Glynn - Oppenheimer & Co. Inc.: And then for the segment margins, it was called out in each slide, the significant cost reduction benefits, just wondering if you have some cost containment strategies that are not really sustainable and some things coming back into the cost structure.

We don't do that stuff. We take our actions. I mean, and also during -- and cut people's pension costs. We're a company that makes money, I don't do things like that. I don't sit there, and say okay, we're not going to fund your 401(k). I call those one-time cost, we didn't do that last year, and we clearly not doing that this year. I mean, we're a company that makes money. I think we can afford to pay our people. Christopher Glynn - Oppenheimer & Co. Inc.: Process, seasonal step down into the beginning of the fiscal year. Do you expect that to be a little muted, given what you're seeing?

I think we are processes in the mode of recovery and what that cycle looks like, this is an unusual cycle in many of our businesses. So I'd be very careful about mapping the cycles right now for a while. I mean, I'm struggling with myself and I run the business. I think you're going to see a pretty good first half for Process, which will probably not be the same type of mode that we've seen normally in the cycle right now because we're coming out of it. And the question is what's the mix of those projects, what's the mix of the MRO and where is it coming from. But right now, I'd say the momentum is pretty good for unusual first half for process.

And our next question comes from the line of Julian Mitchell with Crédit Suisse.

The first one is on your Asia business outside China because your China business, I don't see it grew much more than Asia, overall. So I just want what was happening within your Asia business? I saw you said the Process is down 19% in Asia, Appliance and Tools is down 2%. So I just wondered if you could give more clarity on Asia x china.

I think, the first question, Julian, I think there's a lot of projects that's going in and out, and we had a phenomenal last year Process in Asia. So the business moves around from quarter-to-quarter. There's nothing unusual there other than that we went to a period that we have some very large projects that shipped last year and we have a period, a very little order pace. Now the order pace is going positive, and we're starting to replenish that. So it's a lumpy business in Process in particular in Asia and Latin America. So there's nothing really hard you can get out of that, but I can tell you the pace has picked up in orders in Asia for Process. The other one is Appliance and Tools?

Just within Asia, but prices on Appliance and Tools were down so I was just asking about...

Things moving in and out, I mean, the process is far more important in Asia in Appliance and Tools. By the way if I'm going to win the bet or you're going to win the bet.

Based on your comment I thought the CapEx seems to be rebounding quite quickly now?

Yes, but I think we had a bet at the second half. It would be 5.80, and I even gave you the calendar second half. I think I know the numbers. I think you're going to owe me $20 partner.

The other one was just the SG&A to sales ratio. That was sort of flat year-on-year and came down a bit from the first half to Q3. I guess, that you'll grow that sort of in line with your revenues when you're talking about the investments in emerging markets and so on, just how you see SG&A to sales from here. Because obviously, order growth is running far of your revenue growth. So I wondered if your OpEx growth would start to catch up with your order growth or you'll keep it in pace with revenues?

I wouldn't be a surprised next year or SG&A doesn't go up from the mix of business as the higher GP margin business and Network Power kicks back in for sales as the higher GP margin business for Process kicks back. They both have higher SG&A. So my gut tells me next year or SG&A might tick up a tenth or two if the same time our GP margin ticks up. So if the mix goes on a little bit right now, the mix helps us, to be honest, for SG&A this year, next year it's going to move against us. But I would expect our SG&A to move in line with sales and maybe a little bit faster in sales as Network Power and as Process kicks back in.

And our next question comes from the line of Terry Darling with Goldman Sachs.

I appreciate the color on '11, and I just want to follow-up a couple of points there. One, wondering if, well, I think we probably cross the line asking a lot of detail about Chloride accretion dilution at this point, but maybe if you think about all the acquisition carryover into '11 and net debt with the divestiture picture that you know of, how do we calibrate kind of the acquisition impact all in both revenues and EPS in '11 if we can do that at this point in '11?

It's a little bit early. I think from the sales standpoint, we'll be okay. I mean, the Motor business that we're looking at selling is about $800 million. So that will come out if we make the decision to go forward that, that will come out. But then we've got other businesses. Chloride is going to run around $500 million, a little bit of $550 million in sales and we've done some of the acquisitions. So I think the sales standpoint, we'll be okay. I mean, fundamentally, what I would factor in, right now, and we're just starting this process. My opinion would be the 2010 acquisitions will be slightly EPS dilutive to us. I mean, Chloride will be based on what you can see the numbers and also we will be taking out the Motor business which did make money though not high level with the profitability. So that will also hurt us. We will lay it out for you as soon as we get this in focus and share it with the board. But overall, for us to deal is we're going to have great underlying performance, which we talked about. And then we have a couple of negative things we have to deal with, and then we have a positive headwinds. And we got some things going our way and some things going against us. So I mean, I expect a pretty good year next year based on what I see at this point in time.

And then also a follow-up on your 2011 commentary around the margins, I think you said 17% plus if you calibrate the fourth quarter at 18%, a little over 18%. It's kind of a 16.5% for the year. And if we put the acquisition effect aside for a moment, I mean, 30% incrementals will get you over 18% versus over 17%, maybe that's just the way you're scoping it out, not trying to be as precise as I'm trying to be, but why on the underlying basis might be a 30% in incremental margins, not be pretty doable next year?

I think they will be pretty doable, but we have to factor in all the acquisitions and divestitures going in there. There's no doubt that the margin will be above 17% next year. The question is there going to be 17.1% to 17.5%, and that's a little bit early to be in that call, but we're going to set a record-level margin next year based on what I see right now, assuming the other line growth continues to happen as a see it.

Can you talk about the data center cycle as you see it, both in terms of how you think you're doing versus peers here in the near term. But how long do you think this very strong level of demand on the data center build out can continue?

The data centers has an interesting thing. Obviously, inquiries and order pace is turning positive right now. I don't think there's been any major shifts amongst the major players at this point in time. If you look back at late 2008, early 2009, that business continue to do very well because it's a longer cycle business. They put the capacity online, now they're absorbing that capacity. Now they're starting to see that they're going to need more incremental capacity as the leave '10 and going to 2011. So I think the cycle which usually runs four or five years is just starting to kick back in, and it should be a pretty good cycle as we start going into 2011. I don't think there's been any fundamental shift relative to the market positions. There's so many moving parts out there when the company talks about that, and there's no real -- no one reports a clear number. But based on what I know of the market place, I think we're all starting to recover. We're all going to start doing pretty good as the market continues to get strong and stronger.

And our next question comes from the line of Robert Cornell with Barclays Capital.

Where were you playing this new technology or the center, this largest flow labs in the U.S. or someplace else?

That's in Marshalltown, and from Iowa, it's where our Brain Trust is relative to technology for control valves for new career industry or some of the high-end LNG facility, some of the most sophisticated valve technology will stay in this country.

That brings a point up on Climate, you mentioned you're putting compressor manufacturing in China but you were able to protect the IP assuming that how you're doing that and what's different.

Because I have a good relationship with the people over there, and I don't go running off talking to papers, 31 years, Bob, and we have a very good relationship. China respects IP. If you actually have the patent protection, you own the patent protection, you filed it and protect it, they will support you. We are 29 for 30 in all our patent litigation there, and they know it's the economic weapons. So there going to -- I feel very comfortable with what we're going to do, right now, and trying to protect our growth initiatives and if you don't play, you will not be playing in China in 10 years from now.

In terms of your investment spending, Dave, I mean, where are you in the run rate, and how much is it going to come up? And can you give us a feel for what kind of dollars we're talking about here or some way to calibrate it? For the growth spending.

For what?

Growth spending.

I don't break that out. I mean, we don't break that out. I mean, we're investing pretty aggressively right now even with the high levels of margins and primarily investing in the emerging markets from that type of capability and for the new product standpoint, we're investing across the company. So I mean, we're going to have a very good year as we move in, it's 2011. There's a lot of new products come out. I don't break out that type. I can see that at a competitive sense, so I don't do that.

A little more color on Industrial Automation, it sounds like the order is real strong. You haven't really decided on that business here on the call. You're buying, but sounds like a business for EPT in Brazil, can you give some color around that business and EPT and Control Techniques and what else is going on there?

Industrial businesses are starting to come back around the world, and so the business we want in Brazil is actually for EGF, and it has the IEC technology which we really didn't have a lot of IEC technology. It's a nice flow business. From my perspective, people are going to start spending money they had under invested. They have taken a lot of capacity off-line as they reposition, and now the people are starting to spend money, I think you're going to see a gradual recovery as I said on the phone. I think this is going forward over the next two or three years, but our cost position is pretty good. And I think we'll see a pretty good growth here in industrial space, and all the industrial companies will do pretty well here for at least 12 to 18 months as this continues recovery. I feel good about this.

Do I hear regular comments, saying, the orders there, we're tracking up 45%. Did I misunderstand that number?

That was a correct number.

That sounds like more than a gradual recovery.

Well, you have an inventory -- you got to think about where it came from, it came from debt, it came from like zero. And so it's going to be a high level of numbers, and it will slip it's way back down. So we just want to give you a nag, to let you know that we actually do have a pretty good growth in this company unlike what you think.

And our next question comes from the line of Nigel Coe with Deutsche Bank.

Just want to calibrate on the comments on the 4Q margins. I think you talked about modest expansion was that a Q-over-Q or year-over-year, Dave?

For the fourth quarter?

Yes.

I think our fourth quarter margin is going to be pretty close to what it was in the third quarter. Third quarter had some help from the standpoint, a couple of things as I said, we had great mix, we had the currency helping us a little bit from that margin. And so I think typically, going third to fourth, it will be up. I think today, I think our third to fourth, sequentially, third to fourth will probably be at the same level of profitability, a very, very high level. As someone pointed out earlier, I'm not backing off investments. I'm not interested inflating margins just to deflate margins.

And then secondly, you talked about the Network Power supply-chain shortage. I mean, the gap between orders growth and organic growth has been a pretty wide for two quarters now. It implies that there's some nice backlog builds in that business. I'm just wondering once we get beyond the supply-chain shortages, should we expect a big surge in core growth?

I think you should see, as I've been telling my guys, I expect some pretty good underlying growth once we get things down, assuming there is not double orders going on out there, which you never can tell which I bet there are. But I expect some pretty good underlying growth to catch up that backlog and to catch up that order pace has been going on. The answer is yes.

Finally, just on the mode of business, if you listen to the press, I mean, it sounds like this Process has been if process for quite some time. What's been the big delay in terms of filling this up, is it price? Is it structure?

And first of all, there's a rumor that Crompton was bidding on the something, which is not true. That rumor is not true. We don't even have a Transformer business and I assume this as you know. It's been going on because there's been a very, very strong interest, so there was a lot of participants. We are now narrowing it down to a couple, and we're going to be making decisions here, I would say in the next 10 days. But that's where we are. So we're moving to a closure.

And our next question comes from the line of Steve Surrell [ph] with Conning Asset Management.

Your short-term debt went up about $1 billion from the March quarter. I was just curious what drove that.

We have to put money up for Chloride, part of the U.K. takeover rules is you have to have money in the bank ready to do Chloride when you make the offer.

So it's not just commercial paper borrowings?

You got it.

And once that closes, you just going to draw down your cash balances, you're not going to issue new debt to fund that.

We're going to draw down our cash balance, and we happen to generate pretty close to $3 billion operating cash a year. So I'd say we'd paying off within six months over international markets.

Mr. Tusa your line is open. C. Stephen Tusa - JP Morgan Chase & Co: What do you see -- your revenue comp, I think in the U.S. were where they in North America HVAC?

Pretty good. C. Stephen Tusa - JP Morgan Chase & Co: Obviously better than the kind of mid-teens the OEMs are reporting, right?

Correct. C. Stephen Tusa - JP Morgan Chase & Co: Is that kind of an ongoing replace versus -- or fixed versus replace dynamic there?

You got it. C. Stephen Tusa - JP Morgan Chase & Co: Pretty dramatic, these consumers are just not going. Is that more a function of how expensive the new systems are or what you guys sense around or just generally the high unemployment?

I think there's three things. One, people are very concerned because they don't have a job or they may lose a job, so they're being very concerned about how much they want to spend for a whole new system. Two, there's a shock in awe, when the guy walks up and says, why need this much space to install your new high-efficiency units. After you hit the ground and throw water on. They wake you up, you started to say, I don't have that type of space to put it in. So there's shocking effect. And the third thing really boils down to as people realizing that they can just replace components sometimes and keep the system going for another two or three years, and they're going to do that in this type of environment. So it's a good thing for us. C. Stephen Tusa - JP Morgan Chase & Co: How concerned are you that the guys in Washington don't approve something that's comparable to the $1,500 tax credit? Is that a factor in how we think about next year? I know there's irrelevant?

Irrelevant. C. Stephen Tusa - JP Morgan Chase & Co: Irrelevant for you guys, I guess, but for the industry irrelevant?

I personally think tax didn't do squat other than full stop forward for six months and then you have the big hole. So... C. Stephen Tusa - JP Morgan Chase & Co: Are you worried for the big hole for the OEMs next year because of that?

We'll see. I'm not too worried about it. C. Stephen Tusa - JP Morgan Chase & Co: Just on the Appliance and Tools business has gone through a little bit of a facelift. Anything else in the portfolio that sub-sized it, you're looking to kind of swap out of here over the next couple of years?

There will be more businesses in the Appliance and Tools section that will be sold over the next two to three years. But as I said earlier, I don't anticipate anything of substance next year. I'm looking at one business or two businesses in the $100 million to $200 million range. Nothing aside at this point in time. We will find a way for a container recovery to happen there. C. Stephen Tusa - JP Morgan Chase & Co: When will you be able to talk again, when the deal is done?

Yes, I think when the deal is done. That's right. With that, I want to thank everybody for joining us today. Again, I want to thank all the people out there at Emerson from the standpoint of great execution. And as I said, I'm very pleased where we sit right now, and I'm projecting pretty good momentum as we move into the next six to nine months. Thank you very much, and have a great rest of the summer. Goodbye.

Ladies and gentlemen, this concludes the Emerson Third Quarter Fiscal 2010 Results Conference Call. If you want to listen to a replay of today's conference, please dial 1(800)406-7325. For international participants, please dial (303)590-3030 and enter the access code 4327248 followed by the # key. The replay will be available until August 10, 2010. Thank you for your participation. You may now disconnect.