Emerson Pleads Guilty in Defense Contract Case : Defense: The firm will pay $14 million in fines and penalties for inflating cost estimates for electronic gear.

Emerson Electric Co. pleaded guilty Tuesday to making inflated cost estimates for electronic equipment it sold the Pentagon and agreed to pay $14 million in fines and penalties.

The company pleaded guilty in federal court to four felony counts of filing false statements, U.S. Atty. Thomas Dittmeier said.

The company admitted that between 1983 and 1987 it gave false and inflated cost estimates for equipment it sold to the Defense Department as a sole-source contractor.

As a result of inflated estimates, the government was overcharged for equipment it bought from Emerson, Dittmeier said.

Emerson’s Ferguson, Mo., plant was raided by federal agents in February, 1988. Emerson said it was told the action was related to the alleged use of parts for U.S. military vehicles on equipment that it was selling to Egypt.

Emerson had contended after the raid that it transferred equipment to vehicles it was assembling for Egypt under a “borrow and pay back” agreement with the government. The claim, however, was disputed by prosecutors.

Emerson’s plea agreement calls for the payment of double damages for overcharges rather than the triple damages that normally would have been assessed.

Under an agreement, Emerson subsidiary Electronics & Space Corp. will pay $40,000 in fines, plus the $14-million settlement.

The false statements were on four military contracts for automatic test equipment.

Dittmeier said no Emerson officials were penalized individually because of “what appears to be a very institutionalized way of doing business.”

He said the settlement “lets the public know that we did the right thing and lets the defense industry know that we’re looking at them.”

The guilty plea caps a grand jury investigation of fraud allegations against Emerson, which makes electronic components for several weapon systems.

Emerson entered its plea before U.S. District Judge John F. Nangle, who ordered the company to pay the $14 million within five days to the Justice Department.

The probe was conducted by the U.S. Attorney’s Office in St. Louis, the Defense Criminal Investigative Service, the Defense Contract Audit Agency and the Defense Logistics Agency.

The Justice Department also said it found evidence that Emerson charged the government for parts it used on other contracts but that this activity was not covered by the plea.

Under the agreement, Emerson is required to submit accurate, complete and current cost and pricing data and its best estimates of future costs to enable the government to negotiate fair and reasonable prices.

Separately, the company said its second-quarter profit and sales both rose 5.6% but that earnings were reduced by $14 million because of its guilty plea to overcharging the Pentagon.

Profit for the period ending March 31 was $156 million; revenue totaled $1.9 billion.