UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ______________________ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to __________________ Commission file number 1-278 EMERSON ELECTRIC CO. (Exact name of registrant as specified in its charter) Missouri 43-0259330 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8000 W. Florissant Ave. P.O. Box 4100 St. Louis, Missouri 63136 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (314) 553-2000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Common stock outstanding at March 31, 1998: 442,711,369 shares. 1
PART I. FINANCIAL INFORMATION FORM 10-Q Item 1. Financial Statements. EMERSON ELECTRIC CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 1998 AND 1997 (Dollars in millions except per share amounts; unaudited) Three Months Six Months -------------------- ------------------- 1998 1997 1998 1997 --------- -------- -------- -------- Net sales $ 3,382.4 3,103.5 6,553.9 5,934.1 --------- -------- -------- -------- Costs and expenses: Cost of sales 2,159.7 1,987.4 4,189.5 3,792.8 Selling, general and administrative expenses 673.3 612.2 1,319.7 1,195.5 Interest expense 39.7 29.8 75.5 57.3 Other deductions, net 29.1 28.4 47.5 37.5 --------- -------- -------- -------- Total costs and expenses 2,901.8 2,657.8 5,632.2 5,083.1 Income before income taxes 480.6 445.7 921.7 851.0 Income taxes 173.0 165.3 331.8 315.7 --------- -------- -------- -------- Net earnings $ 307.6 280.4 589.9 535.3 ========= ======== ======== ======== Basic earnings per common share $ .70 .63 1.34 1.20 ========= ======== ======== ======== Diluted earnings per common share $ .69 .62 1.33 1.19 ========= ======== ======== ======== Cash dividends per common share $ .295 .27 .59 .54 ========= ======== ======== ======== See accompanying notes to consolidated financial statements. 2
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q CONSOLIDATED BALANCE SHEETS (Dollars in millions except per share amounts; unaudited) March 31, September 30, ASSETS 1998 1997 ------ --------- -------- CURRENT ASSETS Cash and equivalents $ 426.5 221.1 Receivables, less allowances of $58.8 and $54.0 2,385.9 2,200.2 Inventories 1,877.3 1,881.6 Other current assets 405.6 413.9 --------- -------- Total current assets 5,095.3 4,716.8 --------- -------- PROPERTY, PLANT AND EQUIPMENT, NET 2,806.8 2,735.4 --------- -------- OTHER ASSETS Excess of cost over net assets of purchased businesses 3,317.4 3,116.0 Other 891.1 895.1 --------- -------- Total other assets 4,208.5 4,011.1 --------- -------- $12,110.6 11,463.3 ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES Short-term borrowings and current maturities of long-term debt $ 1,921.0 1,445.1 Accounts payable 725.7 942.1 Accrued expenses 1,171.2 1,241.9 Income taxes 256.9 213.3 --------- -------- Total current liabilities 4,074.8 3,842.4 --------- -------- LONG-TERM DEBT 601.9 570.7 --------- -------- OTHER LIABILITIES 1,703.0 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 238.3 238.3 Additional paid in capital 34.9 3.3 Retained earnings 6,677.9 6,348.9 Cumulative translation adjustments (230.1) (205.9) Cost of common stock in treasury, 33,965,637 shares and 35,873,321 shares (990.1) (963.9) --------- -------- Total stockholders' equity 5,730.9 5,420.7 --------- -------- $12,110.6 11,463.3 ========= ======== See accompanying notes to consolidated financial statements. 3
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED MARCH 31, 1998 AND 1997 (Dollars in millions; unaudited) 1998 1997 -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 586.7 412.9 -------- -------- INVESTING ACTIVITIES Capital expenditures (265.2) (227.1) Purchases of businesses, net of cash and equivalents acquired (107.7) (22.7) Other, net 1.0 .9 -------- -------- Net cash used in investing activities (371.9) (248.9) -------- -------- FINANCING ACTIVITIES Net increase in short-term borrowings 479.0 384.3 Proceeds from long-term debt 3.4 5.9 Principal payments on long-term debt (7.6) (9.3) Dividends paid (260.9) (241.3) Net purchases of treasury stock (210.9) (152.4) -------- -------- Net cash provided by (used in) financing activities 3.0 (12.8) -------- -------- Effect of exchange rate changes on cash and equivalents (12.4) (16.0) -------- -------- INCREASE IN CASH AND EQUIVALENTS 205.4 135.2 Beginning cash and equivalents 221.1 149.0 -------- -------- ENDING CASH AND EQUIVALENTS $ 426.5 284.2 ======== ======== See accompanying notes to consolidated financial statements. 4
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q Notes to Consolidated Financial Statements 1. The accompanying unaudited consolidated financial statements, in the opinion of management, include all adjustments necessary for a fair presentation of the results for the interim periods presented. These adjustments consist of normal recurring accruals. The consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all the disclosures required by generally accepted accounting principles. For further information refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 1997. 2. Other Financial Information (Dollars in millions; unaudited) March 31, September 30, Inventories 1998 1997 ----------- --------- ------- Finished products $ 783.9 789.6 Raw materials and work in process 1,093.4 1,092.0 --------- ------- $ 1,877.3 1,881.6 ========= ======= March 31, September 30, Property, plant and equipment, net 1998 1997 ---------------------------------- --------- ------- Property, plant and equipment, at cost $ 5,676.1 5,433.7 Less accumulated depreciation 2,869.3 2,698.3 --------- ------- $ 2,806.8 2,735.4 ========= ======= 3. In December 1997, the Company purchased Computational Systems, Inc. (CSI) for approximately $160 million, primarily in common stock. CSI is a supplier of condition monitoring and diagnostic products and services for motors and other rotational equipment. 5
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q 4. In the quarter ended December 31, 1997, 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 (dollars and shares in millions except per share amounts): 1998 1997 ---------------------------- ---------------------------- Weighted- Earnings Weighted- Earnings Average Per Average Per Earnings Shares Share Earnings Shares Share -------- -------- -------- -------- -------- -------- Three Months Ended March 31, - ------------------ Basic $ 307.6 440.8 $ .70 $ 280.4 446.1 $ .63 ======== ======== Convertible debt .1 1.0 .2 1.5 Stock plans 4.4 3.0 -------- -------- -------- -------- Diluted $ 307.7 446.2 $ .69 $ 280.6 450.6 $ .62 ======== ======== ======== ======== ======== ======== Six Months Ended March 31, - ---------------- Basic $ 589.9 440.0 $ 1.34 $ 535.3 446.8 $ 1.20 ======== ======== Convertible debt .3 1.0 .5 1.5 Stock plans 4.0 2.8 -------- -------- -------- -------- Diluted $ 590.2 445.0 $ 1.33 $ 535.8 451.1 $ 1.19 ======== ======== ======== ======== ======== ======== 6
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q Items 2 and 3. Management's Discussion and Analysis of Results of Operations and Financial Condition. Results of Operations Sales, net earnings and earnings per share for the second quarter and first six months of fiscal 1998 were the highest for any quarter and first six-month period in the Company's history. Net sales were $3,382.4 million for the quarter ended March 31, 1998, up 9.0 percent (12 percent at constant currency) over net sales of $3,103.5 million for the quarter ended March 31, 1997, and $6,553.9 million for the six months ended March 31, 1998, up 10.4 percent (14 percent at constant currency) over net sales of $5,934.1 million for the same period a year ago. The second quarter results reflect strong U.S. and Latin American growth, solid European performance and the contribution of acquisitions. Excluding the negative impact of currency, underlying international subsidiary sales showed solid improvement. Continued weakness in Asia-Pacific limited export sales, particularly those of the heating, ventilating and air-conditioning business. In the Commercial and Industrial segment, the electronics business achieved very strong underlying sales growth, driven by contributions from all product lines and service offerings. Excluding the impact of the strengthening dollar, the process business achieved strong sales growth, reflecting very strong domestic demand and solid international demand. Sales of the industrial motors and drives business were solid before the effects of unfavorable currency due to strong international demand and recent acquisitions. Excluding the impact of currency translation, the industrial components and equipment business achieved moderate underlying domestic and international sales growth. In the Appliance and Construction-Related segment, sales of the underlying fractional motors and appliance components business were strong, benefiting from robust domestic markets and new products. The tools business achieved modest underlying sales growth, while the heating, ventilating and air-conditioning business reported a moderate decrease in sales as weakness in Asia-Pacific severely limited export sales. Cost of sales for the second quarter was $2,159.7 million or 63.9 percent of sales, compared with $1,987.4 million, or 64.0 percent of sales, for the second quarter of 1997. Cost of sales for the six months ended March 31, 1998, was $4,189.5 million or 63.9 percent of sales, compared to $3,792.8 million or 63.9 percent of sales for the same period a year ago. Selling, general and administrative expenses for the three months ended March 31, 1998, were $673.3 million, or 19.9 percent of sales, compared to $612.2 million, or 19.8 percent of sales for the same period a year ago. For the first six months of 1998, selling, general and administrative expenses were $1,319.7 million or 20.2 percent of sales, compared to $1,195.5 million or 20.2 percent of sales for the same period in 1997. Consolidated profit margins remained at high levels despite the inclusion of lower margin acquisitions. Underlying operating margins showed solid improvement, reflecting both domestic and international gains, as a result of continuing cost reduction efforts and productivity improvement programs. 7
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q Financial Condition A comparison of key elements of the Company's financial condition at the end of the second quarter as compared to the end of the prior fiscal year follows: March 31, September 30, 1998 1997 -------- -------- Working capital (in millions) $1,020.5 874.4 Current ratio 1.3 to 1 1.2 to 1 Total debt to total capital 30.6% 27.1% Net debt to net capital 26.8% 24.9% The Company's interest coverage ratio (earnings before income taxes and interest expense, divided by interest expense) was 13.2 times for the six months ended March 31, 1998, compared to 15.9 times for the same period one year earlier. The decrease in the interest coverage ratio reflects higher average borrowings resulting from share repurchases and acquisitions, partially offset by earnings growth. In the first quarter of fiscal 1998, the Company entered into an interest rate agreement which caps the rate on $250 million of commercial paper at 6.0 percent through September 1999. Cash and equivalents increased by $205.4 million during the six months ended March 31, 1998. Cash flow provided by operating activities of $586.7 million and a net increase in borrowings of $474.8 million were used primarily to pay dividends of $260.9 million, fund capital expenditures of $265.2 million, fund net purchases of treasury stock of $210.9 million and fund purchases of businesses of $107.7 million. The Company is in a strong financial position, continues to generate strong operating cash flows, and has the resources available for reinvestment in existing businesses, strategic acquisitions and managing the capital structure on a short- and long-term basis. Statements in this report that are not strictly historical may be "forward-looking" statements which involve risks and uncertainties. These include economic and currency conditions, market demand, pricing, and competitive and technological factors, among others which are set forth in the Company's Annual Report on Form 10-K for the year ended September 30, 1997. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders At the Annual Meeting of Stockholders on February 3, 1998, two matters described in the Notice of Annual Meeting of Stockholders dated December 12, 1997, were voted upon. 1. The directors listed below were elected for terms ending in 2001 with voting for each as follows: 8
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q DIRECTOR FOR WITHHELD ------------------- ----------- ---------- J. G. Berges 368,146,384 5,916,643 R. L. Ridgway 368,807,865 5,255,162 A. E. Suter 368,097,528 5,965,499 W. M. Van Cleve 363,369,644 10,693,383 E. E. Whitacre, Jr. 368,889,905 5,173,122 2. The proposal to approve the 1998 Stock Option Plan was approved by a vote of 349,790,759 in favor to 16,758,486 against, with 3,605,774 abstaining. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits (Listed by numbers corresponding to the Exhibit Table of Item 601 in Regulation S-K). 3(a) Restated Articles of Incorporation of Emerson Electric Co., incorporated by reference to Emerson Electric Co. Form 10-Q for the quarter ended March 31, 1997, Exhibit 3(a). 3(b) Bylaws of Emerson Electric Co., as amended through October 7, 1997, incorporated by reference to Emerson Electric Co. 1997 Form 10-K, Exhibit 3(b). 10(l) Fourth Amendment to the Supplemental Executive Savings Investment Plan, filed herewith. 10(o) 1998 Stock Option Plan, incorporated by reference to Emerson Electric Co. 1998 Proxy Statement dated December 12, 1997, Appendix A. 27 Financial Data Schedules (b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the quarter ended March 31, 1998. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EMERSON ELECTRIC CO. Date: May 12, 1998 By /s/ Walter J. Galvin ----------------------- Walter J. Galvin Senior Vice President - Finance and Chief Financial Officer (on behalf of the registrant and as Chief Financial Officer) 9