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 June 30, 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 June 30, 1998: 440,458,350 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 NINE MONTHS ENDED JUNE 30, 1998 AND 1997 (Dollars in millions except per share amounts; unaudited) Three Months Nine Months -------------------- ------------------- 1998 1997 1998 1997 --------- -------- -------- -------- Net sales $ 3,465.2 3,208.4 10,019.1 9,142.5 --------- -------- -------- -------- Costs and expenses: Cost of sales 2,211.1 2,067.0 6,400.6 5,859.8 Selling, general and administrative expenses 684.8 621.8 2,004.5 1,817.3 Interest expense 37.3 30.0 112.8 87.3 Other deductions, net 24.5 18.0 72.0 55.5 --------- -------- -------- -------- Total costs and expenses 2,957.7 2,736.8 8,589.9 7,819.9 Income before income taxes 507.5 471.6 1,429.2 1,322.6 Income taxes 182.7 175.0 514.5 490.7 --------- -------- -------- -------- Net earnings $ 324.8 296.6 914.7 831.9 ========= ======== ======== ======== Basic earnings per common share $ .74 .67 2.08 1.87 ========= ======== ======== ======== Diluted earnings per common share $ .73 .66 2.06 1.85 ========= ======== ======== ======== Cash dividends per common share $ .295 .27 .885 .81 ========= ======== ======== ======== 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) June 30, September 30, ASSETS 1998 1997 ------ --------- -------- CURRENT ASSETS Cash and equivalents $ 413.7 221.1 Receivables, less allowances of $63.1 and $54.0 2,445.0 2,200.2 Inventories 1,953.9 1,881.6 Other current assets 365.3 413.9 --------- -------- Total current assets 5,177.9 4,716.8 --------- -------- PROPERTY, PLANT AND EQUIPMENT, NET 2,885.3 2,735.4 --------- -------- OTHER ASSETS Excess of cost over net assets of purchased businesses 3,356.5 3,116.0 Other 909.0 895.1 --------- -------- Total other assets 4,265.5 4,011.1 --------- -------- $12,328.7 11,463.3 ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES Short-term borrowings and current maturities of long-term debt $ 1,994.4 1,445.1 Accounts payable 767.1 942.1 Accrued expenses 1,206.2 1,241.9 Income taxes 244.1 213.3 --------- -------- Total current liabilities 4,211.8 3,842.4 --------- -------- LONG-TERM DEBT 610.4 570.7 --------- -------- OTHER LIABILITIES 1,734.5 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 31.7 3.3 Retained earnings 6,872.3 6,348.9 Cumulative translation adjustments (224.0) (205.9) Cost of common stock in treasury, 36,218,656 shares and 35,873,321 shares (1,146.3) (963.9) --------- -------- Total stockholders' equity 5,772.0 5,420.7 --------- -------- $12,328.7 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 NINE MONTHS ENDED JUNE 30, 1998 AND 1997 (Dollars in millions; unaudited) 1998 1997 --------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,015.4 877.7 --------- ------- INVESTING ACTIVITIES Capital expenditures (408.1) (373.1) Purchases of businesses, net of cash and equivalents acquired (209.4) (40.1) Other, net 32.8 (11.1) --------- ------- Net cash used in investing activities (584.7) (424.3) --------- ------- FINANCING ACTIVITIES Net increase in short-term borrowings 669.4 367.0 Proceeds from long-term debt 1.5 5.9 Principal payments on long-term debt (129.0) (11.1) Dividends paid (391.3) (361.1) Net purchases of treasury stock (377.4) (264.4) --------- ------- Net cash used in financing activities (226.8) (263.7) --------- ------- Effect of exchange rate changes on cash and equivalents (11.3) (13.3) --------- ------- INCREASE IN CASH AND EQUIVALENTS 192.6 176.4 Beginning cash and equivalents 221.1 149.0 --------- ------- ENDING CASH AND EQUIVALENTS $ 413.7 325.4 ========= ======= 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) June 30, September 30, Inventories 1998 1997 ----------- --------- ------- Finished products $ 800.1 789.6 Raw materials and work in process 1,153.8 1,092.0 --------- ------- $ 1,953.9 1,881.6 ========= ======= June 30, September 30, Property, plant and equipment, net 1998 1997 ---------------------------------- --------- ------- Property, plant and equipment, at cost $ 5,884.8 5,433.7 Less accumulated depreciation 2,999.5 2,698.3 --------- ------- $ 2,885.3 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. During the third quarter of fiscal 1998, the Company announced an agreement to acquire the Westinghouse Process Control Division (PCD) from CBS Corporation for approximately $265 million. PCD is a supplier of process controls for the power generation, water and wastewater treatment industries. In addition, the Company acquired Hiross Austria GmbH and several other businesses. During the fourth quarter of fiscal 1998, Astec (BSR) Plc, a subsidiary of Emerson, announced an agreement to acquire the Advanced Power Systems (APS) business from Northern Telecom Limited for approximately $325 million. APS manufactures power conversion products for a wide variety of telecommunications applications. 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 June 30, - ------------------ Basic $ 324.8 439.4 $ .74 $ 296.6 443.8 $ .67 ======== ======== Convertible debt .2 .9 .2 1.3 Stock plans 4.2 3.2 -------- -------- -------- -------- Diluted $ 325.0 444.5 $ .73 $ 296.8 448.3 $ .66 ======== ======== ======== ======== ======== ======== Nine Months Ended June 30, - ----------------- Basic $ 914.7 439.8 $ 2.08 $ 831.9 445.8 $ 1.87 ======== ======== Convertible debt .5 1.0 .7 1.4 Stock plans 4.0 3.0 -------- -------- -------- -------- Diluted $ 915.2 444.8 $ 2.06 $ 832.6 450.2 $ 1.85 ======== ======== ======== ======== ======== ======== 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 third quarter and first nine months of fiscal 1998 were the highest for any quarter and first nine-month period in the Company's history. Net sales were $3,465.2 million for the quarter ended June 30, 1998, up 8.0 percent (10 percent at constant currency) over net sales of $3,208.4 million for the quarter ended June 30, 1997. The sales growth reflected balanced contributions from the Company's Commercial and Industrial and Appliance and Construction-Related segments, and acquisitions. Demand was solid in the United States and Europe, which account for more than three-quarters of consolidated revenue. Strong growth in Latin America, Canada and other regions of the world largely offset the impact of weak Asian economies. Net sales were $10,019.1 million for the nine months ended June 30, 1998, up 9.6 percent (12 percent at constant currency) over net sales of $9,142.5 million for the same period a year ago. In the Commercial and Industrial segment, the underlying electronics business continued its very strong performance in the third quarter, particularly in the U.S. and European markets. This performance was achieved despite comparison to very strong results a year ago. Sales of the process business reflected moderate domestic demand limited by weaker international results. Excluding the impact of currency translation, the industrial motors and drives business achieved moderate sales growth as a result of solid international and modest domestic demand. The industrial components and equipment business benefited from moderate international demand limited by unfavorable currency. In the Appliance and Construction-Related segment, the heating, ventilating and air-conditioning business reported moderate sales growth as European demand remained very strong. In addition, the strong pace of new construction and recent hot weather in various regions of the U.S. supported much improved domestic demand. Moderate gains in the underlying motors and appliance components business reflected continued strength in domestic markets, while sales of the underlying tools business were slightly lower than the solid results of the prior year. Cost of sales for the third quarter was $2,211.1 million or 63.8 percent of sales, compared with $2,067.0 million, or 64.4 percent of sales, for the third quarter of 1997. Cost of sales for the nine months ended June 30, 1998, was $6,400.6 million or 63.9 percent of sales, compared to $5,859.8 million or 64.1 percent of sales for the same period a year ago. Selling, general and administrative expenses for the three months ended June 30, 1998, were $684.8 million, or 19.8 percent of sales, compared to $621.8 million, or 19.4 percent of sales for the same period a year ago. For the first nine months of 1998, selling, general and administrative expenses were $2,004.5 million or 20.0 percent of sales, compared to $1,817.3 million or 19.9 percent of sales for the same period in 1997. Consolidated operating margins increased from the previous year's high levels, reflecting productivity improvement and cost containment programs which resulted in gains that more than 7
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q offset the dampening effect of lower margin acquisitions. Financial Condition A comparison of key elements of the Company's financial condition at the end of the third quarter as compared to the end of the prior fiscal year follows: June 30, September 30, 1998 1997 -------- -------- Working capital (in millions) $ 966.1 874.4 Current ratio 1.2 to 1 1.2 to 1 Total debt to total capital 31.1% 27.1% Net debt to net capital 27.5% 24.9% The Company's interest coverage ratio (earnings before income taxes and interest expense, divided by interest expense) was 13.7 times for the nine months ended June 30, 1998, compared to 16.1 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. During the third quarter, the Company and its subsidiaries increased lines of credit to $1.8 billion in support of the commercial paper program. There have been no borrowings against these lines of credit. Cash and equivalents increased by $192.6 million during the nine months ended June 30, 1998. Cash flow provided by operating activities of $1,015.4 million and a net increase in borrowings of $541.9 million were used primarily to fund capital expenditures of $408.1 million, pay dividends of $391.3 million, fund net purchases of treasury stock of $377.4 million, and fund purchases of businesses of $209.4 million. Receivables increased primarily due to sales growth and minor seasonality. 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. 8
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q PART II. OTHER INFORMATION 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). 27 Financial Data Schedule. (b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the quarter ended June 30, 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: August 14, 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