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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
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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.
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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.
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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
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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
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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
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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
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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
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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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE EMERSON
ELECTRIC CO. CONSOLIDATED STATEMENT OF EARNINGS AND CONSOLIDATED BALANCE SHEET
AS OF AND FOR THE NINE MONTHS ENDED JUNE 30, 1998, FILED WITH THE COMPANY'S
1998 THIRD QUARTER FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 413,700
<SECURITIES> 0
<RECEIVABLES> 2,508,100
<ALLOWANCES> 63,100
<INVENTORY> 1,953,900
<CURRENT-ASSETS> 5,177,900
<PP&E> 5,884,800
<DEPRECIATION> 2,999,500
<TOTAL-ASSETS> 12,328,700
<CURRENT-LIABILITIES> 4,211,800
<BONDS> 610,400
0
0
<COMMON> 238,300
<OTHER-SE> 5,533,700
<TOTAL-LIABILITY-AND-EQUITY> 12,328,700
<SALES> 10,019,100
<TOTAL-REVENUES> 10,019,100
<CGS> 6,400,600
<TOTAL-COSTS> 6,400,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112,800
<INCOME-PRETAX> 1,429,200
<INCOME-TAX> 514,500
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 914,700
<EPS-PRIMARY> 2.08
<EPS-DILUTED> 2.06
</TABLE>
