UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-Q
10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20192020
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
1-278
EMERSON ELECTRIC CO.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
Missouri | | | 43-0259330 |
(State or other jurisdiction of incorporation or organization) | | | (I.R.S. Employer Identification No.) |
| | | |
Missouri | | 43-0259330
|
(State or other jurisdiction of
incorporation or organization)
| (I.R.S. Employer
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
Securities registered pursuant to Section 12(b) of the Act:
|
| | | | | | | |
Title of each class | Trading Symbol(s)
| Name of each exchange on which registered |
Common Stock of $0.50 par value per share | EMR | New York Stock Exchange |
| | Chicago Stock Exchange |
0.375% Notes due 2024 | EMR 24 | New York Stock Exchange |
1.250% Notes due 2025 | EMR 25A | New York Stock Exchange |
2.000% Notes due 2029 | EMR 29 | New York Stock Exchange |
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | ☒ | ☒ | | Accelerated filer | ☐ | | | | | |
Non-accelerated filer | ☐ | | | Smaller reporting company | ☐ | | | | ☐ | |
| | | | Emerging growth company | ☐ | | | | ☐ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common stock of $0.50 par value per share outstanding at July 31, 2019: 615,101,4622020: shares.597,591,921 shares.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings
EMERSON ELECTRIC CO. & SUBSIDIARIES
Three and nine months ended June 30, 20182019 and 20192020
(Dollars in millions, except per share amounts; unaudited)
| | | Three Months Ended June 30, | | Nine Months Ended June 30, | | Three Months Ended June 30, | | | Nine Months Ended June 30, | |
| 2018 |
| | 2019 |
| | 2018 |
| | 2019 |
| | 2019 | | | 2020 | | | 2019 | | | 2020 | |
Net sales | $ | 4,456 |
| | 4,684 |
| | 12,520 |
| | 13,401 |
| Net sales | $ | 4,684 | | | 3,914 | | | 13,401 | | | 12,227 | |
| | | | | | | | |
Costs and expenses: | | | | | | | | Costs and expenses: | |
Cost of sales | 2,514 |
| | 2,683 |
| | 7,147 |
| | 7,714 |
| Cost of sales | 2,683 | | | 2,296 | | | 7,714 | | | 7,100 | |
Selling, general and administrative expenses | 1,058 |
| | 1,126 |
| | 3,088 |
| | 3,348 |
| Selling, general and administrative expenses | 1,126 | | | 934 | | | 3,348 | | | 3,040 | |
Other deductions, net | 77 |
| | 65 |
| | 243 |
| | 172 |
| Other deductions, net | 65 | | | 181 | | | 172 | | | 401 | |
Interest expense (net of interest income of $10, $7, $35 and $19, respectively) | 39 |
| | 43 |
| | 113 |
| | 134 |
| |
Interest expense (net of interest income of $7, $4, $19 and $16, respectively) | | Interest expense (net of interest income of $7, $4, $19 and $16, respectively) | 43 | | | 45 | | | 134 | | | 116 | |
| | | | | | | | | | | | | | | |
Earnings before income taxes | 768 |
| | 767 |
| | 1,929 |
| | 2,033 |
| Earnings before income taxes | 767 | | | 458 | | | 2,033 | | | 1,570 | |
| | | | | | | | |
Income taxes | 49 |
| | 155 |
| | 327 |
| | 429 |
| Income taxes | 155 | | | 51 | | | 429 | | | 310 | |
| | | | | | | | | | |
Net earnings | 719 |
| | 612 |
| | 1,602 |
| | 1,604 |
| Net earnings | 612 | | | 407 | | | 1,604 | | | 1,260 | |
| | | | | | | | |
Less: Noncontrolling interests in earnings of subsidiaries | 7 |
| | 8 |
| | 16 |
| | 15 |
| Less: Noncontrolling interests in earnings of subsidiaries | 8 | | | 8 | | | 15 | | | 18 | |
| | | | | | | | | | | | | | | |
Net earnings common stockholders | $ | 712 |
| | 604 |
| | 1,586 |
| | 1,589 |
| Net earnings common stockholders | $ | 604 | | | 399 | | | 1,589 | | | 1,242 | |
| | | | | | | | |
Basic earnings per share common stockholders | $ | 1.13 |
| | 0.98 |
| | 2.50 |
| | 2.57 |
| |
| | | | | | | | |
Diluted earnings per share common stockholders | $ | 1.12 |
| | 0.97 |
| | 2.49 |
| | 2.55 |
| |
| | | | | | | | |
Cash dividends per common share | $ | 0.485 |
| | 0.49 |
| | 1.455 |
| | 1.47 |
| |
| | | | | | | | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Basic earnings per share common stockholders | | Basic earnings per share common stockholders | $ | 0.98 | | | 0.67 | | | 2.57 | | | 2.05 | |
| | | | | | | | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Diluted earnings per share common stockholders | | Diluted earnings per share common stockholders | $ | 0.97 | | | 0.67 | | | 2.55 | | | 2.04 | |
| | | | | | | | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Comprehensive Income
EMERSON ELECTRIC CO. & SUBSIDIARIES
Three and nine months ended June 30, 20182019 and 20192020
(Dollars in millions; unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | Nine Months Ended June 30, | | | | |
| | 2019 | | | | 2020 | | | | 2019 | | | | 2020 | |
Net earnings | | $ | 612 | | | | 407 | | | | 1,604 | | | | 1,260 | |
| | | | | | | | | | | |
Other comprehensive income (loss), net of tax: | | | | | | | | | | | |
Foreign currency translation | | (93) | | | | 134 | | | | (40) | | | | (48) | |
Pension and postretirement | | 13 | | | | 29 | | | | 38 | | | | 87 | |
Cash flow hedges | | (8) | | | | 40 | | | | 2 | | | | (16) | |
Total other comprehensive income (loss) | | (88) | | | | 203 | | | | — | | | | 23 | |
| | | | | | | | | | | |
Comprehensive income | | 524 | | | | 610 | | | | 1,604 | | | | 1,283 | |
| | | | | | | | | | | |
Less: Noncontrolling interests in comprehensive income of subsidiaries | | 8 | | | | 7 | | | | 16 | | | | 18 | |
Comprehensive income common stockholders | | $ | 516 | | | | 603 | | | | 1,588 | | | | 1,265 | |
|
| | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Nine Months Ended June 30, |
| | 2018 |
|
| | 2019 |
| | | 2018 |
| | | 2019 |
|
Net earnings | | $ | 719 |
| | | 612 |
| | | 1,602 |
| | | 1,604 |
|
| | | | | | | | | | | |
Other comprehensive income (loss), net of tax: | | | | | | | | | | | |
Foreign currency translation | | (273 | ) | | | (93 | ) | | | (118 | ) | | | (40 | ) |
Pension and postretirement | | 22 |
| | | 13 |
| | | 67 |
| | | 38 |
|
Cash flow hedges | | (14 | ) | | | (8 | ) | | | (22 | ) | | | 2 |
|
Total other comprehensive income (loss) | | (265 | ) | | | (88 | ) | | | (73 | ) | | | — |
|
| | | | | | | | | | | |
Comprehensive income | | 454 |
| | | 524 |
| | | 1,529 |
| | | 1,604 |
|
| | | | | | | | | | | |
Less: Noncontrolling interests in comprehensive income of subsidiaries | | 7 |
| | | 8 |
| | | 16 |
| | | 16 |
|
Comprehensive income common stockholders | | $ | 447 |
| | | 516 |
| | | 1,513 |
| | | 1,588 |
|
See accompanying Notes to Consolidated Financial Statements.
Consolidated Balance Sheets
EMERSON ELECTRIC CO. & SUBSIDIARIES
(Dollars and shares in millions, except per share amounts; unaudited) | | | Sept 30, 2018 | | June 30, 2019 | | Sept 30, 2019 | | June 30, 2020 |
ASSETS | | | | ASSETS | | | |
Current assets | | | | Current assets | | | |
Cash and equivalents | $ | 1,093 |
| | 1,603 |
| Cash and equivalents | $ | 1,494 | | | 2,450 | |
Receivables, less allowances of $113 and $100, respectively | 3,023 |
| | 2,901 |
| |
Receivables, less allowances of $112 and $109, respectively | | Receivables, less allowances of $112 and $109, respectively | 2,985 | | | 2,512 | |
Inventories | 1,813 |
| | 2,061 |
| Inventories | 1,880 | | | 2,102 | |
Other current assets | 690 |
| | 785 |
| Other current assets | 780 | | | 815 | |
| Total current assets | 6,619 |
| | 7,350 |
| Total current assets | 7,139 | | | 7,879 | |
| | | | | | | |
Property, plant and equipment, net | 3,562 |
| | 3,614 |
| Property, plant and equipment, net | 3,642 | | | 3,565 | |
Other assets | |
| | | Other assets | | |
Goodwill | 6,455 |
| | 6,544 |
| Goodwill | 6,536 | | | 6,624 | |
Other intangible assets | 2,751 |
| | 2,691 |
| Other intangible assets | 2,615 | | | 2,488 | |
Other | 1,003 |
| | 1,118 |
| Other | 565 | | | 1,174 | |
| Total other assets | 10,209 |
| | 10,353 |
| Total other assets | 9,716 | | | 10,286 | |
Total assets | $ | 20,390 |
| | 21,317 |
| Total assets | $ | 20,497 | | | 21,730 | |
| | | | | | | |
LIABILITIES AND EQUITY | |
| | |
| LIABILITIES AND EQUITY | | | |
Current liabilities | |
| | |
| Current liabilities | | | |
Short-term borrowings and current maturities of long-term debt | $ | 1,623 |
| | 1,877 |
| Short-term borrowings and current maturities of long-term debt | $ | 1,444 | | | 1,725 | |
Accounts payable | 1,943 |
| | 1,785 |
| Accounts payable | 1,874 | | | 1,426 | |
Accrued expenses | 2,534 |
| | 2,453 |
| Accrued expenses | 2,658 | | | 2,834 | |
Income taxes | 64 |
| | 103 |
| |
| Total current liabilities | 6,164 |
| | 6,218 |
| Total current liabilities | 5,976 | | | 5,985 | |
| | | | | | | |
Long-term debt | 3,137 |
| | 4,336 |
| Long-term debt | 4,277 | | | 5,500 | |
| | | | |
Other liabilities | 2,099 |
| | 1,959 |
| Other liabilities | 1,971 | | | 2,367 | |
| | | | |
| Equity | |
| | |
| Equity | | | |
Common stock, $0.50 par value; authorized, 1,200.0 shares; issued, 953.4 shares; outstanding, 629.2 shares and 615.1 shares, respectively | 477 |
| | 477 |
| |
Common stock, $0.50 par value; authorized, 1,200.0 shares; issued, 953.4 shares; outstanding, 611.0 shares and 597.6 shares, respectively | | Common stock, $0.50 par value; authorized, 1,200.0 shares; issued, 953.4 shares; outstanding, 611.0 shares and 597.6 shares, respectively | 477 | | | 477 | |
Additional paid-in-capital | 348 |
| | 387 |
| Additional paid-in-capital | 393 | | | 459 | |
Retained earnings | 23,072 |
| | 23,777 |
| Retained earnings | 24,199 | | | 24,531 | |
Accumulated other comprehensive income (loss) | (1,015 | ) | | (1,016 | ) | Accumulated other comprehensive income (loss) | (1,722) | | | (1,699) | |
Cost of common stock in treasury, 324.2 shares and 338.3 shares, respectively | (13,935 | ) | | (14,870 | ) | |
Cost of common stock in treasury, 342.4 shares and 355.8 shares, respectively | | Cost of common stock in treasury, 342.4 shares and 355.8 shares, respectively | (15,114) | | | (15,937) | |
Common stockholders’ equity | 8,947 |
| | 8,755 |
| Common stockholders’ equity | 8,233 | | | 7,831 | |
Noncontrolling interests in subsidiaries | 43 |
| | 49 |
| Noncontrolling interests in subsidiaries | 40 | | | 47 | |
Total equity | 8,990 |
| | 8,804 |
| Total equity | 8,273 | | | 7,878 | |
Total liabilities and equity | $ | 20,390 |
| | 21,317 |
| Total liabilities and equity | $ | 20,497 | | | 21,730 | |
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Equity
EMERSON ELECTRIC CO. & SUBSIDIARIES
Three and nine months ended June 30, 2019 and 2020
(Dollars in millions; unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Nine Months Ended June 30, | | |
| 2019 | | | 2020 | | | 2019 | | | 2020 | |
| | | | | | | |
Common stock | $ | 477 | | | 477 | | | 477 | | | 477 | |
| | | | | | | |
Additional paid-in-capital | | | | | | | |
Beginning balance | 380 | | | 453 | | | 348 | | | 393 | |
Stock plans | 7 | | | 6 | | | 39 | | | 66 | |
| | | | | | | |
Ending balance | 387 | | | 459 | | | 387 | | | 459 | |
| | | | | | | |
Retained earnings | | | | | | | |
Beginning balance | 23,475 | | | 24,431 | | | 23,072 | | | 24,199 | |
Net earnings common stockholders | 604 | | | 399 | | | 1,589 | | | 1,242 | |
Dividends paid (per share: $0.49, $0.50, $1.47, and $1.50, respectively) | (302) | | | (299) | | | (909) | | | (910) | |
Adoption of accounting standard updates | — | | | — | | | 25 | | | — | |
Ending balance | 23,777 | | | 24,531 | | | 23,777 | | | 24,531 | |
| | | | | | | |
Accumulated other comprehensive income (loss) | | | | | | | |
Beginning balance | (928) | | | (1,903) | | | (1,015) | | | (1,722) | |
Foreign currency translation | (93) | | | 135 | | | (41) | | | (48) | |
Pension and postretirement | 13 | | | 29 | | | 38 | | | 87 | |
Cash flow hedges | (8) | | | 40 | | | 2 | | | (16) | |
Ending balance | (1,016) | | | (1,699) | | | (1,016) | | | (1,699) | |
| | | | | | | |
Treasury stock | | | | | | | |
Beginning balance | (14,878) | | | (15,941) | | | (13,935) | | | (15,114) | |
Purchases | — | | | — | | | (1,000) | | | (942) | |
Issued under stock plans | 8 | | | 4 | | | 65 | | | 119 | |
Ending balance | (14,870) | | | (15,937) | | | (14,870) | | | (15,937) | |
| | | | | | | |
Common stockholders' equity | 8,755 | | | 7,831 | | | 8,755 | | | 7,831 | |
| | | | | | | |
Noncontrolling interests in subsidiaries | | | | | | | |
Beginning balance | 46 | | | 46 | | | 43 | | | 40 | |
Net earnings | 8 | | | 8 | | | 15 | | | 18 | |
Other comprehensive income | — | | | (1) | | | 1 | | | — | |
Dividends paid | (5) | | | (6) | | | (10) | | | (11) | |
| | | | | | | |
Ending balance | 49 | | | 47 | | | 49 | | | 47 | |
| | | | | | | |
Total equity | $ | 8,804 | | | 7,878 | | | 8,804 | | | 7,878 | |
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows
EMERSON ELECTRIC CO. & SUBSIDIARIES
Nine Months Ended June 30, 20182019 and 20192020
(Dollars in millions; unaudited)
|
| | | | | | | |
| | Nine Months Ended |
| | June 30, |
| | 2018 |
| | 2019 |
|
Operating activities | | | | |
Net earnings | | $ | 1,602 |
| | 1,604 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 557 |
| | 609 |
|
Changes in operating working capital | | (286 | ) | | (352 | ) |
Other, net | | (5 | ) | | (59 | ) |
Cash provided by operating activities | | 1,868 |
| | 1,802 |
|
| | | | |
Investing activities | | | | |
Capital expenditures | | (314 | ) | | (395 | ) |
Purchases of businesses, net of cash and equivalents acquired | | (770 | ) | | (385 | ) |
Divestitures of businesses | | 223 |
| | 10 |
|
Other, net | | (71 | ) | | (91 | ) |
Cash used in investing activities | | (932 | ) | | (861 | ) |
| | | | |
Financing activities | | | | |
Net increase in short-term borrowings | | 1,581 |
| | 427 |
|
Proceeds from long-term debt | | — |
| | 1,691 |
|
Payments of long-term debt | | (251 | ) | | (655 | ) |
Dividends paid | | (924 | ) | | (909 | ) |
Purchases of common stock | | (1,000 | ) | | (1,000 | ) |
Other, net | | 34 |
| | 21 |
|
Cash used in financing activities | | (560 | ) | | (425 | ) |
| | | | |
Effect of exchange rate changes on cash and equivalents | | (27 | ) | | (6 | ) |
Increase in cash and equivalents | | 349 |
| | 510 |
|
Beginning cash and equivalents | | 3,062 |
| | 1,093 |
|
Ending cash and equivalents | | $ | 3,411 |
| | 1,603 |
|
| | | | |
Changes in operating working capital | | | | |
Receivables | | $ | 27 |
| | 178 |
|
Inventories | | (133 | ) | | (217 | ) |
Other current assets | | (15 | ) | | (74 | ) |
Accounts payable | | (97 | ) | | (156 | ) |
Accrued expenses | | (83 | ) | | (116 | ) |
Income taxes | | 15 |
| | 33 |
|
Total changes in operating working capital | | $ | (286 | ) | | (352 | ) |
| | | | | | | | | | | | | | |
| | Nine Months Ended | | |
| | June 30, | | |
| | 2019 | | | 2020 | |
Operating activities | | | | |
Net earnings | | $ | 1,604 | | | 1,260 | |
| | | | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 609 | | | 631 | |
Stock compensation | | 83 | | | 69 | |
Pension expense | | (1) | | | 50 | |
Changes in operating working capital | | (352) | | | (86) | |
| | | | |
| | | | |
Other, net | | (141) | | | (70) | |
| | | | |
| | | | |
Cash provided by operating activities | | 1,802 | | | 1,854 | |
| | | | |
Investing activities | | | | |
Capital expenditures | | (395) | | | (329) | |
Purchases of businesses, net of cash and equivalents acquired | | (385) | | | (114) | |
Divestitures of businesses | | 10 | | | — | |
Other, net | | (91) | | | (65) | |
| | | | |
| | | | |
Cash used in investing activities | | (861) | | | (508) | |
| | | | |
Financing activities | | | | |
Net increase in short-term borrowings | | 427 | | | 269 | |
Proceeds from short-term borrowings greater than three months | | — | | | 546 | |
Payments of short-term borrowings greater than three months | | — | | | (340) | |
Proceeds from long-term debt | | 1,691 | | | 1,488 | |
Payments of long-term debt | | (655) | | | (502) | |
Dividends paid | | (909) | | | (910) | |
Purchases of common stock | | (1,000) | | | (942) | |
Other, net | | 21 | | | 28 | |
Cash used in financing activities | | (425) | | | (363) | |
| | | | |
Effect of exchange rate changes on cash and equivalents | | (6) | | | (27) | |
Increase in cash and equivalents | | 510 | | | 956 | |
Beginning cash and equivalents | | 1,093 | | | 1,494 | |
Ending cash and equivalents | | $ | 1,603 | | | 2,450 | |
| | | | |
Changes in operating working capital | | | | |
Receivables | | $ | 178 | | | 456 | |
Inventories | | (217) | | | (218) | |
Other current assets | | (74) | | | 40 | |
Accounts payable | | (156) | | | (439) | |
Accrued expenses | | (83) | | | 75 | |
| | | | |
Total changes in operating working capital | | $ | (352) | | | (86) | |
See accompanying Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
EMERSON ELECTRIC CO. & SUBSIDIARIES
(Dollars euros and shares in millions, except per share amounts or where noted)
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary for a fair presentation of operating results for the interim periods presented. Adjustments consist of normal and recurring accruals. The consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all disclosures required for annual financial statements presented in conformity with U.S. generally accepted accounting principles (GAAP). 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, 2018.2019. Certain prior year amounts have been reclassified to conform to current year presentation.
On October 1, 2018,2019, the Company adopted ASC 606, Revenue from Contracts with Customers, which updated and consolidated revenue recognition guidance from multiple sources into a single, comprehensive standard to be applied for all contracts with customers. The fundamental principle of the revised standard is to recognize revenue based on the transfer of goods and services to customers at the amount the Company expects to be entitled to in exchange for those goods and services. The Company adopted the new standard using the modified retrospective approach and applied the guidance to open contracts which were not completed at the date of adoption. The cumulative effect of adoption resulted in a $25 increase to beginning retained earnings as of October 1, 2018. This increase primarily related to contracts where a portion of revenue for delivered goods or services was previously deferred due to contingent payment terms. The adoption of ASC 606 did not materially impact the Company's consolidated financial statements as of and for the three and nine months endedJune 30, 2019.
In the first quarter of fiscal 2019, the Company adopted updates to ASC 715, Compensation - Retirement Benefits, which permit only the service cost component of net periodic pension and postretirement expense to be reported with compensation costs, while all other components are required to be reported separately in other deductions. These updates were adopted retrospectively and resulted in the reclassification of income for the three and nine months ended June 30, 2018 of $11 and $32, respectively, from cost of sales and SG&A to other deductions, net. Segment earnings were not impacted by the updates to ASC 715.
In February 2016, the FASB issued ASC 842, Leases,, which requires rights and obligations related to lease arrangements to be recognized on the balance sheet. Also required are additional disclosures regarding the amount, timing and uncertainty of cash flows resulting from lease arrangements. Currently, obligations classified as operating leases are not recorded on the balance sheet, but must be disclosed. The Company is required to adopt the new standard on October 1, 2019 and expects to useusing the optional transition method under which prior periods willwere not be adjusted. As previously disclosed,The Company elected the package of practical expedients for leases that commenced prior to the adoption date, which included carrying forward the historical lease classification as operating or finance. The adoption of ASC 842 is expected to impact the Company’s balance sheet due toresulted in the recognition of operating lease right-of-use assets and related lease liabilities of approximately $500 as of October 1, 2019, but isdid not expected to materially impact itsthe Company's earnings or cash flows.flows for the three and nine months ended June 30, 2020.
On October 1, 2019, the Company adopted updates to ASC 815, Derivatives and Hedging, which permit hedging certain contractually specified risk components. Additionally, the updates eliminate the requirement to separately measure and report hedge ineffectiveness and simplify hedge documentation and effectiveness assessment requirements. These updates were adopted using a modified retrospective approach and were immaterial to the Company's financial statements for the three and nine months ended June 30, 2020.
In June 2016, the FASB issued ASC 326, Financial Instruments - Credit Losses, which amends the impairment model by requiring entities to use a forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The Companynew standard is effective in the processfirst quarter of implementing changesfiscal 2021 and is expected to its business processes, systems, controls and accounting policies to support recognition and disclosure underhave an immaterial impact on the new guidance.Company's financial statements.
(2) REVENUE RECOGNITION
Emerson is a global manufacturer that combines technology and engineering to provide innovative solutions to its customers, largely in the form of tangible products. The Company evaluates its contracts with customers to identify the promised goods or services and recognizes revenue for the identified performance obligations at the amount the Company expects to be entitled to in exchange for those goods or services. A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. Revenue is recognized when, or as, performance obligations are satisfied and control has transferred to the customer, typically when products are shipped or delivered, title and risk of loss pass to the customer, and the Company has a present right to payment. The vast majority of the Company's revenues relate to a broad offering of manufactured products which are recognized at the point in time when control transfers, generally in accordance with shipping terms. Awhile a smaller portion of the Company's revenues relate to the sale of software and post-contract customer support, parts and labor for repairs, and engineering services. In limited circumstances, contracts include multiple performance obligations, where
revenue is recognized separately for each good or service, as well as contracts where revenue is recognized over time as control transfers to the customer.
Revenue is recognized over time for approximately 5 percent of the Company's revenues. These contracts largely relate to projects in the Process Control Systems & Solutions product offering within the Automation Solutions segment where revenue is recognized using the percentage-of-completion method to reflect the transfer of control over time, while a small amount is attributable to long-term maintenance and service contracts where revenue is typically recognized on a straight-line basis as the services are provided. Approximately 5 percent of revenues relateor relates to sales arrangements with multiple performance obligations, principally inobligations. See Note 14 for additional information about the Automation Solutions segment. Tangible products represent a large majority of the delivered items in contracts with multiple performance obligations or where revenue is recognized over time, while a smaller portion is attributable to installation, service and maintenance.
For revenues recognized over time, the Company typically uses an input method to determine progress and recognize revenue, based on costs incurred. The Company believes costs incurred closely correspond with its performance under the contract and the transfer of control to the customer.
In sales arrangements that involve multiple performance obligations, revenue is allocated based on the relative standalone selling price for each performance obligation. Observable selling prices from actual transactions are used whenever possible. In other instances, the Company determines the standalone selling price based on third-party pricing or management's best estimate. Generally, contract duration is short-term, and cancellation, termination or refund provisions apply only in the event of contract breach and are rarely invoked.
Payment terms vary but are generally short-term in nature. The Company's long-term contracts, where revenue is generally recognized over time, are typically billed as work progresses in accordance with the contract terms and conditions, either at periodic intervals or upon achievement of certain milestones. The timing of revenue recognition and billings under these contracts results in either unbilled receivables (contract assets) when revenue recognized exceeds billings, or customer advances (contract liabilities) when billings exceed revenue recognized. Unbilled receivables are reclassified to accounts receivable when an unconditional right to consideration exists, typically when a milestone in the contract is achieved. The Company does not evaluate whether the transaction price includes a significant financing component for contracts where the time between cash collection and performance is less than one year.
Certain arrangements with customers include variable consideration, typically in the form of rebates, cash discounts or penalties. In limited circumstances, the Company sells products with a general right of return. In most instances, returns are limited to product quality issues. The Company records a reduction to revenue at the time of sale to reflect the ultimate amount of consideration it expects to receive. The Company's estimates are updated quarterly based on historical experience, trend analysis, and expected market conditions. Variable consideration is typically not constrained at the time revenue is recognized.
The Company offers warranties, which vary by product line and are competitive for the markets in which the Company operates. Warranties are largely offered to provide assurance that the product will function as intended and generally extend for a period of one to two years from the date of sale or installation. Provisions for warranty expense are estimated at the time of sale based on historical experience and adjusted quarterly for any known issues that may arise. Product warranty expense is less than one percent of sales.
Capitalized amounts related to incremental costs to obtain customer contracts and costs to fulfill contracts are immaterial.
revenues.
The following table summarizes the balances of the Company's unbilled receivables (contract assets), which are reported in Other current assets, and its customer advances (contract liabilities), which are reported in Accrued expenses.
|
| | | | | | | | |
| Sept 30, 2018 | | June 30, 2019 |
Unbilled receivables (contract assets) | | $ | 321 |
| | | 438 |
|
Customer advances (contract liabilities) | | (510 | ) | | | (539 | ) |
Net contract liabilities | | $ | (189 | ) | | | (101 | ) |
| | | | | | | | | | | | | | | | | |
| Sept 30, 2019 | | | June 30, 2020 | |
Unbilled receivables (contract assets) | | $ | 456 | | | | 409 | |
Customer advances (contract liabilities) | | (519) | | | | (613) | |
Net contract liabilities | | $ | (63) | | | | (204) | |
The majority of the Company's contract balances relate to arrangements where revenue is recognized over time and payments from customers are made according to a contractual billing schedule. The decreaseincrease in net contract liabilities was due to customer billings which exceeded revenue recognized for performance completed during the period which exceeded customer billings.period. Revenue recognized for the three and nine months endedJune 30, 20192020 included approximately $45$37 and $370,$363, respectively, that was included in the beginning contract liability balance. Other factors that impacted the change in
net contract liabilities were immaterial. Revenue recognized for the nine months ended June 30, 20182020 for performance obligations that were fully satisfied in previous periods, including cumulative catchup adjustments on the Company's long-term contracts, was not material.
As of June 30, 2019,2020, the Company's backlog relating to unsatisfied (or partially unsatisfied) performance obligations in contracts with its customers was approximately $5.5$5.6 billion. The Company expects to recognize approximately 85 percent of its remaining performance obligations as revenue over the next 12 months, with the remainder substantially over the subsequent two years thereafter.
See Note 12 for additional information about the Company's revenues.
(3) WEIGHTED-AVERAGE COMMON SHARES
Reconciliations of weighted-average shares for basic and diluted earnings per common share follow. Earnings allocated to participating securities were inconsequential.
| | | Three Months Ended June 30, | | Nine Months Ended June 30, | | Three Months Ended June 30, | | | Nine Months Ended June 30, | |
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
| | 2019 | | | 2020 | | | 2019 | | | 2020 | |
| | | | | | | | | | | | | | | |
Basic shares outstanding | 629.4 |
| | 614.3 |
| | 633.4 |
| | 617.4 |
| Basic shares outstanding | 614.3 | | | 596.9 | | | 617.4 | | | 604.8 | |
Dilutive shares | 3.5 |
| | 4.7 |
| | 3.1 |
| | 4.2 |
| Dilutive shares | 4.7 | | | 3.1 | | | 4.2 | | | 3.6 | |
Diluted shares outstanding | 632.9 |
| | 619.0 |
| | 636.5 |
| | 621.6 |
| Diluted shares outstanding | 619.0 | | | 600.0 | | | 621.6 | | | 608.4 | |
(4) ACQUISITIONS AND DIVESTITURES
During the first nine months of 2020, the Company's acquisition spending totaled $114, net of cash acquired. (4)
The Company acquired 8 businesses in 2019, all in the Automation Solutions segment, for $469, net of cash acquired. These eight businesses had combined annual sales of approximately $300. The Company recognized goodwill of $213 ($158 of which is expected to be tax deductible) and other identifiable intangible assets of $155, primarily customer relationships and intellectual property with a weighted-average life of approximately nine years.
Valuations of certain acquired assets and liabilities are in-process and subject to refinement for transactions completed after June 30, 2019.
(5) PENSION & POSTRETIREMENT PLANS
Total periodic pension and postretirement (income) expense is summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | Nine Months Ended June 30, | | | | |
| | 2019 | | | | 2020 | | | | 2019 | | | | 2020 | |
Service cost | | $ | 18 | | | | 21 | | | | 54 | | | | 65 | |
Interest cost | | 49 | | | | 40 | | | | 149 | | | | 120 | |
Expected return on plan assets | | (88) | | | | (84) | | | | (264) | | | | (252) | |
Net amortization | | 17 | | | | 38 | | | | 50 | | | | 113 | |
Total | | $ | (4) | | | | 15 | | | | (11) | | | | 46 | |
(6) OTHER DEDUCTIONS, NET
Other deductions, net are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | Nine Months Ended June 30, | | | | |
| 2019 | | | | | 2020 | | | | 2019 | | | | 2020 | |
| | | | | | | | | | | |
Amortization of intangibles (intellectual property and customer relationships) | | $ | 60 | | | | 60 | | | | 177 | | | | 178 | |
Restructuring costs | | 20 | | | | 88 | | | | 40 | | | | 216 | |
Special advisory fees | | — | | | | — | | | | — | | | | 13 | |
Other | | (15) | | | | 33 | | | | (45) | | | | (6) | |
Total | | $ | 65 | | | | 181 | | | | 172 | | | | 401 | |
In the third quarter of fiscal 2020, the change in Other included unfavorable impacts from foreign currency transactions of $25 and pensions of $16. On a year-to-date basis, the change in Other reflects an unfavorable impact from pensions of $46, partially offset by lower litigation costs.
(7) RESTRUCTURING COSTS
Restructuring expense reflects costs associated with the Company’s ongoing efforts to improve operational efficiency and deploy assets globally in order to remain competitive on a worldwide basis. The costs incurred in the first nine months of fiscal 2020 largely relate to the Company's initiatives to improve operating margins that began in the third quarter of fiscal 2019 and include workforce reductions of approximately 3,300 employees. The Company expects fiscal 2020 restructuring expense and related costs to be approximately $300, an increase of $20 compared to its previous estimate, including costs to complete actions initiated in the first nine months of the year.
Restructuring expense by business segment follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | Nine Months Ended June 30, | | | | |
| 2019 | | | | 2020 | | | | 2019 | | | | 2020 | | |
| | | | | | | | | | | |
Automation Solutions | | $ | 15 | | | | 76 | | | | 26 | | | | 182 | |
| | | | | | | | | | | |
Climate Technologies | | 4 | | | | 5 | | | | 8 | | | | 14 | |
Tools & Home Products | | 1 | | | | 4 | | | | 5 | | | | 12 | |
Commercial & Residential Solutions | | 5 | | | | 9 | | | | 13 | | | | 26 | |
| | | | | | | | | | | |
Corporate | | — | | | | 3 | | | | 1 | | | | 8 | |
| | | | | | | | | | | |
Total | | $ | 20 | | | | 88 | | | | 40 | | | | 216 | |
Details of the change in the liability for restructuring costs during the nine months ended June 30, 2020 follow:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sept 30, 2019 | | | Expense | | | Utilized/Paid | | | June 30, 2020 | |
| | | | | | | | | | | |
Severance and benefits | | $ | 62 | | | | 184 | | | | 92 | | | | 154 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Other | | 7 | | | | 32 | | | | 34 | | | | 5 | |
Total | | $ | 69 | | | | 216 | | | | 126 | | | | 159 | |
The tables above do not include $6 and $15 of costs related to these restructuring actions incurred in the three and nine months ended June 30, 2020, respectively, that are required to be reported in cost of sales.
(8) INCOME TAXES
Income taxes were $51 in the third quarter of fiscal 2020 and $155 in 2019, resulting in effective tax rates of 11 percent and 20 percent, respectively. The current year rate included $57 ($0.10 per share) of discrete benefits, which decreased the rate 12 percentage points, related to updates to estimates for the prior year U.S. income tax return and the impact of a research and development tax credit study. The prior year rate included favorable discrete tax items, which reduced the rate 3 percentage points, largely due to a tax benefit of $21 ($0.03 per share) from restructuring a foreign subsidiary.
Income taxes were $310 for the first nine months of 2020 and $429 for 2019, resulting in effective tax rates of 20 percent and 21 percent, respectively. The current year and prior year rates included favorable discrete items, including the items discussed above, which reduced both years' rates approximately 3 percentage points.
On March 27, 2020, the CARES Act (the "Act") was enacted in response to the COVID-19 pandemic, and among other things, provides tax relief to businesses. Tax provisions of the Act include the deferral of certain payroll taxes, relief for retaining employees, and other provisions. The Company expects to defer $75 of certain payroll taxes through the end of calendar year 2020.
(9) LEASES
The Company leases offices; manufacturing facilities and equipment; and transportation, information technology and office equipment under operating lease arrangements. Finance lease arrangements are immaterial. The Company determines whether an arrangement is, or contains, a lease at contract inception. An arrangement contains a lease if the Company has the right to direct the use of and obtain substantially all of the economic benefits of an identified asset. Right-of-use assets and lease liabilities are recognized at lease commencement based on the present value of lease payments over the lease term. Leases with an initial term of 12 months or less are not recognized on the balance sheet and are recorded as short-term lease expense. The discount rate used to calculate present value is the Company's incremental borrowing rate based on the lease term and the economic environment of the applicable country or region.
Certain leases contain renewal options or options to terminate prior to lease expiration, which are included in the measurement of right-of-use assets and lease liabilities when it is reasonably certain they will be exercised. The Company has elected to account for lease and non-lease components as a single lease component for its offices and manufacturing facilities. Some lease arrangements include payments that are adjusted periodically based on actual charges incurred for common area maintenance, utilities, taxes and insurance, or changes in an index or rate referenced in the lease. The fixed portion of these payments is included in the measurement of right-of-use assets and lease liabilities at lease commencement, while the variable portion is recorded as variable lease expense. The Company's leases typically do not contain material residual value guarantees or restrictive covenants.
The components of lease expense for the three and nine months ended June 30, 2020 were as follows:
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | | Nine Months Ended | |
| June 30, 2020 | | | | |
| | | | | |
Operating lease expense | | $ | 50 | | | | 156 | |
Variable lease expense | | $ | 4 | | | | 14 | |
Short-term lease expense and sublease income were immaterial for the three and nine months ended June 30, 2020. Cash paid for operating leases is classified within operating cash flows and was $155 for the nine months ended June 30, 2020. Operating lease right-of-use asset additions were $172 for the nine months ended June 30, 2020.
The following table summarizes the balances of the Company's operating lease right-of-use assets and operating lease liabilities as of June 30, 2020, the vast majority of which relates to offices and manufacturing facilities:
| | | | | | | | | | | | | | | | | |
| | | | June 30, 2020 | |
Right-of-use assets (Other assets) | | | | | $ | 500 | |
Current lease liabilities (Accrued expenses) | | | | | $ | 149 | |
Noncurrent lease liabilities (Other liabilities) | | | | | $ | 359 | |
The weighted-average remaining lease term for operating leases was 5.2 years and the weighted-average discount rate was 3.0 percent as of June 30, 2020.
Future maturities of operating lease liabilities as of June 30, 2020 are summarized below:
| | | | | | | | | | | | | | | | | |
| | | | June 30, 2020 | |
Remainder of 2020 | | | | | $ | 44 | |
2021 | | | | | 143 | |
2022 | | | | | 110 | |
2023 | | | | | 83 | |
2024 | | | | | 58 | |
Thereafter | | | | | 115 | |
Total lease payments | | | | | 553 | |
Less: Interest | | | | | 45 | |
Total lease liabilities | | | | | $ | 508 | |
Lease commitments that have not yet commenced were immaterial as of June 30, 2020.
The future minimum annual rentals under noncancelable long-term leases as of September 30, 2019 were as follows: $159 in 2020, $112 in 2021, $82 in 2022, $57 in 2023, $38 in 2024 and $63 thereafter.
(10) OTHER FINANCIAL INFORMATION |
| | | | | | | | |
| Sept 30, 2018 | | June 30, 2019 |
Inventories | | | | | |
Finished products | | $ | 592 |
| | | 636 |
|
Raw materials and work in process | | 1,221 |
| | | 1,425 |
|
Total | | $ | 1,813 |
| | | 2,061 |
|
|
| | | | | | | | |
Property, plant and equipment, net | | | |
Property, plant and equipment, at cost | | $ | 8,370 |
| | | 8,687 |
|
Less: Accumulated depreciation | | 4,808 |
| | | 5,073 |
|
Total | | $ | 3,562 |
| | | 3,614 |
|
| | | | | | | | | | | | | | | | | |
| Sept 30, 2019 | | | June 30, 2020 | |
Inventories | | | | | |
Finished products | | $ | 578 | | | | 624 | |
Raw materials and work in process | | 1,302 | | | | 1,478 | |
Total | | $ | 1,880 | | | | 2,102 | |
| | | | | | | | | | | | | | | | | |
| | | | | |
Property, plant and equipment, net | | | | | |
Property, plant and equipment, at cost | | $ | 8,671 | | | | 8,835 | |
Less: Accumulated depreciation | | 5,029 | | | | 5,270 | |
Total | | $ | 3,642 | | | | 3,565 | |
| | | | | | | | | | | | | | | | | |
| | | | | |
Goodwill by business segment | | | | | |
Automation Solutions | | $ | 5,467 | | | | 5,492 | |
| | | | | |
Climate Technologies | | 668 | | | | 727 | |
Tools & Home Products | | 401 | | | | 405 | |
Commercial & Residential Solutions | | 1,069 | | | | 1,132 | |
| | | | | |
Total | | $ | 6,536 | | | | 6,624 | |
|
| | | | | | | | |
| Sept 30, 2018 | | June 30, 2019 |
Goodwill by business segment | | | | | |
Automation Solutions | | $ | 5,355 |
| | | 5,462 |
|
| | | | | |
Climate Technologies | | 670 |
| | | 670 |
|
Tools & Home Products | | 430 |
| | | 412 |
|
Commercial & Residential Solutions | | 1,100 |
| | | 1,082 |
|
| | | | | |
Total | | $ | 6,455 |
| | | 6,544 |
|
|
| | | | | | | | |
Other intangible assets | | | |
Gross carrying amount | | $ | 4,667 |
| | | 4,854 |
|
Less: Accumulated amortization | | 1,916 |
| | | 2,163 |
|
Net carrying amount | | $ | 2,751 |
| | | 2,691 |
|
| | | | | | | | | | | | | | | | | |
| Sept 30, 2019 | | | June 30, 2020 | |
Other intangible assets | | | | | |
Gross carrying amount | | $ | 4,872 | | | | 5,019 | |
Less: Accumulated amortization | | 2,257 | | | | 2,531 | |
Net carrying amount | | $ | 2,615 | | | | 2,488 | |
Other intangible assets include customer relationships, net of $1,423$1,391 and $1,517$1,298 as of JuneSeptember 30, 2019 and SeptemberJune 30, 2018,2020, respectively.
| | Other assets include the following: | | | | Other assets include the following: | | | | | |
Operating lease right-of-use assets | | Operating lease right-of-use assets | | $ | — | | | 500 | |
Pension assets | | $ | 591 |
| | 701 |
| Pension assets | | 164 | | | 294 | |
Asbestos-related insurance receivables | | $ | 124 |
| | 117 |
| Asbestos-related insurance receivables | | 115 | | | 102 | |
Deferred income taxes | | $ | 74 |
| | 87 |
| Deferred income taxes | | 97 | | | 96 | |
|
| | | | | | | | |
Accrued expenses include the following: | | | | | |
Employee compensation | | $ | 629 |
| | | 598 |
|
Customer advances (contract liabilities) | | $ | 510 |
| | | 539 |
|
Product warranty | | $ | 124 |
| | | 127 |
|
|
| | | | | | | | |
Other liabilities | | | | | |
Pension and postretirement liabilities | | $ | 625 |
| | | 627 |
|
Deferred income taxes | | 484 |
| | | 435 |
|
Asbestos litigation | | 334 |
| | | 324 |
|
Other | | 656 |
| | | 573 |
|
Total | | $ | 2,099 |
| | | 1,959 |
|
| | | | | | | | | | | | | | | | | |
| | | | | |
Accrued expenses include the following: | | | | | |
Customer advances (contract liabilities) | | $ | 519 | | | | 613 | |
Employee compensation | | 606 | | | | 570 | |
Operating lease liabilities (current) | | — | | | | 149 | |
Product warranty | | 140 | | | | 138 | |
(5) | | | | | | | | | | | | | | | | | |
Other liabilities include the following: | | | | | |
Pension and postretirement liabilities | | $ | 775 | | | | 781 | |
Operating lease liabilities (noncurrent) | | — | | | | 359 | |
Deferred income taxes | | 327 | | | | 361 | |
Asbestos litigation | | 313 | | | | 302 | |
| | | | | |
| | | | | |
(11) LONG-TERM DEBT
In April 2020, the Company issued $500 of 1.8% notes due October 2027, $500 of 1.95% notes due October 2030 and $500 of 2.75% notes due October 2050.
(12) FINANCIAL INSTRUMENTS
Following is a discussion regarding the Company’s use of financial instruments:
Hedging Activities – As of June 30, 2019,2020, the notional amount of foreign currency hedge positions was approximately $2.2 billion, and commodity hedge contracts totaled approximately $117$96 (primarily 4539 million pounds of copper and aluminum). All derivatives receiving hedge accounting are cash flow hedges. The majority of hedging gains and losses deferred as of June 30, 20192020 are expected to be recognized over the next 12 months as the underlying forecasted transactions occur. Gains and losses on foreign currency derivatives reported in Other deductions, net reflect hedges of balance sheet exposures that do not receive hedge accounting.
Net Investment Hedge – In fiscal 2019, the Company issued euro-denominated debt of €1.5 billion. The euro notes reduce foreign currency risk associated with the Company's international subsidiaries that use the euro as their functional currency and have been designated as a hedge of a portion of the investment in these operations. Foreign currency gains or losses associated with the euro-denominated debt are deferred in accumulated other comprehensive income (loss) and will remain until the hedged investment is sold or substantially liquidated.
The following gains and losses are included in earnings and other comprehensive income (OCI) for the three and nine months ended June 30, 20192020 and 2018:2019:
| | | | Into Earnings | | Into OCI | | Into Earnings | | | Into OCI | |
| | 3rd Quarter | | Nine Months | | 3rd Quarter | | Nine Months | | 3rd Quarter | | | Nine Months | | | 3rd Quarter | | | Nine Months | |
Gains (Losses) | | Location | | 2018 |
| | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| | 2019 |
| Gains (Losses) | | Location | | 2019 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | | 2020 | |
Commodity | | Cost of sales | | $ | 2 |
| | (2 | ) | | 13 |
| | (8 | ) | | (3 | ) | | (8 | ) | | 1 |
| | (5 | ) | Commodity | | Cost of sales | | $ | (2) | | | (4) | | | (8) | | | (8) | | | (8) | | | 17 | | | (5) | | | 1 | |
Foreign currency | | Sales, cost of sales | | (1 | ) | | 4 |
| | (1 | ) | | 10 |
| | (15 | ) | | — |
| | (19 | ) | | 10 |
| Foreign currency | | Sales | | (2) | | | (2) | | | (5) | | | (5) | | | (3) | | | 6 | | | (5) | | | 1 | |
Foreign currency | | Other deductions, net | | 28 |
| | 3 |
| | 16 |
| | 43 |
| | | | | | | | | Foreign currency | | Cost of sales | | 6 | | | (3) | | | 15 | | | 8 | | | 3 | | | 21 | | | 15 | | | (28) | |
Foreign currency | | Foreign currency | | Other deductions, net | | 3 | | | (26) | | | 43 | | | (5) | | |
| Net Investment Hedges | | Net Investment Hedges | | |
Euro denominated debt | | Euro denominated debt | | | | | | | | | | 6 | | | (72) | | | 12 | | | (41) | |
Total | | | | $ | 29 |
| | 5 |
| | 28 |
| | 45 |
| | (18 | ) | | (8 | ) | | (18 | ) | | 5 |
| Total | | | | $ | 5 | | | (35) | | | 45 | | | (10) | | | (2) | | | (28) | | | 17 | | | (67) | |
Regardless of whether derivatives and non-derivative financial instruments receive hedge accounting, the Company expects hedging gains or losses to be essentially offset by losses or gains on the related underlying exposures. The amounts ultimately recognized will differ from those presented above for open positions, which remain subject to ongoing market price fluctuations until settlement. Derivatives receiving hedge accounting are highly effective and no amounts were excluded from the assessment of hedge effectiveness, including for the net investment hedge described below. Hedge ineffectiveness was immaterial for the three and nine months ended June 30, 2019and 2018.effectiveness.
Net Investment Hedge – In January 2019, the Company issued €500 of 1.25% notes due October 2025 and €500 of 2.0% notes due October 2029. In May 2019, the Company issued €500 of 0.375% notes due May 2024. The net proceeds from the sale of the notes were used to repay commercial paper borrowings and for general corporate purposes. The euro notes reduce foreign currency risk associated with the Company's international subsidiaries that use the euro as their functional currency and have been designated as a hedge of a portion of the investment in these operations. Pretax gains of $6 ($4 after-tax) and $12 ($9 after-tax) were recognized in other comprehensive income (loss) related to the net investment hedge for the three and nine months ended June 30, 2019, respectively. Amounts deferred in accumulated other comprehensive income (loss) will remain until the hedged investment is sold or substantially liquidated.
Fair Value Measurement – Valuations for all derivatives and the Company's long-term debt fall within Level 2 of the GAAP valuation hierarchy. As of June 30, 2019,2020, the fair value of long-term debt was $5.3$6.4 billion, which exceeded the carrying value by $411.
$596. The fair values of commodity and foreign currency contracts were reported in otherOther current assets and accruedAccrued expenses as summarized below: |
| | | | | | | | | | | | | |
| September 30, 2018 | | June 30, 2019 |
| Assets | | Liabilities | | Assets | | Liabilities |
Commodity | | $ | 1 |
| | 10 |
| | 1 |
| | 7 |
|
Foreign Currency | | $ | 35 |
| | 11 |
| | 35 |
| | 9 |
|
and did not materially change since September 30, 2019. Counterparties to derivatives arrangements are companies with investment-grade credit ratings. The Company has bilateral collateral arrangements with counterparties with credit rating-based posting thresholds that vary depending on the arrangement. If credit ratings on the Company's debt fall below pre-established levels, counterparties can require immediate full collateralization of all derivatives in net liability positions. The maximum amount that could potentially have been required was $6.$11. The Company also can demand full collateralization of derivatives in net asset positions should any counterparty credit ratings fall below certain thresholds. NoNaN collateral was posted with counterparties and noneNaN was held by the Company as of June 30, 2019.2020.
(6) EQUITY
The change in equity for the three and nine months ended June 30, 2018 and 2019 is shown below:
|
| | | | | | | | | | | | |
| Three Months Ended June 30, | | Nine Months Ended June 30, |
| 2018 |
| | 2019 |
| | 2018 |
| | 2019 |
|
| | | | | | | |
Common stock | $ | 477 |
| | 477 |
| | 477 |
| | 477 |
|
| | | | | | | |
Additional paid-in-capital | | | | | | | |
Beginning balance | 323 |
| | 380 |
| | 297 |
| | 348 |
|
Stock plans | 9 |
| | 7 |
| | 35 |
| | 39 |
|
Ending balance | 332 |
| | 387 |
| | 332 |
| | 387 |
|
| | | | | | | |
Retained earnings | | | | | | | |
Beginning balance | 22,254 |
| | 23,475 |
| | 21,995 |
| | 23,072 |
|
Net earnings common stockholders | 712 |
| | 604 |
| | 1,586 |
| | 1,589 |
|
Dividends paid | (306 | ) | | (302 | ) | | (924 | ) | | (909 | ) |
Adoption of accounting standard updates | — |
| | — |
| | 3 |
| | 25 |
|
Ending balance | 22,660 |
| | 23,777 |
| | 22,660 |
| | 23,777 |
|
| | | | | | | |
Accumulated other comprehensive income (loss) | | | | | | | |
Beginning balance | (827 | ) | | (928 | ) | | (1,019 | ) | | (1,015 | ) |
Foreign currency translation | (273 | ) | | (93 | ) | | (118 | ) | | (41 | ) |
Pension and postretirement | 22 |
| | 13 |
| | 67 |
| | 38 |
|
Cash flow hedges | (14 | ) | | (8 | ) | | (22 | ) | | 2 |
|
Ending balance | (1,092 | ) | | (1,016 | ) | | (1,092 | ) | | (1,016 | ) |
| | | | | | | |
Treasury stock | | | | | | | |
Beginning balance | (13,735 | ) | | (14,878 | ) | | (13,032 | ) | | (13,935 | ) |
Purchases | (250 | ) | | — |
| | (1,000 | ) | | (1,000 | ) |
Issued under stock plans | 21 |
| | 8 |
| | 68 |
| | 65 |
|
Ending balance | (13,964 | ) | | (14,870 | ) | | (13,964 | ) | | (14,870 | ) |
| | | | | | | |
Common stockholders' equity | 8,413 |
| | 8,755 |
| | 8,413 |
| | 8,755 |
|
| | | | | | | |
Noncontrolling interests in subsidiaries | | | | | | | |
Beginning balance | 45 |
| | 46 |
| | 52 |
| | 43 |
|
Net earnings | 7 |
| | 8 |
| | 16 |
| | 15 |
|
Other comprehensive income | — |
| | — |
| | — |
| | 1 |
|
Dividends paid | (5 | ) | | (5 | ) | | (21 | ) | | (10 | ) |
Ending balance | 47 |
| | 49 |
| | 47 |
| | 49 |
|
| | | | | | | |
Total equity | $ | 8,460 |
| | 8,804 |
| | 8,460 |
| | 8,804 |
|
(7)(13) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Activity in Accumulated other comprehensive income (loss) for the three and nine months ended June 30, 20182020 and 2019 is shown below:below, net of income taxes:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | Nine Months Ended June 30, | | | | |
| | 2019 | | | | 2020 | | | | 2019 | | | | 2020 | |
Foreign currency translation | | | | | | | | | | | |
Beginning balance | | $ | (548) | | | | (977) | | | | (600) | | | | (794) | |
Other comprehensive income (loss), net of tax of $(2), $17, $(3) and $10, respectively | | (93) | | | | 135 | | | | (41) | | | | (48) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Ending balance | | (641) | | | | (842) | | | | (641) | | | | (842) | |
| | | | | | | | | | | |
Pension and postretirement | | | | | | | | | | | |
Beginning balance | | (395) | | | | (870) | | | | (420) | | | | (928) | |
Amortization of deferred actuarial losses into earnings, net of tax of $(4), $(9), $(12) and $(26), respectively | | 13 | | | | 29 | | | | 38 | | | | 87 | |
| | | | | | | | | | | |
Ending balance | | (382) | | | | (841) | | | | (382) | | | | (841) | |
| | | | | | | | | | | |
Cash flow hedges | | | | | | | | | | | |
Beginning balance | | 15 | | | | (56) | | | | 5 | | | | — | |
Deferral of gains (losses) arising during the period, net of tax of $2, $(11), $(1) and $6, respectively | | (6) | | | | 33 | | | | 4 | | | | (20) | |
Reclassification of realized (gains) losses to sales and cost of sales, net of tax of $0, $(2), $0 and $(1), respectively | | (2) | | | | 7 | | | | (2) | | | | 4 | |
Ending balance | | 7 | | | | (16) | | | | 7 | | | | (16) | |
| | | | | | | | | | | |
Accumulated other comprehensive income (loss) | | $ | (1,016) | | | | (1,699) | | | | (1,016) | | | | (1,699) | |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Nine Months Ended June 30, |
| | 2018 |
| | | 2019 |
| | | 2018 |
| | | 2019 |
|
Foreign currency translation | | | | | | | | | | | |
Beginning balance | | $ | (214 | ) | | | (548 | ) | | | (369 | ) | | | (600 | ) |
Other comprehensive income (loss) before reclassifications | | (273 | ) | | | (93 | ) | | | (101 | ) | | | (41 | ) |
Reclassified to gain/loss on sale of business | | — |
| | | — |
| | | (17 | ) | | | — |
|
Ending balance | | (487 | ) | | | (641 | ) | | | (487 | ) | | | (641 | ) |
| | | | | | | | | | | |
Pension and postretirement | | | | | | | | | | | |
Beginning balance | | (617 | ) | | | (395 | ) | | | (662 | ) | | | (420 | ) |
Amortization of deferred actuarial losses into earnings | | 22 |
| | | 13 |
| | | 67 |
| | | 38 |
|
Ending balance | | (595 | ) | | | (382 | ) | | | (595 | ) | | | (382 | ) |
| | | | | | | | | | | |
Cash flow hedges | | | | | | | | | | | |
Beginning balance | | 4 |
| | | 15 |
| | | 12 |
| | | 5 |
|
Deferral of gains (losses) arising during the period | | (13 | ) | | | (6 | ) | | | (13 | ) | | | 4 |
|
Reclassification of realized (gains) losses to sales and cost of sales | | (1 | ) | | | (2 | ) | | | (9 | ) | | | (2 | ) |
Ending balance | | (10 | ) | | | 7 |
| | | (10 | ) | | | 7 |
|
| | | | | | | | | | | |
Accumulated other comprehensive income (loss) | | $ | (1,092 | ) | | | (1,016 | ) | | | (1,092 | ) | | | (1,016 | ) |
| | | | | | | | | | | |
Activity above is shown net of income taxes for the three and nine months ended June 30, 2019 and 2018, respectively, as follows: foreign currency translation: $(2), $-, $(3), and $-; amortization of pension and postretirement deferred actuarial losses: $(4), $(8), $(12), and $(24); deferral of cash flow hedging gains (losses): $2, $5, $(1), and $5; reclassification of realized cash flow hedging (gains) losses: $-, $-, $-, and $3. |
(8) PENSION & POSTRETIREMENT PLANS
Total periodic pension and postretirement (income) expense is summarized below:
|
| | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Nine Months Ended June 30, |
| | 2018 | | | 2019 | | | 2018 |
| | | 2019 |
Service cost | | $ | 19 |
| | | 18 |
| | | 57 |
| | | 54 |
|
Interest cost | | 46 |
| | | 49 |
| | | 139 |
| | | 149 |
|
Expected return on plan assets | | (87 | ) | | | (88 | ) | | | (262 | ) | | | (264 | ) |
Net amortization | | 30 |
| | | 17 |
| | | 91 |
| | | 50 |
|
Total | | $ | 8 |
| | | (4 | ) | | | 25 |
| | | (11 | ) |
(9) OTHER DEDUCTIONS, NET
Other deductions, net are summarized below:
|
| | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Nine Months Ended June 30, |
| 2018 | | | | 2019 |
| | | 2018 |
| | | 2019 |
|
| | | | | | | | | | | |
Amortization of intangibles | | $ | 47 |
| | | 60 |
| | | 154 |
| | | 177 |
|
Restructuring costs | | 14 |
| | | 20 |
| | | 38 |
| | | 40 |
|
Other | | 16 |
| | | (15 | ) | | | 51 |
| | | (45 | ) |
Total | | $ | 77 |
| | | 65 |
| | | 243 |
| | | 172 |
|
The increase in amortization for the nine months ended June 30, 2019 is due to higher intangibles amortization of $42, which largely relates to acquisitions completed in 2018, partially offset by backlog amortization of $19 incurred in the prior year related to the valves & controls acquisition. In the third quarter of 2019, Other included lower acquisition/divestiture-related costs of $7 and a favorable impact on comparisons from pensions of $11. On a year-to-date basis, Other reflects lower acquisition/divestiture-related costs of $42, pension expenses of $33 and foreign currency transactions of $9.
(10) RESTRUCTURING COSTS
Restructuring expense reflects costs associated with the Company’s ongoing efforts to improve operational efficiency and deploy assets globally in order to remain competitive on a worldwide basis. Costs for the three and nine months endedJune 30, 2019 largely relate to restructuring of the global cost structure consistent with the current level of economic activity, as well as the redeployment of resources for future growth.
Restructuring expense by business segment follows:
|
| | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Nine Months Ended June 30, |
| 2018 | | | 2019 | | | 2018 | | | 2019 | |
| | | | | | | | | | | |
Automation Solutions | | $ | 9 |
| | | 15 |
| | | 26 |
| | | 26 |
|
| | | | | | | | | | | |
Climate Technologies | | 4 |
| | | 4 |
| | | 11 |
| | | 8 |
|
Tools & Home Products | | — |
| | | 1 |
| | | — |
| | | 5 |
|
Commercial & Residential Solutions | | 4 |
| | | 5 |
| | | 11 |
| | | 13 |
|
| | | | | | | | | | | |
Corporate | | 1 |
| | | — |
| | | 1 |
| | | 1 |
|
| | | | | | | | | | | |
Total | | $ | 14 |
| | | 20 |
| | | 38 |
| | | 40 |
|
Details of the change in the liability for restructuring costs during the nine months ended June 30, 2019 follow: |
| | | | | | | | | | | | | | | | |
| Sept 30, 2018 | | | Expense | | | Utilized/Paid | | | June 30, 2019 | |
| | | | | | | | | | | |
Severance and benefits | | $ | 46 |
| | | 25 |
| | | 35 |
| | | 36 |
|
Lease and other contract terminations | | 3 |
| | | — |
| | | 1 |
| | | 2 |
|
Asset write-downs | | — |
| | | 2 |
| | | 2 |
| | | — |
|
Vacant facility and other shutdown costs | | 3 |
| | | 6 |
| | | 8 |
| | | 1 |
|
Start-up and moving costs | | — |
| | | 7 |
| | | 7 |
| | | — |
|
Total | | $ | 52 |
| | | 40 |
| | | 53 |
| | | 39 |
|
(11) INCOME TAXES
On December 22, 2017, the U.S. government enacted tax reform, the Tax Cuts and Jobs Act (the "Act"), which made comprehensive changes to U.S. federal income tax laws by moving from a global to a modified territorial tax regime. The Act includes a reduction of the U.S. corporate income tax rate from 35 percent to 21 percent in calendar year 2018 along with the elimination of certain deductions and credits, and a one-time "deemed repatriation" of accumulated foreign earnings. The Company recognized a net tax benefit of $43 ($0.07 per share) in the first quarter of fiscal 2018, and in the third quarter recognized a benefit of $150 ($0.24 per share) due to additional guidance issued by the U.S. Treasury Department and the Internal Revenue Service and as a result of actions taken by the Company. The Company completed its accounting for the Act in the first quarter of fiscal 2019.
Effective in fiscal 2019, the Act also subjects the Company to U.S. tax on global intangible low-taxed income earned by certain of its foreign subsidiaries. The Company elected to recognize this tax as a period expense when it is incurred.
In the second quarter of fiscal 2019, the Company recorded a $13 tax benefit due to the issuance of final regulations related to the one-time tax on deemed repatriation. In the third quarter of fiscal 2019, final regulations related to the calculation of global intangible low-taxed income were issued, which resulted in the Company reversing a $100 benefit and related reserve associated with the one-time tax on deemed repatriation, originally recorded in the first quarter of fiscal 2019. This change had no impact on the Company's results of operations for the three and nine months ended June 30, 2019.
The Company will include the effects of any final regulations, as well as any additional guidance or legislative changes, in the period they are issued.
Income taxes were $155 in the third quarter of 2019 and $49 in 2018, resulting in effective tax rates of 20 percent and 6 percent, respectively. The effective tax rates in both years reflect the lower U.S. corporate income tax rate as a result of the Act. The current year rate also included a tax benefit of $21 ($0.03 per share) from restructuring a foreign subsidiary, while the prior year rate included the $150 ($0.24 per share) tax benefit related to the Act discussed above.
Income taxes were $429 for the first nine months of 2019 and $327 for 2018, resulting in effective tax rates of 21 percent and 17 percent, respectively. The effective tax rates in both years reflect the lower U.S. corporate income tax rate as a result of the Act. The current year rate also included favorable discrete items which reduced the rate approximately 3 percentage points, while the prior year rate included a net tax benefit of $193 due to impacts of the Act.
(12)(14) BUSINESS SEGMENTS
Summarized information about the Company's results of operations by business segment follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | | | Nine Months Ended June 30, | | | | | | |
| Sales | | | | Earnings | | | | Sales | | | | Earnings | | |
| 2019 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | | 2020 | | | 2019 | | | 2020 | |
| | | | | | | | | | | | | | | |
Automation Solutions | $ | 3,025 | | | 2,589 | | | 477 | | | 311 | | | 8,834 | | | 8,150 | | | 1,328 | | | 1,012 | |
| | | | | | | | | | | | | | | |
Climate Technologies | 1,199 | | | 970 | | | 278 | | | 195 | | | 3,171 | | | 2,869 | | | 650 | | | 563 | |
Tools & Home Products | 463 | | | 357 | | | 93 | | | 58 | | | 1,390 | | | 1,219 | | | 286 | | | 233 | |
Commercial & Residential Solutions | 1,662 | | | 1,327 | | | 371 | | | 253 | | | 4,561 | | | 4,088 | | | 936 | | | 796 | |
| | | | | | | | | | | | | | | |
Stock compensation | | | | | (31) | | | (51) | | | | | | | (83) | | | (69) | |
Unallocated pension and postretirement costs | | | | | 27 | | | 12 | | | | | | | 81 | | | 37 | |
Corporate and other | | | | | (34) | | | (22) | | | | | | | (95) | | | (90) | |
Eliminations/Interest | (3) | | | (2) | | | (43) | | | (45) | | | 6 | | | (11) | | | (134) | | | (116) | |
Total | $ | 4,684 | | | 3,914 | | | 767 | | | 458 | | | 13,401 | | | 12,227 | | | 2,033 | | | 1,570 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Nine Months Ended June 30, |
| Sales | | Earnings | | Sales | | Earnings |
| 2018 |
| | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| | 2019 |
| | 2018 |
| | 2019 |
|
| | | | | | | | | | | | | | | |
Automation Solutions | $ | 2,870 |
| | 3,025 |
| | 494 |
| | 477 |
| | 8,213 |
| | 8,834 |
| | 1,316 |
| | 1,328 |
|
| | | | | | | | | | | | | | | |
Climate Technologies | 1,236 |
| | 1,199 |
| | 294 |
| | 278 |
| | 3,286 |
| | 3,171 |
| | 712 |
| | 650 |
|
Tools & Home Products | 356 |
| | 463 |
| | 93 |
| | 93 |
| | 1,041 |
| | 1,390 |
| | 276 |
| | 286 |
|
Commercial & Residential Solutions | 1,592 |
| | 1,662 |
| | 387 |
| | 371 |
| | 4,327 |
| | 4,561 |
| | 988 |
| | 936 |
|
| | | | | | | | | | | | | | | |
Differences in accounting methods | | | | | 57 |
| | 64 |
| | | | | | 163 |
| | 188 |
|
Corporate and other | | | | | (131 | ) | | (102 | ) | | | | | | (425 | ) | | (285 | ) |
Eliminations/Interest | (6 | ) | | (3 | ) | | (39 | ) | | (43 | ) | | (20 | ) | | 6 |
| | (113 | ) | | (134 | ) |
Total | $ | 4,456 |
| | 4,684 |
| | 768 |
| | 767 |
| | 12,520 |
| | 13,401 |
| | 1,929 |
| | 2,033 |
|
The decreaseincrease in Corporate and otherstock compensation expense for the three and nine months ended June 30, 20192020 was primarily due to lower acquisition/divestiture-related costs of $7 and $42, respectively, and lower incentive stock compensation of $12 and $61, respectively, reflecting a decreasing stock pricean increase in the current year compared to an increasingCompany's stock price in the prior year. On a year-to-date basis, the prior year also included valves & controls first year acquisition accounting charges of $10 related to inventory and $19 for backlog amortization.price.
Automation Solutions sales by major product offering are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | Nine Months Ended June 30, | | | | |
| | 2019 | | | | 2020 | | | | 2019 | | | | 2020 | |
| | | | | | | | | | | |
Measurement & Analytical Instrumentation | | $ | 945 | | | | 735 | | | | 2,730 | | | | 2,381 | |
Valves, Actuators & Regulators | | 941 | | | | 842 | | | | 2,752 | | | | 2,609 | |
Industrial Solutions | | 548 | | | | 469 | | | | 1,664 | | | | 1,470 | |
Process Control Systems & Solutions | | 591 | | | | 543 | | | | 1,688 | | | | 1,690 | |
Automation Solutions | | $ | 3,025 | | | | 2,589 | | | | 8,834 | | | | 8,150 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Nine Months Ended June 30, |
| | 2018 |
| | | 2019 |
| | | 2018 |
| | | 2019 |
|
| | | | | | | | | | | |
Measurement & Analytical Instrumentation | | $ | 932 |
| | | 945 |
| | | 2,564 |
| | | 2,730 |
|
Valves, Actuators & Regulators | | 948 |
| | | 941 |
| | | 2,732 |
| | | 2,752 |
|
Industrial Solutions | | 470 |
| | | 548 |
| | | 1,382 |
| | | 1,664 |
|
Process Control Systems & Solutions | | 520 |
| | | 591 |
| | | 1,535 |
| | | 1,688 |
|
Automation Solutions | | $ | 2,870 |
| | | 3,025 |
| | | 8,213 |
| | | 8,834 |
|
Depreciation and amortization (includes intellectual property, customer relationships and capitalized software) by business segment are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | Nine Months Ended June 30, | | | |
| | 2019 | | | 2020 | | | | 2019 | | | 2020 | |
Automation Solutions | | $ | 133 | | | 137 | | | | 393 | | | 414 | |
| | | | | | | | | |
Climate Technologies | | 42 | | | 44 | | | | 132 | | | 133 | |
Tools & Home Products | | 18 | | | 20 | | | | 54 | | | 58 | |
Commercial & Residential Solutions | | 60 | | | 64 | | | | 186 | | | 191 | |
| | | | | | | | | |
Corporate and other | | 10 | | | 8 | | | | 30 | | | 26 | |
Total | | $ | 203 | | | 209 | | | | 609 | | | 631 | |
Segment sales
Sales by geographic destination are summarized below:
| | | Three Months Ended June 30, | | Three Months Ended June 30, | |
| 2018 | | 2019 | | 2019 | | | 2020 | |
| Automation Solutions |
| | Commercial & Residential Solutions |
| | Total |
| | Automation Solutions |
| | Commercial & Residential Solutions |
| | Total |
| | Automation Solutions | | Commercial & Residential Solutions | | Total | | Automation Solutions | | Commercial & Residential Solutions | | Total |
| | | | | | | | | | | | | | | | | | | | | | | |
Americas | $ | 1,401 |
| | 1,099 |
| | 2,500 |
| | 1,448 |
| | 1,164 |
| | 2,612 |
| Americas | $ | 1,448 | | | 1,164 | | | 2,612 | | | 1,159 | | | 915 | | | 2,074 | |
Asia, Middle East & Africa | 917 |
| | 339 |
| | 1,256 |
| | 970 |
| | 313 |
| | 1,283 |
| Asia, Middle East & Africa | 970 | | | 313 | | | 1,283 | | | 893 | | | 253 | | | 1,146 | |
Europe | 552 |
| | 154 |
| | 706 |
| | 607 |
| | 185 |
| | 792 |
| Europe | 607 | | | 185 | | | 792 | | | 537 | | | 159 | | | 696 | |
Total | $ | 2,870 |
| | 1,592 |
| | 4,462 |
| | 3,025 |
| | 1,662 |
| | 4,687 |
| Total | $ | 3,025 | | | 1,662 | | | 4,687 | | | 2,589 | | | 1,327 | | | 3,916 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended June 30, | | Nine Months Ended June 30, | |
| 2018 | | 2019 | | 2019 | | | 2020 | |
| Automation Solutions |
| | Commercial & Residential Solutions |
| | Total |
| | Automation Solutions |
| | Commercial & Residential Solutions |
| | Total |
| | Automation Solutions | | Commercial & Residential Solutions | | Total | | Automation Solutions | | Commercial & Residential Solutions | | Total |
| | | | | | | | | | | | | | | | | | | | | | | |
Americas | $ | 4,059 |
| | 2,860 |
| | 6,919 |
| | 4,376 |
| | 3,153 |
| | 7,529 |
| Americas | $ | 4,376 | | | 3,153 | | | 7,529 | | | 3,915 | | | 2,815 | | | 6,730 | |
Asia, Middle East & Africa | 2,575 |
| | 1,027 |
| | 3,602 |
| | 2,721 |
| | 863 |
| | 3,584 |
| Asia, Middle East & Africa | 2,721 | | | 863 | | | 3,584 | | | 2,619 | | | 765 | | | 3,384 | |
Europe | 1,579 |
| | 440 |
| | 2,019 |
| | 1,737 |
| | 545 |
| | 2,282 |
| Europe | 1,737 | | | 545 | | | 2,282 | | | 1,616 | | | 508 | | | 2,124 | |
Total | $ | 8,213 |
| | 4,327 |
| | 12,540 |
| | 8,834 |
| | 4,561 |
| | 13,395 |
| Total | $ | 8,834 | | | 4,561 | | | 13,395 | | | 8,150 | | | 4,088 | | | 12,238 | |
(13) ACQUISITIONS AND DIVESTITURES
During the first nine months of 2019, the Company acquired seven businesses in the Automation Solutions segment for $385, net of cash acquired, which included the acquisition of Machine Automation Solutions (General Electric's former Intelligent Platforms business). These seven businesses had combined annual sales of approximately $280.
On July 17, 2018, the Company completed the acquisition of Aventics, a global provider of smart pneumatics technologies that power machine and factory automation applications, for $622, net of cash acquired. This business, which has annual sales of approximately $425, is reported in the Industrial Solutions product offering in the Automation Solutions segment. The Company recognized goodwill of $354 ($20 of which is expected to be tax deductible), and identifiable intangible assets of $278, primarily intellectual property and customer relationships with a weighted-average useful life of approximately 12 years.
On July 2, 2018, the Company completed the acquisition of Textron's tools and test equipment business for $810, net of cash acquired. This business, with annual sales of approximately $470, is a manufacturer of electrical and utility tools, diagnostics, and test and measurement instruments, and is reported in the Tools & Home products
segment. The Company recognized goodwill of $365 ($17 of which is expected to be tax deductible), and identifiable intangible assets of $358, primarily intellectual property and customer relationships with a weighted-average useful life of approximately 14 years.
Valuations of acquired assets and liabilities are in process and subject to refinement for transactions completed after June 30, 2018.
On December 1, 2017, the Company acquired Paradigm, a provider of software solutions for the oil and gas industry, for $505, net of cash acquired. This business had annual sales of approximately $140 and is included in the Measurement & Analytical Instrumentation product offering within Automation Solutions. The Company recognized goodwill of $309 ($170 of which is expected to be tax deductible), and identifiable intangible assets of $238, primarily intellectual property and customer relationships with a weighted-average useful life of approximately 11 years.
During 2018, the Company also acquired four smaller businesses, two in the Automation Solutions segment and two in the Climate Technologies segment.
On October 2, 2017, the Company sold its residential storage business for $200 in cash, and recognized a small pretax gain and an after-tax loss of $24 ($0.04 per share) in the first quarter of 2018 due to income taxes resulting from nondeductible goodwill. The Company realized $150 in after-tax cash proceeds from the sale.
Pro Forma Financial Information
The following unaudited pro forma consolidated condensed financial results of operations are presented as if the 2018 acquisitions occurred on October 1, 2016 and the acquisition of the valves & controls business occurred on October 1, 2015. The pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved had the acquisitions occurred as of that time.
|
| | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| June 30, 2018 |
| | | | | |
Net sales | | $ | 4,693 |
| | | $ | 13,281 |
|
Net earnings common stockholders | | $ | 716 |
| | | $ | 1,619 |
|
Diluted earnings per share | | $ | 1.13 |
| | | $ | 2.54 |
|
14
Items 2 and 3.
Management's Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
Net salesThe Company's results for the third quarter of 2019fiscal 2020 were $4.7negatively impacted by the global outbreak and rapid spread of the novel coronavirus (COVID-19). The outbreak began in the Company's second fiscal quarter and as expected, resulted in a rapid decline in demand which impacted most of the Company's end markets and geographies in the third quarter, particularly in North America. These conditions are expected to negatively impact many of our end markets for the remainder of the fiscal year, but demand has stabilized and the Company has taken actions to protect its operating results and support its financial condition and liquidity. See the "Financial Condition", "Outlook" and "Part II - Other Information, Item 1A, Risk Factors" sections below for additional details.
For the third quarter of fiscal 2020, consolidated net sales were $3.9 billion, up 5down 16 percent supported by acquisitions, which added 5 percent, andcompared with the prior year, adversely affected by foreign currency translation which deducted 21 percent. Underlying sales, which exclude foreign currency translation, acquisitions and divestitures, increased 2 percent, reflecting strong project activity and maintenance and repair spending in Automation Solutions, partially offset by lower demand in air conditioning markets in Asia.were down 15 percent.
Net earnings common stockholders were $604$399 million, down 1534 percent, and diluted earnings per share were $0.97,$0.67, down 1331 percent primarily due to an income tax benefit of $150 million ($0.24 per share) from the impacts of U.S. tax reformcompared with $0.97 in the prior year. Operating results declined $0.20 per share, reflecting the sharp decline in sales volume from the negative effects of COVID-19 and general decline in economic activity. Higher stock compensation (due to an increase in the Company's stock price) and pension expense of $0.05 per share and unfavorable foreign currency transactions of $0.04 per share also contributed to the decline. Discrete tax benefits ($0.10 per share) and share repurchases ($0.02 per share) favorably impacted results, while restructuring charges related to the Company's initiatives to improve operating margins reduced earnings $0.13 per share in the current quarter.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30
Following is an analysis of the Company’s operating results for the third quarter ended June 30, 2019,2020, compared with the third quarter ended June 30, 2018.2019.
| | | | | | | | | | | | | | | | | |
| 2019 | | 2020 | | Change |
(dollars in millions, except per share amounts) | | | | | |
| | | | | |
Net sales | $ | 4,684 | | | 3,914 | | | (16) | % |
Gross profit | $ | 2,001 | | | 1,618 | | | (19) | % |
Percent of sales | 42.7 | % | | 41.3 | % | | |
| | | | | |
SG&A | $ | 1,126 | | | 934 | | | (17) | % |
Percent of sales | 24.0 | % | | 23.8 | % | | |
| | | | | |
| | | | | |
Other deductions, net | $ | 65 | | | 181 | | | |
Interest expense, net | $ | 43 | | | 45 | | | |
| | | | | |
Earnings before income taxes | $ | 767 | | | 458 | | | (40) | % |
Percent of sales | 16.4 | % | | 11.7 | % | | |
| | | | | |
Net earnings common stockholders | $ | 604 | | | 399 | | | (34) | % |
Percent of sales | 12.9 | % | | 10.2 | % | | |
| | | | | |
| | | | | |
Diluted earnings per share | $ | 0.97 | | | 0.67 | | | (31) | % |
| | | | | |
|
| | | | | | | | | |
| 2018 | | 2019 | | Change |
(dollars in millions, except per share amounts) | |
| | |
| | |
| | | | | |
Net sales | $ | 4,456 |
| | 4,684 |
| | 5 | % |
Gross profit | $ | 1,942 |
| | 2,001 |
| | 3 | % |
Percent of sales | 43.6 | % | | 42.7 | % | | |
|
| | | | | |
SG&A | $ | 1,058 |
| | 1,126 |
| | 6 | % |
Percent of sales | 23.8 | % | | 24.0 | % | | |
|
Other deductions, net | $ | 77 |
| | 65 |
| | |
|
Interest expense, net | $ | 39 |
| | 43 |
| | |
|
| | | | | |
Earnings before income taxes | $ | 768 |
| | 767 |
| | — | % |
Percent of sales | 17.2 | % | | 16.4 | % | | |
|
Net earnings common stockholders | $ | 712 |
| | 604 |
| | (15 | )% |
Percent of sales | 16.0 | % | | 12.9 | % | | |
|
| | | | | |
Diluted earnings per share | $ | 1.12 |
| | 0.97 |
| | (13 | )% |
Net sales for the third quarter of 2019fiscal 2020 were $4.7$3.9 billion, an increasea decrease of $228$770 million, or 516 percent compared with $4.5 billion in 2018.2019. Underlying sales increased 2were down 15 percent ($72691 million) on higher pricelower volume, as COVID-19 negatively impacted nearly all end markets and slightly higher volume. Acquisitions added 5 percent ($243 million) and foreigngeographies. Foreign currency translation subtracted 21 percent ($8770 million). and divestitures subtracted $9 million. Underlying sales were flatdown 20 percent in the U.S. and increased 310 percent internationally. The Americas was up 1down 20 percent, Europe was up 1down 9 percent and Asia, Middle East & Africa was up 3down 9 percent (China up 3 percent, versus up 15 percent in 2018)percent). Sales increased $155 million in Automation Solutions, supported by acquisitions, strong project activity, and maintenance and repair spending. Commercial & Residential Solutions sales increased $70 million due to acquisitions, partially offset by lower demand in Asia, Middle East & Africa.
Cost of sales for the third quarter of 2019fiscal 2020 were $2.7$2.3 billion, an increasea decrease of $169$387 million compared with $2.5 billion in 2018,2019, primarily due to acquisitions.lower volume. Gross margin of 42.741.3 percent decreased 0.91.4 percentage points compared with the prior year, reflecting a negative impact from acquisitions of 0.4 percentage pointsdeleverage on lower sales volume and unfavorable mix.
mix primarily within Automation Solutions, offset by favorable price-cost.
Selling, general and administrative (SG&A) expenses of $1.1 billion increased $68$934 million decreased $192 million compared with the prior year primarily due to acquisitions.and SG&A as a percent of sales increaseddecreased 0.2 percentage points to 24.023.8 percent, primarily due to acquisitions,significant savings from the Company's restructuring and cost reset actions, which negatively impacted comparisons by 0.5 percentage points, partially offset bydeleverage on the lower incentive stocksales volume. The Company's ongoing restructuring initiatives are expected to yield improved operating margins as sales volumes recover. The Company also benefited from further actions taken in response to the effects of COVID-19 on profitability, including the impact of curtailed travel, meetings and discretionary spending, a salary and hiring freeze, furloughs, and compensation reductions for the Board of $12 million.
Directors and key executives across Emerson.
Other deductions, net were $65$181 million in 2019, a decrease2020, an increase of $12$116 million compared with the prior year, reflecting lower acquisition/divestiture-relatedincreased restructuring costs of $7$68 million and a favorable impactunfavorable impacts on comparisons from foreign currency transactions of $25 million and pensions of $11 million, partially offset by higher intangibles amortization of $13$16 million. See Note 9.Notes 6 and 7.
Pretax earnings of $767$458 million decreased $1$309 million, flator 40 percent compared towith the prior year. Earnings decreased $17$166 million in Automation Solutions and decreased $16$118 million in CommercialCommercial & Residential Solutions, whileSolutions. Costs reported at Corporate increased $23 million due to higher stock compensation (reflecting an increase in the Company's stock price) and unallocated pension and postretirement costs which together increased $35 million, offset by a decline of $12 million for all other corporate costs. Pretax earnings margin decreased 4.7 percentage points to 11.7 percent. The decline reflected increased restructuring costs, which negatively impacted comparisons by 2.0 percentage points. Higher stock compensation and pension expense decreased $29 million.and unfavorable foreign currency transactions also impacted comparisons by 1.8 percentage points. See the Business discussion that follows and Note 12 and the following Business Segments discussion.14.
IncomeIncome taxes were $51 million for 2020 and $155 million for 2019, and $49 million for 2018, resulting in effective tax rates of 11 percent and 20 percent, and 6 percent, respectively. The effective tax rates in both years reflect the lower U.S. corporate income tax rate as a result of the Tax Cuts and Jobs Act (the "Act"). The current year rate also included $57 million ($0.10 per share) of discrete benefits, which decreased the rate 12 percentage points, related to updates to estimates for the prior year U.S. income tax return and the impact of a research and development tax credit study. The prior year rate included favorable discrete tax items, which reduced the rate 3 percentage points, largely due to a tax benefit of $21 million ($0.03 per share) from restructuring a foreign subsidiary, whilesubsidiary.
On March 27, 2020, the prior year rate included a tax benefit of $150 million ($0.24 per share), reflecting updatesCARES Act (the "Act") was enacted in response to the Company's initial estimates relatedCOVID-19 pandemic, and among other things, provides tax relief to the impactbusinesses. Tax provisions of the Act dueinclude the deferral of certain payroll taxes, relief for retaining employees, and other provisions. The Company expects to additional guidance issued bydefer $75 million of certain payroll taxes through the U.S. Treasury Department and the Internal Revenue Service and as a resultend of actions taken by the Company. The effective tax rate for fullcalendar year 2019 is currently expected to be approximately 21 percent. See Note 11.2020.
Net earnings common stockholders in the third quarter of 2019fiscal 2020 were $604$399 million, down 1534 percent, compared with $712$604 million in the prior year, and earnings per share were $0.97,$0.67, down 1331 percent compared with $1.12$0.97 in 2018.the prior year. See discussion in the Overview above for further details.
Business Segments
Following is an analysis of operating results for the Company’s business segments for the third quarter ended June 30, 2019,2020, compared with the third quarter ended June 30, 2018.2019. The Company defines segment earnings as earnings before interest and taxes. See Note 1214 for a discussion of the Company's business segments.
AUTOMATION SOLUTIONS
| | | | | | | | | | | | | | | | | |
Three Months Ended June 30 | 2019 | | 2020 | | Change |
(dollars in millions) | | | | | |
| | | | | |
Sales | $ | 3,025 | | | 2,589 | | | (14) | % |
Earnings | $ | 477 | | | 311 | | | (35) | % |
Margin | 15.7 | % | | 12.0 | % | | |
|
| | | | | | | | | |
Three Months Ended June 30 | 2018 | | 2019 | | Change |
(dollars in millions) | | | | | |
| | | | | |
Sales | $ | 2,870 |
| | 3,025 |
| | 5 | % |
Earnings | $ | 494 |
| | 477 |
| | (4 | )% |
Margin | 17.2 | % | | 15.7 | % | | |
|
| | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | |
| | | | | |
Sales by Major Product Offering | | | | | |
Measurement & Analytical Instrumentation | $ | 945 | | | 735 | | | (22) | % |
Valves, Actuators & Regulators | 941 | | | 842 | | | (11) | % |
Industrial Solutions | 548 | | | 469 | | | (14) | % |
Process Control Systems & Solutions | 591 | | | 543 | | | (8) | % |
Total | $ | 3,025 | | | 2,589 | | | (14) | % |
|
| | | | | | | | | |
Sales by Major Product Offering | | | | | |
Measurement & Analytical Instrumentation | $ | 932 |
| | 945 |
| | 1 | % |
Valves, Actuators & Regulators | 948 |
| | 941 |
| | (1 | )% |
Industrial Solutions | 470 |
| | 548 |
| | 16 | % |
Process Control Systems & Solutions | 520 |
| | 591 |
| | 14 | % |
Total | $ | 2,870 |
| | 3,025 |
| | 5 | % |
Automation Solutions sales were $3.0 billion in the third quarter, an increase of $155 million, or 5 percent. Underlying sales increased 3 percent ($80 million) on higher volume and slightly higher price. Acquisitions added 5 percent ($141 million) and foreign currency translation had a 3 percent ($66 million) unfavorable impact. Sales for Measurement & Analytical Instrumentation increased $13 million, or 1 percent, supported by favorable trends in most key end markets in Asia, Middle East & Africa, partially offset by a slowdown in upstream oil and gas spending in the Americas. Valves, Actuators & Regulators decreased $7 million, or less than 1 percent, due to currency translation. Industrial Solutions sales increased $78 million, or 16 percent, due to the Aventics acquisition ($95 million), partially offset by slow discrete manufacturing end markets in the U.S. and Europe, reflecting softer short-cycle demand and some rebalancing of channel inventory. Process Control Systems & Solutions increased $71 million, or 14 percent, due to strong project activity and maintenance and repair spending, as well as the Machine Automation Solutions acquisition which added $46 million. Underlying sales increased 1 percent in the Americas (U.S. down 1 percent), 1 percent in Europe and 7 percent in Asia, Middle East & Africa (China up 5 percent). Earnings were $477 million, a decrease of $17 million, or 4 percent, due to acquisitions, unfavorable mix and increased restructuring expense of $6 million. Margin decreased 1.5 percentage points to 15.7 percent, reflecting a dilutive impact from acquisitions of 1.4 percentage points.
COMMERCIAL & RESIDENTIAL SOLUTIONS
|
| | | | | | | | | |
Three Months Ended June 30 | 2018 | | 2019 | | Change |
(dollars in millions) | | | | | |
| | | | | |
Sales: | | | | | |
Climate Technologies | $ | 1,236 |
| | 1,199 |
| | (3 | )% |
Tools & Home Products | 356 |
| | 463 |
| | 30 | % |
Total | $ | 1,592 |
| | 1,662 |
| | 4 | % |
| | | | | |
Earnings: | | | | | |
Climate Technologies | $ | 294 |
| | 278 |
| | (5 | )% |
Tools & Home Products | 93 |
| | 93 |
| | — | % |
Total | $ | 387 |
| | 371 |
| | (4 | )% |
Margin | 24.3 | % | | 22.4 | % | | |
Commercial & Residential Solutions sales were $1.7 billion in the third quarter, up $70 million, or 4 percent compared to the prior year. Acquisitions added 6 percent ($100 million) and foreign currency translation subtracted 1 percent ($21 million). Underlying sales decreased 1 percent ($9 million) primarily due to lower volume partially offset by higher price. Climate Technologies sales were $1.2$2.6 billion in the third quarter, a decrease of $37$436 million or 314 percent. HVACUnderlying sales decreased 13 percent ($380 million) on lower volume. Foreign currency translation had a 1 percent ($56 million) unfavorable impact. All businesses were downnegatively impacted by the effects of COVID-19, which resulted in Asia, Middle East & Africa due to lower demand, particularly outside of China, while the U.S. was up slightly, reflecting an unfavorable impact from cooler, wet weather conditions. Cold chaincontinued broad-based industrial weakness. Underlying sales were down slightly, reflecting stable global demand. Tools & Home Products sales were $463 million in the third quarter, an increase of $107 million, or 30 percent, due to the tools and test acquisition. Sales were robust for wet/dry vacuums and up slightly for professional tools, while food waste disposers were flat. Overall, underlying sales increased 1decreased 19 percent in the Americas (U.S. up 1down 20 percent), Europe decreased 8 percent and 1 percent in Europe, while Asia, Middle East & Africa decreased 6 percent (China down 2up 9 percent). Sales for Measurement & Analytical Instrumentation decreased $210 million, or 22 percent, due to global weakness across most geographies, particularly in North American process industries, while China rebounded from a sharp decline in the previous quarter and was up moderately. Valves, Actuators & Regulators decreased $99 million, or 11 percent, reflecting weakness across most end markets, particularly in North America, partially offset by a sharp rebound in China sales. Industrial Solutions sales decreased $79 million, or 14 percent, on weakness in global discrete end markets, excluding China which was up low double-digits. Process Control Systems & Solutions decreased $48 million, or 8 percent, due to weakness in power end markets in Asia and process end markets in the U.S. Earnings were $371$311 million, a decrease of $16$166 million, and margin declined 1.9 percentage points,or 35 percent, primarily due to lower volume, higher restructuring expenses of $65 million and an unfavorable impact on comparisons from foreign currency transactions of $18 million. Margin decreased 3.7 percentage points to 12.0 percent, reflecting a dilutivenegative impact from the tools and test acquisitionrestructuring expenses of 1.22.5 percentage points and unfavorable foreign currency transactions of 0.7 percentage points. Savings from the restructuring and cost reset actions were significant and largely offset deleverage on the lower sales volume, while favorable price-cost offset unfavorable mix.
COMMERCIAL & RESIDENTIAL SOLUTIONS
| | | | | | | | | | | | | | | | | |
Three Months Ended June 30 | 2019 | | 2020 | | Change |
(dollars in millions) | | | | | |
| | | | | |
Sales: | | | | | |
Climate Technologies | $ | 1,199 | | | 970 | | | (19) | % |
Tools & Home Products | 463 | | | 357 | | | (23) | % |
Total | $ | 1,662 | | | 1,327 | | | (20) | % |
| | | | | |
Earnings: | | | | | |
Climate Technologies | $ | 278 | | | 195 | | | (30) | % |
Tools & Home Products | 93 | | | 58 | | | (38) | % |
Total | $ | 371 | | | 253 | | | (32) | % |
Margin | 22.4 | % | | 19.1 | % | | |
Commercial & Residential Solutions sales were $1.3 billion in the third quarter, down $335 million, or 20 percent compared to the prior year. Underlying sales decreased 19 percent ($312 million) due to lower volume, reflecting sharply lower demand due to the effects of COVID-19, especially in North America. Foreign currency translation subtracted 1 percent ($14 million) and the divestiture of two small non-core businesses subtracted $9 million. Overall, underlying sales decreased 20 percent in the Americas (U.S. down 21 percent), Europe decreased 12 percent and Asia, Middle East & Africa was down 18 percent (China down 9 percent). Climate Technologies segment.
sales were $970 million in the third quarter, a decrease of $229 million, or 19 percent. Air conditioning and heating sales were down sharply, reflecting significant declines in Asia and North America, with smaller declines in China and Europe. Cold chain sales were down sharply, driven by slower global market conditions. Tools & Home Products sales were $357 million in the third quarter, a decrease of $106 million, or 23 percent. Global professional tools end markets were down sharply, while food waste disposers and wet/dry vacuums decreased in the low-to-mid teens. Earnings were $253 million, down 32 percent compared with the prior year, and margin decreased 3.3 points to 19.1 percent. Significant deleverage on the lower sales volume negatively impacted margins and higher restructuring expenses deducted 0.6 percentage points, partially offset by savings from cost reduction actions and favorable price-cost.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30
Following is an analysis of the Company’s operating results for the nine months ended June 30, 2019,2020, compared with the nine months ended June 30, 2018.2019.
| | | | | | | | | | | | | | | | | |
| 2019 | | 2020 | | Change |
(dollars in millions, except per share amounts) | | | | | |
| | | | | |
Net sales | $ | 13,401 | | | 12,227 | | | (9) | % |
Gross profit | $ | 5,687 | | | 5,127 | | | (10) | % |
Percent of sales | 42.4 | % | | 41.9 | % | | |
| | | | | |
SG&A | $ | 3,348 | | | 3,040 | | | (9) | % |
Percent of sales | 24.9 | % | | 24.8 | % | | |
| | | | | |
Other deductions, net | $ | 172 | | | 401 | | | |
Interest expense, net | $ | 134 | | | 116 | | | |
| | | | | |
Earnings before income taxes | $ | 2,033 | | | 1,570 | | | (23) | % |
Percent of sales | 15.2 | % | | 12.8 | % | | |
| | | | | |
Net earnings common stockholders | $ | 1,589 | | | 1,242 | | | (22) | % |
Percent of sales | 11.9 | % | | 10.2 | % | | |
| | | | | |
| | | | | |
Diluted earnings per share | $ | 2.55 | | | 2.04 | | | (20) | % |
| | | | | |
|
| | | | | | | | | |
| 2018 | | 2019 | | Change |
(dollars in millions, except per share amounts) | |
| | |
| | |
| | | | | |
Net sales | $ | 12,520 |
| | 13,401 |
| | 7 | % |
Gross profit | $ | 5,373 |
| | 5,687 |
| | 6 | % |
Percent of sales | 42.9 | % | | 42.4 | % | | |
|
| | | | | |
SG&A | $ | 3,088 |
| | 3,348 |
| | 8 | % |
Percent of sales | 24.6 | % | | 24.9 | % | | |
|
Other deductions, net | $ | 243 |
| | 172 |
| | |
|
Interest expense, net | $ | 113 |
| | 134 |
| | |
|
| | | | | |
Earnings before income taxes | $ | 1,929 |
| | 2,033 |
| | 5 | % |
Percent of sales | 15.4 | % | | 15.2 | % | | |
|
Net earnings common stockholders | $ | 1,586 |
| | 1,589 |
| | — | % |
Percent of sales | 12.7 | % | | 11.9 | % | | |
|
| | | | | |
Diluted earnings per share | $ | 2.49 |
|
| 2.55 |
|
| 2 | % |
Net sales for the first nine months of 20192020 were $13.4$12.2 billion, an increasea decrease of $881 million,$1.2 billion, or 79 percent compared with $12.5 billion in 2018.2019. Underlying sales were up 3down 8 percent ($403993 million) on higher volume and slightly higher price. Acquisitions added 6 percent ($731 million)lower volume. Divestitures net of acquisitions subtracted $3 million and foreign currency translation subtracted 21 percent ($253178 million). Underlying sales increased 4decreased 11 percent in the U.S. and 35 percent internationally. The Americas was up 5down 10 percent, Europe was up 2down 4 percent and Asia, Middle East & Africa was up 1 percent (China up 1 percent). Sales increased $621 million in Automation Solutions, supported by acquisitions and broad-based demand across energy-related and general industrial markets. Commercial & Residential Solutions sales increased $234 million due to acquisitions, partially offset by slower demand in Asia, Middle East & Africa, particularly in China air conditioning and heating markets.down 4 percent.
Cost of sales for 20192020 were $7.1 billion, a decrease of $614 million versus $7.7 billion an increase of $567 million versus $7.1 billion in 2018,2019, primarily due to acquisitions and higher volume, partially offset by the impact of foreign currency translation.lower volume. Gross margin decreased 0.5 percentage points to 42.441.9 percent, reflecting deleverage on lower sales volume and unfavorable mix and the impact of acquisitions.primarily within Automation Solutions, partially offset by favorable price-cost.
SG&A expenses of $3.3$3.0 billion increased $260decreased $308 million primarily due to acquisitions and higher volume. SG&A as a percent of sales increaseddecreased 0.1 percentage points to 24.9 percent due to24.8 percent. Significant savings from the impact of acquisitions, which negatively impacted comparisons by 0.5 percentage points. LeverageCompany's restructuring and cost reset actions offset deleverage on higher volume andthe lower incentive stock compensation of $61 million, reflecting a decreasing stock price in the current year compared to an increasing stock price in the prior year, were partially offset by higher investment spending.sales volume.
Other deductions, net were $172$401 million in 2019, a decrease2020, an increase of $71$229 million compared with the prior year, reflecting lower acquisition/divestiture-relatedincreased restructuring costs of $42 million, pension expenses of $33$176 million and foreign currency transactionsan unfavorable impact on comparisons from pensions of $9$46 million, partially offset by higher intangibles amortization of $23 million.lower litigation costs. See Note 9.Notes 6 and 7.
Pretax earnings of $2.0$1.6 billion increased $104decreased $463 million, or 523 percent. Earnings increased $12decreased $316 million in Automation Solutions and decreased $52$140 million in Commercial & Residential Solutions, whileSolutions. Costs reported at Corporate increased $25 million due to higher unallocated pension and postretirement costs which increased $44 million, partially offset by lower stock compensation expense of $14 million and a decline of $5 million for all other corporate costs. Pretax earnings margin decreased 2.4 percentage points to 12.8 percent. The decline was largely due to higher restructuring costs, which negatively impacted comparisons by 1.6 percentage points. Higher pension expense decreased $140 million.also impacted comparisons by 0.5 percentage points. See the Business discussion that follows and Note 12 and the following Business Segments discussion.14.
Income taxes were $310 million for 2020 and $429 million for 2019, and $327 million for 2018, resulting in effective tax rates of 2120 percent and 1721 percent, respectively. The effective tax rates in both years reflect the lower U.S. corporate income tax rate as a result of the Tax Cuts and Jobs Act (the "Act"). The current year rate alsoand prior year rates included favorable discrete items, which reduced the rateboth years' rates approximately 3 percentage points, while the prior year rate included a net tax benefit of $193 million ($0.30 per share) due to impacts of the Act.points. See Note 8.
Net earnings common stockholders in 20192020 were $1.6$1.2 billion, flatdown 22 percent compared with the prior year, and earnings per share were $2.55, up 2$2.04, down 20 percent compared with $2.49$2.55 in 2018.2019. The decline in sales volume, largely attributable to the negative effects of COVID-19 and oil price volatility, resulted in a decline in operating results of
$0.27 per share, while restructuring costs and special advisory fees reduced earnings by $0.32 per share in the current year. Higher pension expense partially offset by lower stock compensation expense negatively affected comparisons by $0.04 per share and unfavorable foreign currency deducted $0.03 per share. Results were favorably impacted by discrete tax items ($0.09 per share) and a combined benefit from share repurchases and lower interest expense of $0.06 per share.
Business Segments
Following is an analysis of operating results for the Company’s business segments for the nine months ended June 30, 2019,2020, compared with the nine months ended June 30, 2018.2019. The Company defines segment earnings as earnings before interest and taxes.
AUTOMATION SOLUTIONS
| | Nine Months Ended June 30 | 2018 | | 2019 | | Change | Nine Months Ended June 30 | 2019 | | 2020 | | Change |
(dollars in millions) | | | | | | (dollars in millions) | | | | | |
Sales | $ | 8,213 |
| | 8,834 |
| | 8 | % | Sales | $ | 8,834 | | | 8,150 | | | (8) | % |
Earnings | $ | 1,316 |
| | 1,328 |
| | 1 | % | Earnings | $ | 1,328 | | | 1,012 | | | (24) | % |
Margin | 16.0 | % | | 15.0 | % | | |
| Margin | 15.0 | % | | 12.4 | % | | |
| | | | | | |
|
| | | | | | | | | |
Sales by Major Product Offering | | | | | |
Measurement & Analytical Instrumentation | $ | 2,564 |
| | 2,730 |
| | 6 | % |
Valves, Actuators & Regulators | 2,732 |
| | 2,752 |
| | 1 | % |
Industrial Solutions | 1,382 |
| | 1,664 |
| | 20 | % |
Process Control Systems & Solutions | 1,535 |
| | 1,688 |
| | 10 | % |
Total | $ | 8,213 |
| | 8,834 |
| | 8 | % |
| | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | |
| | | | | |
Sales by Major Product Offering | | | | | |
Measurement & Analytical Instrumentation | $ | 2,730 | | | 2,381 | | | (13) | % |
Valves, Actuators & Regulators | 2,752 | | | 2,609 | | | (5) | % |
Industrial Solutions | 1,664 | | | 1,470 | | | (12) | % |
Process Control Systems & Solutions | 1,688 | | | 1,690 | | | — | % |
Total | $ | 8,834 | | | 8,150 | | | (8) | % |
Automation Solutions sales were $8.8$8.2 billion in the first nine months of 2019, an increase2020, a decrease of $621$684 million, or 8 percent. Underlying sales increased 5decreased 7 percent ($432591 million) on higher volume and slightly higher price. Acquisitionslower volume. The Machine Automation Solutions acquisition added 51 percent ($38247 million) and foreign currency translation had a 2 percent ($193140 million) unfavorable impact. Sales for Measurement & Analytical Instrumentation increased $166 million, or 6 percent, on broad-based demand in global industrial markets. Valves, Actuators & Regulators increased $20 million, or 1 percent, on favorable global oil and gas demand. Industrial Solutions sales increased $282 million, or 20 percent, due to the Aventics acquisition ($292 million), while discrete manufacturing end markets were slow in the U.S. and Europe. Process Control Systems & Solutions increased $153 million, or 10 percent, due to the Machine Automation Solutions acquisition ($90 million), favorable demand for small and mid-sized projects focused on expansion and optimization of existing assets, and strong maintenance and repair demand. Underlying sales increased 6decreased 11 percent in the Americas, (U.S. up 4 percent), 2 percent in Europe and 72 percent in Asia, Middle East & Africa (China up 10down 1 percent). Sales for Measurement & Analytical Instrumentation decreased $349 million, or 13 percent, due to weakness in process industries, primarily in North America. Valves, Actuators & Regulators decreased $143 million, or 5 percent, reflecting slower demand in most end markets. Industrial Solutions sales decreased $194 million, or 12 percent, on lower global demand in discrete end markets. Process Control Systems & Solutions increased $2 million due to the Machine Automation Solutions acquisition which added $47 million, largely offset by weakness in power end markets in China and process end markets in the U.S. Earnings were $1.3$1.0 billion, an increasea decrease of $12$316 million, or 124 percent, driven byprimarily due to higher volumerestructuring expenses of $166 million and price.lower volume. Margin decreased 2.6 percentage points to 15.012.4 percent, reflecting a dilutivenegative impact from acquisitionsrestructuring expenses of 1.02.1 percentage points.points and unfavorable mix. Savings from cost reduction actions offset deleverage on lower sales volume.
COMMERCIAL & RESIDENTIAL SOLUTIONS
| | | | | | | | | | | | | | | | | |
Nine Months Ended June 30 | 2019 | | 2020 | | Change |
(dollars in millions) | | | | | |
| | | | | |
Sales: | | | | | |
Climate Technologies | $ | 3,171 | | | 2,869 | | | (10) | % |
Tools & Home Products | 1,390 | | | 1,219 | | | (12) | % |
Total | $ | 4,561 | | | 4,088 | | | (10) | % |
| | | | | |
Earnings: | | | | | |
Climate Technologies | $ | 650 | | | 563 | | | (13) | % |
Tools & Home Products | 286 | | | 233 | | | (19) | % |
Total | $ | 936 | | | 796 | | | (15) | % |
Margin | 20.5 | % | | 19.5 | % | | |
|
| | | | | | | | | |
Nine Months Ended June 30 | 2018 | | 2019 | | Change |
(dollars in millions) | | | | | |
| | | | | |
Sales: | | | | | |
Climate Technologies | $ | 3,286 |
| | 3,171 |
| | (3 | )% |
Tools & Home Products | 1,041 |
| | 1,390 |
| | 33 | % |
Total | $ | 4,327 |
| | 4,561 |
| | 5 | % |
| | | | | |
Earnings: | | | | | |
Climate Technologies | $ | 712 |
| | 650 |
| | (9 | )% |
Tools & Home Products | 276 |
| | 286 |
| | 4 | % |
Total | $ | 988 |
| | 936 |
| | (5 | )% |
Margin | 22.8 | % | | 20.5 | % | | |
Commercial & Residential Solutions sales were $4.6$4.1 billion in the first nine months of 2019, an increase2020, a decrease of $234$473 million, or 510 percent compared to the prior year. Underlying sales were down 19 percent ($31402 million) on lower volume partially offset by higher price. Acquisitions added 8 percent ($325 million)volume. The divestiture of two small non-core businesses subtracted $33 million and foreign currency translation subtracted 2$38 million, a combined decrease of 1 percent. Overall, underlying sales decreased 10 percent ($60 million)in the Americas, 4 percent in Europe and 10 percent in Asia, Middle East & Africa (China down 11 percent). Climate Technologies sales were $3.2$2.9 billion in the first nine months of 2019,2020, a decrease of $115$302 million, or 310 percent. HVACAir conditioning and heating sales were down sharply, reflecting significant declines in Asia Middle East & Africa, particularly in China air conditioning and heating markets, while growth in the U.S. was moderate.due to the effects of COVID-19. Global cold chain sales were up slightlydown sharply on modest growthsignificant declines in the U.S., partially offset by slower demand in Asia.Asia and Europe, while North America was down moderately. Tools & Home Products sales were $1.4$1.2 billion in the first nine months of 2019, up $3492020, down $171 million, or 3312 percent compared to the prior year, reflecting the tools and test acquisition and favorable trendssharp declines in global professional tools markets. Sales for wet/dry vacuums were up moderately whileand food waste disposers were up slightly. Overall, underlying sales increased 4 percent in the Americas (U.S. up 3 percent) and 2 percent in Europe, while Asia, Middle East & Africa decreased 14 percent (China down 17 percent).moderately. Earnings were $936$796 million, down 515 percent compared to the prior year, and margin declined 2.3decreased 1.0 percentage points, primarily due to a dilutive impact from the tools and test acquisition of 1.1 percentage points and deleverage on lower sales volume in the Climate Technologies segment. Unfavorable mix also reduced margin, while comparisons benefitedand higher restructuring expenses which negatively impacted margins by 0.4 percentage points, partially offset by savings from higher warranty costs of $10 million in the prior year associated with a specific product issue.cost reduction actions and favorable price-cost.
FINANCIAL CONDITION
Key elements of the Company's financial condition for the nine months ended June 30, 20192020 as compared to the year ended September 30, 20182019 follow.
| | | | | | | | | | | |
| Sept 30, 2019 | | June 30, 2020 |
Working capital (in millions) | $ | 1,163 | | | $ | 1,894 | |
Current ratio | 1.2 | | | 1.3 | |
Total debt-to-total capital | 41.0 | % | | 48.0 | % |
Net debt-to-net capital | 33.9 | % | | 37.9 | % |
Interest coverage ratio | 15.2 | X | | 12.9 | X |
Emerson maintains a conservative financial structure to provide the strength and flexibility necessary to achieve our strategic objectives and has been successful in efficiently deploying cash where needed worldwide to fund operations, complete acquisitions and sustain long-term growth. During fiscal 2020, the Company increased its cash holdings to support liquidity in response to the potential effects of COVID-19. In April 2020, the Company issued $1.5 billion of long-term debt to further manage its liquidity and balance sheet. The net proceeds were used to reduce commercial paper borrowings and for general corporate purposes. The Company has also taken actions to conservatively manage its cash through planned reductions in capital expenditures for fiscal 2020 and by suspending its share repurchases for the remainder of the fiscal year. No changes have been made to the dividend plan for the year. The Company's long-term debt ratings, which are A2 by Moody's Investors Service and A by Standard and Poor's, remain unchanged. The Company currently believes that sufficient funds will be available to meet its needs for the foreseeable future through operating cash flow, existing resources, short- and long-term debt capacity, or its $3.5 billion revolving backup credit facility under which it has not incurred any borrowings.
|
| | | | | | |
| Sept 30, 2018 |
| | June 30, 2019 |
|
Working capital (in millions) | $ | 455 |
| | 1,132 |
|
Current ratio | 1.1 |
| | 1.2 |
|
Total debt-to-total capital | 34.7 | % | | 41.5 | % |
Net debt-to-net capital | 29.1 | % | | 34.5 | % |
Interest coverage ratio | 14.2 | X | | 14.3X |
|
Emerson is in a strong financial position, with total assets of $22 billion and stockholders' equity of $8 billion, and has the resources available for reinvestment in existing businesses, strategic acquisitions and managing its capital structure on a short- and long-term basis. The Company continues to generate substantial operating cash flow, with a full-year outlook of approximately $2.8 billion.The Company's debt-to-capital ratiostotal working capital increased primarilyapproximately $750 million compared to the same quarter last year, reflecting the net proceeds from the debt issuance in May, while operating working capital declined due to increased borrowings to support accelerated share repurchases completed in the second quarter of 2019.lower business levels. The interest coverage ratio (earnings before income taxes plus interest expense, divided by interest expense) of 14.3X12.9X for the first nine months of 2019fiscal 2020 compares to 14.0X14.3X for the nine months ended June 30, 2018.2019. The increasedecrease reflects higherlower pretax earnings in the current year.year, partially offset by lower interest expense.
In January 2019, the Company issued €500 million of 1.25% notes due October 2025 and €500 million of 2.0% notes due October 2029. In May 2019, the Company issued €500 million of 0.375% notes due May 2024. The net proceeds from the sale of the notes were used to reduce commercial paper borrowings and for general corporate purposes.
Operating cash flow for the first nine months of 2019fiscal 2020 was $1.8$1.9 billion, a decreasean increase of $66$52 million compared with $1.9$1.8 billion in the prior year, as operating working capital declined due to higher operating working capital. Other, netlower business levels, partially offset by lower earnings. Free cash flow of $1.5 billion in 2019 primarily consiststhe first nine months of non-cash
items included in net earnings including deferred taxes, stock compensation and pension expense. Freefiscal 2020 (operating cash flow of $1.9 billion less capital expenditures of $329 million) increased $118 million compared to free cash flow of $1.4 billion in 2019 (operating cash flow of $1.8 billion less capital expenditures of $395 million) decreased $147 million compared to free cash flow of $1.6 billion in 2018 (operating cash flow of $1.9 billion less capital expenditures of $314 million), reflecting the decreaseincrease in operating cash flow and an increase inlower capital investment. Free cash flow along with increased short- and long-term borrowings were used to fund dividends of $909 million, common stock purchases of $1.0 billion, repayments of long-term debt of $655 million, and acquisitions of $385 million.
FISCAL 2020 OUTLOOK
Emerson's financial structure providesoperations and supply chain stabilized during the flexibility necessaryquarter, with an emphasis on safety and productivity. The primary focus continues to achieve its strategic objectives.be keeping employees safe and healthy, and serving customers in their essential industries with the vital technologies and services that they rely upon. The Company has been successful in efficiently deploying cash where needed worldwideimplemented recommended policies and practices to fund operations, complete acquisitionsprotect its workforce so they can safely and sustain long-term growth.effectively carry out their work. The Company believes that sufficient funds will be availableis following guidelines from global health experts and has taken stringent steps to meetprotect its employees.
Our outlook reflects the Company’s needsdynamic demand environment associated with COVID-19 and significant savings from the Company's cost reduction and COVID-19 related cost containment actions. The guidance assumes, among other items, a continued challenging but steadily improving demand environment in the foreseeable future through operating cash flow, existing resources, short- and long-term debt capacity or backup credit lines.
FISCAL 2019 OUTLOOK
Results for the first nine months of 2019 reflected solid trends in process and hybrid end markets and consistent demand for long-cycle projects, partially offset by slower global discrete manufacturing end markets, recent upstream oil and gas softness infourth quarter. North America and lower demand in air conditioning markets in Asia. The Company anticipates lower global growth in the near-term due to trade tensions and business investment uncertainty. Softness in North America upstream oil and gas markets and global discrete end markets is expected to continue, whileremain the key challenge from a demand perspective. The guidance also assumes no major operational or supply chain disruptions. Lastly, the outlook assumes no changes in discrete tax items and assumes oil prices remain in the $35 to $45 range for residentialthe same time period. However, future developments related to COVID-19, including further actions taken by governmental authorities, potential shutdowns of our operations, or delays in the stabilization and commercial air conditioning markets is favorable in North Americarecovery of economic conditions could further adversely affect our operations and financial results, as well as those of our customers and suppliers. See "Part II - Other Information, Item 1A, Risk Factors."
Consolidated fiscal 2020 net sales are expected to improve in Asia. For the full year,be down 9 to 10 percent, with underlying sales down 7.5 to 9 percent excluding a 1 to 1.5 percent unfavorable impact from foreign currency translation. Automation Solutions net sales are expected to be up approximately 7down 8 to 10 percent, with underlying sales up approximately 5down 7 to 9 percent excluding a positive1 percent unfavorable impact from acquisitionsforeign currency translation. The midpoint of 4 percent and unfavorable currency translationthis outlook assumes a reduction of 2 percent.backlog of approximately $300 million by the end of the fiscal year. Commercial & Residential Solutions net sales are expected to be up approximately 4down 9 to 11 percent, with underlying sales flat excluding a positivedown 8 to 10 percent excluding an impact from acquisitions of 5 percent and unfavorable foreign currency translation of 1 percent. Consolidated net sales are expected to be up approximately 6 percent, with underlying sales up approximately 3 percent excluding a positive impact from acquisitions of 5 percent and unfavorable currency translation of 2 percent. Segment EBIT margin is expected to be approximately 16 percent for Automation Solutions and approximately 21 percent for Commercial & Residential Solutions, including higher restructuring investments in the fourth quarter. Reported earningsEarnings per share are expected to be $3.60$2.80 to $3.70,$2.95, while adjusted earnings per share, which includes anexclude a $0.40 per share impact from restructuring actions and related costs for the year, are expected discrete tax benefit in the fourth quarter of approximately $0.05 per share.to be $3.20 to $3.35. Operating cash flow is expected to be approximately $3.1$2.8 billion and free cash flow, which excludes targeted capital spending of $600$550 million, is expected to be approximately $2.5$2.25 billion. The Company's share repurchases for the nine months ended June 30, 2020 were $942 million and additional repurchases have been suspended for the remainder of the fiscal year. The Company has made no changes to its dividend plan for fiscal 2020.
Statements in this report that are not strictly historical may be "forward-looking" statements, which involve risks and uncertainties, and Emerson undertakes no obligation to update any such statements to reflect later developments. These risks and uncertainties include the scope, duration and ultimate impact of the COVID-19 pandemic, as well as economic and currency conditions, market demand, including related to the pandemic and oil and gas price declines and volatility, pricing, protection of intellectual property, cybersecurity, tariffs, competitive and technological factors, among others, which are set forth in the “Risk Factors” of Part I, Item 1A, and the "Safe Harbor Statement" of Part II, Item 7, to the Company's Annual Report on Form 10-K for the year ended September 30, 20182019, "Risk Factors" of Part II - Other Information, Item 1A of the Company's Quarterly Report on Form 10-Q for the three-month period ended June 30, 2020, and in subsequent reports filed with the SEC, which are hereby incorporated by reference.
The United KingdomKingdom's (UK) continues to negotiate its withdrawal from the European Union (EU), commonly known as "Brexit.""Brexit", was completed on January 31, 2020. The EU agreed to postponeUK is now in a transition period and has begun negotiating the withdrawal deadline to October 31, 2019.terms of a trade agreement and other laws and regulations with the EU. The Company's net sales in the UK are principally in the Automation Solutions segment and represent less than two percent of consolidated sales. Sales of products manufactured in the UK and sold within the EU are immaterial. The Company is evaluating several potential Brexit scenariosoutcomes of the UK's negotiations with the EU and believes the direct cost of incremental tariffs, logistics and other items would be immaterial.
Item 4. Controls and Procedures
The Company maintains a system of disclosure controls and procedures designed to ensure that information required to be disclosed in its reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported in a timely manner. This system also is designed to ensure information is accumulated and communicated to management, including the Company's certifying officers, to allow timely decisions regarding required disclosure. Based on an evaluation performed, the certifying officers have concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report.
Notwithstanding the foregoing, there can be no assurance that the Company's disclosure controls and procedures will detect or uncover all failures of persons within the Company and its consolidated subsidiaries to report material information otherwise required to be set forth in the Company's reports.
There was no change in the Company's internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1A. Risk Factors
The following risk factor supplements the “Risk Factors” section in Part 1, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019 (our “Form 10-K). The following risk factor disclosure should be read in conjunction with the other risk factors set out in our Form 10-K.
The Recent Coronavirus (COVID-19) Outbreak Has Adversely Impacted our Business and Could in the Future Have a Material Adverse Impact on our Business, Results of Operation, Financial Condition and Liquidity, the Nature and Extent of Which is Highly Uncertain
The global outbreak of the coronavirus (COVID-19) has significantly increased economic, demand and operational uncertainty. We have global operations, customers and suppliers, including in countries most impacted by COVID-19. Authorities around the world have taken a variety of measures to slow the spread of COVID-19, including travel bans or restrictions, increased border controls or closures, quarantines, shelter-in-place orders and business shutdowns and such authorities may impose additional restrictions. We have also taken actions to protect our employees and to mitigate the spread of COVID-19, including embracing guidelines set by the World Health Organization and the Centers for Disease Control and Prevention on social distancing, good hygiene, restrictions on employee travel and in-person meetings, and changes to employee work arrangements including remote work arrangements. The actions taken around the world to slow the spread of COVID-19 have also impacted our customers and suppliers, and future developments could cause further disruptions to Emerson due to the interconnected nature of our business relationships.
The impact of COVID-19 on the global economy and our customers, as well as recent volatility in commodity markets (including oil prices), has negatively impacted demand for our products and could continue to do so in the future. Its effects could also result in further disruptions to our manufacturing operations, including higher rates of employee absenteeism, and supply chain, which could continue to negatively impact our ability to meet customer demand. Additionally, the potential deterioration and volatility of credit and financial markets could limit our ability to obtain external financing. The extent to which COVID-19 will impact our business, results of operations, financial condition or liquidity is highly uncertain and will depend on future developments, including the spread and duration of the virus, potential actions taken by governmental authorities, and how quickly economic conditions stabilize and recover.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In November 2015, the Board of Directors authorized the purchase of up to 70 million shares. In March 2020, the Board of Directors authorized the purchase of an additional 60 million shares and a total of approximately 26.165.5 million shares remain available.available for purchase under the authorizations. No shares were purchasedrepurchased in the third quarter of 2019.2020.
Item 6. Exhibits
(a) Exhibits (Listed by numbers corresponding to the Exhibit Table of Item 601 in Regulation S-K).
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4 |
| Emerson agrees to furnish to the Securities and Exchange Commission, upon request, copies of any long-term debt instruments that authorize an amount of securities constituting 10 percent or less of the total assets of Emerson and its subsidiaries on a consolidated basis. |
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101 |
| Attached as Exhibit 101 to this report are the following documents formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Statements of Earnings for the three and nine months ended June 30, 20192020 and 2018,2019, (ii) Consolidated Statements of Comprehensive Income for the three and nine months ended June 30, 20192020 and 2018,2019, (iii) Consolidated Balance Sheets as of September 30, 20182019 and June 30, 2020, (iv) Consolidated Statements of Equity for the three and nine months ended June 30, 2020 and 2019, (iv)(v) Consolidated Statements of Cash Flows for the nine months ended June 30, 2020 and 2019, and 2018, and (v)(vi) Notes to Consolidated Financial Statements for the three and nine months ended ended June 30, 2020 and 2019.
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104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
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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. | | |
| | | | |
| | EMERSON ELECTRIC CO. | | |
| | By | |
| | | |
| | By | /s/ Frank J. Dellaquila | |
| | | Frank J. Dellaquila | |
| | | Senior Executive Vice President and Chief Financial Officer | |
| | | (on behalf of the registrant and as Chief Financial Officer) | |
| | | August 7, 20195, 2020 | |