UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to __________________
Commission file number 1-278
EMERSON ELECTRIC CO.
(Exact name of registrant as specified in its charter)
Missouri 43-0259330
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8000 W. Florissant Ave.
P.O. Box 4100
St. Louis, Missouri 63136
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 553-2000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( )
Common stock outstanding at December 31, 1999: 431,069,512 shares.
1
PART I. FINANCIAL INFORMATION FORM 10-Q
Item 1. Financial Statements.
EMERSON ELECTRIC CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(Dollars in millions except per share amounts; unaudited)
Three Months Ended
December 31,
---------------------
1999 1998
-------- --------
Net sales $3,543.3 3,426.7
-------- --------
Costs and expenses:
Cost of sales 2,288.8 2,211.6
Selling, general and administrative expenses 701.9 691.4
Interest expense 52.0 44.9
Other deductions, net 4.6 6.4
-------- --------
Total costs and expenses 3,047.3 2,954.3
-------- --------
Income before income taxes 496.0 472.4
Income taxes 171.1 170.0
-------- --------
Net earnings $ 324.9 302.4
======== ========
Basic earnings per common share $ .75 .69
======== ========
Diluted earnings per common share $ .75 .69
======== ========
Cash dividends per common share $ .3575 .325
======== ========
See accompanying notes to consolidated financial statements.
_________________________________________________________________________
NOTE: Diluted earnings per common share, excluding
goodwill amortization $ .82 .75
======== ========
2
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
CONSOLIDATED BALANCE SHEETS
(Dollars in millions except per share amounts; unaudited)
December 31, September 30,
ASSETS 1999 1999
------ --------- --------
CURRENT ASSETS
Cash and equivalents $ 339.5 266.1
Receivables, less allowances of $60.7 and $60.5 2,487.6 2,516.3
Inventories 1,953.1 1,921.1
Other current assets 421.6 420.9
--------- --------
Total current assets 5,201.8 5,124.4
--------- --------
PROPERTY, PLANT AND EQUIPMENT, NET 3,142.8 3,154.4
--------- --------
OTHER ASSETS
Goodwill 4,208.3 4,263.0
Other 1,076.3 1,081.7
--------- --------
Total other assets 5,284.6 5,344.7
--------- --------
$13,629.2 13,623.5
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Short-term borrowings and current maturities
of long-term debt $ 2,065.3 1,953.7
Accounts payable 890.4 1,068.8
Accrued expenses 1,191.6 1,304.8
Income taxes 362.4 263.1
--------- --------
Total current liabilities 4,509.7 4,590.4
--------- --------
LONG-TERM DEBT 1,400.8 1,317.1
--------- --------
OTHER LIABILITIES 1,529.9 1,535.5
--------- --------
STOCKHOLDERS' EQUITY
Preferred stock of $2.50 par value per share.
Authorized 5,400,000 shares; issued - none -- --
Common stock of $.50 par value per share.
Authorized 1,200,000,000 shares; issued
476,677,006 shares 238.3 238.3
Additional paid in capital 20.5 23.9
Retained earnings 7,974.1 7,803.7
Accumulated other nonstockholder
changes in equity (314.0) (271.6)
Cost of common stock in treasury, 45,607,494
shares and 43,632,708 shares (1,730.1) (1,613.8)
--------- --------
Total stockholders' equity 6,188.8 6,180.5
--------- --------
$13,629.2 13,623.5
========= ========
See accompanying notes to consolidated financial statements.
3
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(Dollars in millions; unaudited)
1999 1998
-------- --------
OPERATING ACTIVITIES
Net earnings $ 324.9 302.4
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 163.5 152.4
Changes in operating working capital (169.2) (150.0)
Other (16.0) (29.2)
-------- --------
Net cash provided by operating activities 303.2 275.6
-------- --------
INVESTING ACTIVITIES
Capital expenditures (125.6) (136.8)
Purchases of businesses, net of cash and
equivalents acquired (4.6) (468.0)
Other, net (1.9) .8
-------- --------
Net cash used in investing activities (132.1) (604.0)
-------- --------
FINANCING ACTIVITIES
Net increase in short-term borrowings 147.9 495.6
Proceeds from long-term debt 81.5 175.1
Principal payments on long-term debt (7.5) (6.0)
Dividends paid (154.5) (142.4)
Net purchases of treasury stock (159.3) (94.3)
-------- --------
Net cash (used in) provided by financing activities (91.9) 428.0
-------- --------
Effect of exchange rate changes on cash and equivalents (5.8) 12.4
-------- --------
INCREASE IN CASH AND EQUIVALENTS 73.4 112.0
Beginning cash and equivalents 266.1 209.7
-------- --------
ENDING CASH AND EQUIVALENTS $ 339.5 321.7
======== ========
See accompanying notes to consolidated financial statements.
4
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
Notes to Consolidated Financial Statements
(Unaudited)
1. The accompanying unaudited consolidated financial statements, in
the opinion of management, include all adjustments necessary for
a fair presentation of the results for the interim periods
presented. These adjustments consist of normal recurring
accruals. The consolidated financial statements are presented in
accordance with the requirements of Form 10-Q and consequently do
not include all the disclosures required by generally accepted
accounting principles. For further information refer to the
consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended
September 30, 1999.
2. Other Financial Information
(Dollars in millions)
December 31, September 30,
1999 1999
-------- --------
Inventories
-----------
Finished products $ 836.5 871.5
Raw materials and work in process 1,116.6 1,049.6
-------- --------
$1,953.1 1,921.1
======== ========
Property, plant and equipment, net
----------------------------------
Property, plant and equipment, at cost $6,439.1 6,377.8
Less accumulated depreciation 3,296.3 3,223.4
-------- --------
$3,142.8 3,154.4
======== ========
Other assets, other
-------------------
Equity and other investments $ 227.7 235.1
Retirement plans 281.3 271.3
Leveraged leases 183.6 185.5
Other 383.7 389.8
-------- --------
$1,076.3 1,081.7
======== ========
Other liabilities
-----------------
Minority interest $ 297.6 297.2
Postretirement plans, excl. current portion 315.3 313.1
Deferred taxes 333.0 333.9
Other 584.0 591.3
-------- --------
$1,529.9 1,535.5
======== ========
5
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
3. Business Segment Information
Summarized information about the Company's operations by business segment
for the three months ended December 31, 1999 and 1998, follows (dollars
in millions):
Earnings Before
Interest and
Sales Income Taxes
---------------- -------------
1999 1998 1999 1998
-------- ------- ----- -----
Process Control $ 712.3 633.7 56.3 70.0
Industrial Automation 858.9 847.7 111.3 109.3
Electronics and Telecommunications 583.5 486.2 71.7 42.2
HVAC 540.9 525.2 79.0 74.7
Appliance and Tools 910.5 874.8 146.9 142.4
-------- ------- ----- -----
3,606.1 3,367.6 465.2 438.6
Divested businesses 24.5 151.3 .4 9.1
Eliminations/Interest and other (87.3) (92.2) 30.4 24.7
-------- ------- ----- -----
Net sales/Income before income taxes $3,543.3 3,426.7 496.0 472.4
======== ======= ===== =====
Divested businesses include F.G. Wilson and other smaller businesses.
Intersegment sales of the Appliance and Tools segment were $70 million
for the three months ended December 31, 1999 and 1998. Interest and
other for the three months ended December 31, 1999 and 1998, respectively,
include accounting method differences of $44.5 million and $40.6 million;
interest income, corporate and other of $37.9 million and $29.0 million;
and interest expense.
4. During the second quarter of fiscal 2000, the Company acquired Jordan
Telecommunication Products, Inc. (renamed Emerson Telecommunication
Products) for approximately $985 million. Emerson Telecom is a global
provider of fiber optic conduit systems, CATV components, power protection
systems, cellular site structures, custom cables and connectors for
wireline, wireless and data communications equipment.
Also in the second quarter, the Company announced an agreement to acquire
Ericsson Energy Systems, a global provider of power supplies, power
systems, switching equipment, climate control and energy management
systems, and site monitoring services to the telecommunications industry,
for approximately $725 million. This transaction is subject to
regulatory approval and other customary conditions. The Company also
announced its decision to sell its interest in Vermont American to its
joint venture partner, Robert Bosch GmbH.
6
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
5. As reflected in the financial statements, nonstockholder changes in
equity for the three months ended December 31, 1999, were $282.5 million,
comprised of net earnings of $324.9 million and foreign currency
translation adjustments of $(42.4) million. The corresponding amount for
the three months ended December 31, 1998, was $371.7 million, comprised
of net earnings of $302.4 million and foreign currency translation
adjustments of $69.3 million.
6. The weighted average number of common shares outstanding (in millions)
was 430.4 and 436.0 for the three months ended December 31, 1999 and
1998, respectively. The weighted average number of shares outstanding
assuming dilution (in millions) was 434.5 and 440.6 for the three months
ended December 31, 1999 and 1998, respectively. Dilutive shares
primarily relate to stock plans.
7
EMERSON ELECTRIC CO. AND SUBSIDIARIES Form 10-Q
Items 2 and 3. Management's Discussion and Analysis of Results of
Operations and Financial Condition.
Results of Operations
Sales, net earnings and earnings per share for the first quarter of
fiscal 2000 were the highest for any first quarter in the Company's
history.
Net sales for the quarter ended December 31, 1999, were $3,543.3 million,
an increase of 3.4 percent over net sales of $3,426.7 million for the
quarter ended December 31, 1998. These results reflect continued improvement
in international markets and robust demand worldwide in the electronics and
telecommunications business. Excluding the impact of currency and
divestitures, sales increased 9 percent, reflecting underlying growth and
the contribution of acquisitions.
The process control business reported a 12 percent increase in sales, driven
by the Westinghouse Process Control and Daniel Industries acquisitions, which
have increased the Company's presence in the power, water and wastewater, and
natural gas markets. Underlying sales declined, reflecting reductions in
capital spending by customers during 1999.
Sales in the industrial automation business increased because of the
Kato and Magnetek alternator operations acquisitions. Underlying sales
declined modestly as last year's capital reductions for industrial products
extended into the fourth calendar quarter.
Sales in the electronics and telecommunications business increased 20 percent,
due to very strong underlying growth, particularly in the United States. The
European and Asian markets also experienced solid growth. The ongoing high
demand is being driven by the rapid expansion of the Internet infrastructure
and telecommunications markets.
The heating, ventilating and air conditioning business achieved solid
underlying sales growth, reflecting strength in Europe, Asia and Latin
America. Growth in the United States was modest, due in part to select
customers' efforts to reduce off-season inventory. This activity does not
affect overall consumer demand.
The appliance and tools business realized a solid increase in underlying sales
across all areas, attributable to continued strength in the U.S. home
construction and repair markets. Sales to home centers increased
substantially, as The Home Depot continues to embrace the Company's RIDGID-
branded products as its professional tools offering.
Cost of sales for the first quarter was $2,288.8 million, or 64.6
percent of sales, compared with $2,211.6 million, or 64.5 percent of
sales, for the first quarter of 1999. Selling, general and
administrative expenses for the three months ended December 31, 1999,
were $701.9 million, or 19.8 percent of sales, compared to $691.4
million, or 20.2 percent of sales, for the same period a year ago.
8
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
Earnings before interest and income taxes increased 5.9 percent. The
consolidated operating margin increased 0.3 points reflecting the impact of
cost reduction efforts and productivity improvement programs. Earnings before
interest and income taxes in the process control business decreased in the
first quarter of 2000, primarily due to underlying sales declines reflecting
reductions in capital spending by customers. Earnings of the electronics and
telecommunications business increased by 70 percent compared to the first
quarter of 1999, reflecting robust underlying sales growth and improved
operating margins.
Financial Condition
A comparison of key elements of the Company's financial condition at
the end of the first quarter as compared to the end of the prior
fiscal year follows:
December 31, September 30,
1999 1999
--------- ---------
Working capital (in millions) $ 692.1 $ 534.0
Current ratio 1.2 to 1 1.1 to 1
Total debt to total capital 35.9% 34.6%
Net debt to net capital 33.5% 32.7%
The Company's interest coverage ratio (earnings before income taxes and
interest expense, divided by interest expense) was 10.5 times for the
quarter ended December 31, 1999, compared to 11.5 times for the same
period one year earlier. The decrease in the interest coverage ratio
reflects higher average borrowings resulting from share repurchases and
acquisitions, partially offset by earnings growth.
Cash and equivalents increased by $73.4 million during the three months
ended December 31, 1999. Cash flow provided by operating activities of
$303.2 million and an increase in borrowings of $221.9 million were used
primarily to fund net treasury stock purchases of $159.3 million, pay
dividends of $154.5 million, and fund capital expenditures of $125.6
million.
The Company is in a strong financial position, continues to generate
strong operating cash flow, and has the resources available for
reinvestment in existing businesses, strategic acquisitions and managing
the capital structure on a short- and long-term basis.
Statements in this report that are not strictly historical may be
"forward-looking" statements, which involve risks and uncertainties.
These include economic and currency conditions, market demand, pricing,
and competitive and technological factors, among others, which are set
forth in the Company's Annual Report on Form 10-K for the year ended
September 30, 1999.
9
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
PART II. OTHER INFORMATION
Item 5. Other Information.
On February 3, 2000, the Company announced that George W. Tamke, vice chairman
and co-chief executive officer of the Company, informed the Board of Directors
and Chairman and Chief Executive Officer Charles F. Knight that he is resigning
to pursue other opportunities.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits (Listed by numbers corresponding to the Exhibit Table
of Item 601 in Regulation S-K).
3(a) Restated Articles of Incorporation of Emerson Electric Co.,
incorporated by reference to Emerson Electric Co. Form 10-Q
for the quarter ended March 31, 1997, Exhibit 3(a).
3(b) Bylaws of Emerson Electric Co., as amended through November 3,
1998, incorporated by reference to Emerson Electric Co. 1998
Form 10-K, Exhibit 3(b).
12 Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(b) Reports on Form 8-K. The Company did not file any reports on Form 8-K
during the quarter ended December 31, 1999.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
EMERSON ELECTRIC CO.
Date: February 11, 2000 By /s/ Walter J. Galvin
-----------------------
Walter J. Galvin
Senior Vice President - Finance
and Chief Financial Officer
(on behalf of the registrant and
as Chief Financial Officer)
10