UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to __________________
Commission file number 1-278
EMERSON ELECTRIC CO.
(Exact name of registrant as specified in its charter)
Missouri 43-0259330
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8000 W. Florissant Ave.
P.O. Box 4100
St. Louis, Missouri 63136
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 553-2000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( )
Common stock outstanding at March 31, 2000: 426,715,844 shares.
1
PART I. FINANCIAL INFORMATION FORM 10-Q
Item 1. Financial Statements.
EMERSON ELECTRIC CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 2000 AND 1999
(Dollars in millions except per share amounts; unaudited)
Three Months Six Months
-------------------- -------------------
2000 1999 2000 1999
--------- -------- -------- --------
Net sales $ 3,894.7 3,588.7 7,438.0 7,015.4
--------- -------- -------- --------
Costs and expenses:
Cost of sales 2,514.3 2,309.8 4,803.1 4,521.4
Selling, general and
administrative expenses 743.3 698.7 1,445.2 1,390.1
Interest expense 69.0 44.8 121.0 89.7
Other deductions, net 29.5 31.1 34.1 37.5
--------- -------- -------- --------
Total costs and expenses 3,356.1 3,084.4 6,403.4 6,038.7
--------- -------- -------- --------
Income before income taxes 538.6 504.3 1,034.6 976.7
Income taxes 185.8 178.4 356.9 348.4
--------- -------- -------- --------
Net earnings $ 352.8 325.9 677.7 628.3
========= ======== ======== ========
Basic earnings per common share $ .83 .75 1.58 1.44
========= ======== ======== ========
Diluted earnings per common share $ .82 .74 1.57 1.43
========= ======== ======== ========
Cash dividends per common share $ .3575 .325 .715 .65
========= ======== ======== ========
See accompanying notes to consolidated financial statements.
_____________________________________________________________________________
Note: Diluted earnings per common
share, excluding goodwill
amortization $ .90 $ .81 $ 1.72 $ 1.56
========= ======== ======== ========
2
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
CONSOLIDATED BALANCE SHEETS
(Dollars in millions except per share amounts; unaudited)
March 31, September 30,
ASSETS 2000 1999
------ --------- --------
CURRENT ASSETS
Cash and equivalents $ 373.4 266.1
Receivables, less allowances of $62.0 and $60.5 2,647.3 2,516.3
Inventories 2,023.6 1,921.1
Other current assets 436.4 420.9
--------- --------
Total current assets 5,480.7 5,124.4
--------- --------
PROPERTY, PLANT AND EQUIPMENT, NET 3,237.2 3,154.4
--------- --------
OTHER ASSETS
Goodwill 5,090.6 4,263.0
Other 1,134.1 1,081.7
--------- --------
Total other assets 6,224.7 5,344.7
--------- --------
$14,942.6 13,623.5
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Short-term borrowings and current maturities
of long-term debt $ 3,382.2 1,953.7
Accounts payable 1,001.1 1,068.8
Accrued expenses 1,233.2 1,304.8
Income taxes 245.8 263.1
--------- --------
Total current liabilities 5,862.3 4,590.4
--------- --------
LONG-TERM DEBT 1,444.5 1,317.1
--------- --------
OTHER LIABILITIES 1,505.8 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 50.9 23.9
Retained earnings 8,173.5 7,803.7
Accumulated other nonstockholder
changes in equity (384.9) (271.6)
Cost of common stock in treasury, 49,961,162
shares and 43,632,708 shares (1,947.8) (1,613.8)
--------- --------
Total stockholders' equity 6,130.0 6,180.5
--------- --------
$14,942.6 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
SIX MONTHS ENDED MARCH 31, 2000 AND 1999
(Dollars in millions; unaudited)
2000 1999
OPERATING ACTIVITIES -------- --------
Net earnings $ 677.7 628.3
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 335.6 317.2
Changes in operating working capital (277.9) (263.6)
Other (45.8) (35.6)
-------- --------
Net cash provided by operating activities 689.6 646.3
-------- --------
INVESTING ACTIVITIES
Capital expenditures (297.4) (267.0)
Purchases of businesses, net of cash and
equivalents acquired (1,165.3) (536.5)
Divestiture of businesses and other, net 31.5 (27.3)
-------- --------
Net cash used in investing activities (1,431.2) (830.8)
-------- --------
FINANCING ACTIVITIES
Net increase in short-term borrowings 1,466.8 570.7
Proceeds from long-term debt 106.8 426.6
Principal payments on long-term debt (16.7) (216.0)
Dividends paid (307.9) (284.1)
Net purchases of treasury stock (391.8) (216.6)
-------- --------
Net cash provided by financing activities 857.2 280.6
-------- --------
Effect of exchange rate changes on cash and equivalents (8.3) (.2)
-------- --------
INCREASE IN CASH AND EQUIVALENTS 107.3 95.9
Beginning cash and equivalents 266.1 209.7
-------- --------
ENDING CASH AND EQUIVALENTS $ 373.4 305.6
======== ========
See accompanying notes to consolidated financial statements.
4
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
Notes to Consolidated Financial Statements
1. The accompanying unaudited consolidated financial statements, in
the opinion of management, include all adjustments necessary for
a fair presentation of the results for the interim periods presented.
These adjustments consist of normal recurring accruals. The
consolidated financial statements are presented in accordance
with the requirements of Form 10-Q and consequently do not include
all the disclosures required by generally accepted accounting
principles. For further information refer to the consolidated
financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended September 30, 1999.
2. Other Financial Information
(Dollars in millions; unaudited)
March 31, September 30,
2000 1999
Inventories -------- -------
-----------
Finished products $ 839.1 871.5
Raw materials and work in process 1,184.5 1,049.6
-------- -------
$2,023.6 1,921.1
======== =======
Property, plant and equipment, net
----------------------------------
Property, plant and equipment, at cost $6,548.5 6,377.8
Less accumulated depreciation 3,311.3 3,223.4
-------- -------
$3,237.2 3,154.4
======== =======
Other assets, other
-------------------
Equity and other investments $ 227.1 235.1
Retirement plans 293.2 271.3
Leveraged leases 182.6 185.5
Other 431.2 389.8
-------- -------
$1,134.1 1,081.7
======== =======
Other liabilities
-----------------
Minority interest $ 298.1 297.2
Postretirement plans, excl. current portion 312.7 313.1
Deferred taxes 338.8 333.9
Other 556.2 591.3
-------- -------
$1,505.8 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 and six months ended March 31, 2000 and 1999,
follows (dollars in millions):
Sales Earnings
------------------- -------------
Three months ended March 31, 2000 1999 2000 1999
---------------------------- -------- ------- ----- -----
Process Control $ 730.4 722.4 55.9 74.0
Industrial Automation 889.8 830.7 119.9 111.8
Electronics and Telecommunications 729.9 454.3 97.3 42.9
HVAC 670.8 649.9 106.7 101.1
Appliance and Tools 970.3 903.1 157.7 145.8
-------- ------- ----- -----
3,991.2 3,560.4 537.5 475.6
Divested businesses - 125.8 - 9.1
Eliminations/Interest and other (96.5) (97.5) 1.1 19.6
-------- ------- ----- -----
Net sales/Income
before income taxes $3,894.7 3,588.7 538.6 504.3
======== ======= ===== =====
Sales Earnings
------------------ ---------------
Six months ended March 31, 2000 1999 2000 1999
-------------------------- -------- ------- ------- -----
Process Control $1,442.7 1,356.1 112.2 144.0
Industrial Automation 1,748.7 1,678.4 231.2 221.1
Electronics and Telecommunications 1,313.4 940.5 169.0 85.1
HVAC 1,211.7 1,175.1 185.7 175.8
Appliance and Tools 1,880.8 1,777.9 304.6 288.2
-------- ------- ------- -----
7,597.3 6,928.0 1,002.7 914.2
Divested businesses 24.5 277.1 0.4 18.2
Eliminations/Interest and other (183.8) (189.7) 31.5 44.3
-------- ------- ------- -----
Net sales/Income
before income taxes $7,438.0 7,015.4 1,034.6 976.7
======== ======= ======= =====
Divested businesses include F.G. Wilson, BI Technologies and a
smaller business. Intersegment sales of the Appliance and Tools
segment for the three months ended March 31, 2000 and 1999,
respectively, were $83.9 million and $82.8 million. Intersegment sales
of the Appliance and Tools segment for the six months ended March 31,
2000 and 1999, respectively, were $154.1 million and $152.5 million.
Interest and other for the three months ended March 31, 2000 and 1999,
respectively, include accounting method differences of $48.2 million
and $41.9 million; interest income, corporate and other of $21.9
million and $22.5 million; and interest expense. Interest and other
for the six months ended March 31, 2000 and 1999, respectively, include
accounting method differences of $92.7 million and $82.5 million;
interest income, corporate and other of $59.8 million and $51.5; and
interest expense.
6
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 acquired Knaack, a
manufacturer of professional tool storage equipment, and acquired and
divested other smaller businesses.
In the third quarter, the Company acquired Ericsson Energy
Systems (renamed Emerson 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. Annual
1999 sales of all companies acquired in 2000 total more than
$1 billion.
The Company also announced its decision to sell its interest in Vermont
American (VA) to its joint venture partner, Robert Bosch GmbH, and
beginning in the third quarter, VA will no longer be consolidated in
the Company's results. VA, BI Technologies and the planned divestiture
of our Krautkramer non-destructive testing business represent total annual
1999 sales of nearly $600 million.
5. As reflected in the financial statements, nonstockholder changes in
equity for the three months ended March 31, 2000 and March 31, 1999,
respectively, were $281.9 million and $242.4 million comprised of net
earnings of $352.8 million and $325.9 million and foreign currency
translation adjustments of $(70.9) million and $(83.5) million.
Nonstockholder changes in equity for the six months ended March 31,
2000, and March 31, 1999, respectively, were $564.4 million and $614.1
million comprised of net earnings of $677.7 million and $628.3 million
and foreign currency translation adjustments of $(113.3) million and
$(14.2) million.
6. The weighted average number of common shares outstanding (in
millions) was 427.2 and 434.3 for the three months ended March 31,
2000 and 1999, and 428.8 and 435.1 for the six months ended March 31,
2000 and 1999, respectively. The weighted average number of shares
outstanding assuming dilution (in millions) was 430.7 and 438.5 for
the three months ended March 31, 2000 and 1999, and 432.6 and 439.6
for the six months ended March 31, 2000 and 1999, respectively.
Dilutive shares primarily relate to employee 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 second quarter and
first six months of fiscal 2000 were the highest for any second quarter
and first half in the Company's history.
Net sales were $3,894.7 million for the quarter ended March 31, 2000,
up 8.5 percent over net sales of $3,588.7 million for the quarter ended
March 31, 1999, and $7,438.0 million for the six months ended March 31,
2000, up 6.0 percent over net sales of $7,015.4 million for the same
period a year ago. Second quarter results reflect solid sales growth in
the United States and strong sales growth in Europe. Canada, Asia and
Latin America each had very strong sales growth.
The process control business experienced a modest increase in sales,
reflecting the continued weakness in capital spending by our customers
and the contribution of recent acquisitions.
The industrial automation business experienced a strong sales increase,
driven by the continued improvement in capital goods markets and the
recent Kato and Magnetek alternator acquisitions. All geographic regions
achieved underlying sales increases when excluding the impact of currency
exchange, reflecting the global nature of the market improvement.
Sales in the electronics and telecommunications business increased
dramatically, driven by very strong underlying sales growth
and the recent acquisition of Jordan Industries' Telecommunication
Products business. Continued high worldwide demand for reliable
power and networking products is driving this growth.
The heating, ventilating and air conditioning business continued to
achieve solid sales growth driven by continuing overall improvement in
international markets. Europe, Asia and Latin America each achieved very
strong growth.
The appliance and tools business achieved solid increases in underlying
and reported sales, benefiting from strong demand for the tools portion of
this segment. All tools operations, with the exception of the Vermont
American joint venture, realized strong increases, and the Company's
partnership with The Home Depot for RIDGID brand products continued to
flourish.
Cost of sales for the second quarter was $2,514.3 million or 64.6 percent
of sales, compared with $2,309.8 million, or 64.4 percent of sales,
for the second quarter of 1999. Cost of sales for the six months ended
March 31, 2000, was $4,803.1 million or 64.6 percent of sales, compared
to $4,521.4 million or 64.5 percent of sales for the same period a year
ago. Selling, general and administrative expenses for the three months
ended March 31, 2000, were $743.3 million, or 19.0 percent of sales,
8
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
compared to $698.7 million, or 19.4 percent of sales for the same period
a year ago. For the first six months of 2000, selling, general and
administrative expenses were $1,445.2 million or 19.4 percent of sales,
compared to $1,390.1 million or 19.8 percent of sales for the same period
in 1999.
Earnings before interest and income taxes for the second quarter
increased 10.6 percent. The consolidated operating margin improved 0.2
points, reflecting the continued impact of cost reduction efforts,
productivity programs, and the rapid integration of recent acquisitions.
Earnings before interest and income taxes in the process control business
decreased in the second quarter of 2000, resulting from a slight decline
in underlying sales due to continued weakness in capital spending by
customers. Earnings before interest and income taxes of the electronic
and telecommunications business increased 127 percent compared to the
second quarter of 1999, reflecting very strong underlying sales growth
and the recent Emerson Telecommunication Products acquisition.
Financial Condition
A comparison of key elements of the Company's financial condition at
the end of the second quarter as compared to the end of the prior
fiscal year follows:
March 31, September 30,
2000 1999
-------- --------
Working capital (in millions) $ (381.6) $ 534.0
Current ratio 0.9 to 1 1.1 to 1
Total debt to total capital 44.1% 34.6%
Net debt to net capital 42.0% 32.7%
The Company's interest coverage ratio (earnings before income taxes
and interest expense, divided by interest expense) was 9.6 times for the
six months ended March 31, 2000, compared to 11.9 times for the same
period one year earlier. The decrease in working capital and the interest
coverage ratio reflects higher average borrowings resulting from share
repurchases and acquisitions, partially offset by earnings growth.
Cash and equivalents increased by $107.3 million during the six months
ended March 31, 2000. Cash flow provided by operating activities of
$689.6 million and a net increase in borrowings of $1,556.9 million were
used primarily to fund purchases of businesses of $1,165.3 million, pay
dividends of $307.9 million, fund capital expenditures of $297.4 million,
and fund net purchases of treasury stock of $391.8 million.
The Company is in a strong financial position, continues to generate
strong operating cash flows, and has the resources available for
reinvestment in existing businesses, strategic acquisitions and managing
the capital structure on a short- and long-term basis.
9
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
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.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of Stockholders on February 1, 2000, both
matters described in the Notice of Annual Meeting of Stockholders dated
December 8, 1999, were voted upon.
1. The directors listed below were elected for terms ending in 2003 with
voting for each as follows:
DIRECTOR FOR WITHHELD
------------------- ----------- ----------
L. L. Browning, Jr. 367,478,721 2,817,686
A. A. Busch III 367,702,144 2,594,263
R. B. Horton 367,658,432 2,637,975
G. A. Lodge 367,560,536 2,735,871
V. R. Loucks, Jr. 367,560,536 2,735,871
G. W. Tamke 367,788,495 2,507,912
2. The proposal to approve the Annual Incentive Plan was approved by a
vote of 359,213,902 in favor to 8,538,799 against, with 2,559,143
abstaining.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits (Listed by numbers corresponding to the Exhibit Table
of Item 601 in Regulation S-K).
3(a) Restated Articles of Incorporation of Emerson Electric Co.,
incorporated by reference to Emerson Electric Co. Form 10-Q
for the quarter ended March 31, 1997, Exhibit 3(a).
3(b) Bylaws of Emerson Electric Co., as amended through 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 March 31, 2000.
10
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
EMERSON ELECTRIC CO.
Date: May 12, 2000 By /s/ Walter J. Galvin
-----------------------
Walter J. Galvin
Executive Vice President
and Chief Financial Officer
(on behalf of the registrant and
as Chief Financial Officer)
11