SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to __________________
Commission file number 1-278
EMERSON ELECTRIC CO.
(Exact name of registrant as specified in its charter)
Missouri 43-0259330
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8000 W. Florissant Ave.
P.O. Box 4100
St. Louis, Missouri 63136
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 553-2000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( )
Common stock outstanding at June 30, 1994: 224,002,109 shares.
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PART I. FINANCIAL INFORMATION FORM 10-Q
Item 1. Financial Statements.
EMERSON ELECTRIC CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 1994 AND 1993
(Dollars in millions except per share amounts; unaudited)
Three Months Nine Months
-------------------- --------------------
1994 1993 1994 1993
--------- --------- --------- ---------
Net sales $ 2,243.7 2,092.1 6,369.7 6,132.6
--------- --------- --------- ---------
Costs and expenses:
Cost of sales 1,459.7 1,356.4 4,133.9 3,994.9
Selling, general and
administrative expenses 422.2 404.1 1,225.1 1,193.1
Interest expense 21.8 29.3 68.2 90.1
Gain on sale of business and
other non-recurring items - - (192.0) -
Other deductions, net 13.5 7.5 33.6 22.8
--------- --------- --------- ---------
Total costs and expenses 1,917.2 1,797.3 5,268.8 5,300.9
--------- --------- --------- ---------
Earnings before income taxes and
cumulative effect of change in
accounting principle 326.5 294.8 1,100.9 831.7
Income taxes 118.5 107.6 404.7 303.6
--------- --------- --------- ---------
Earnings before cumulative effect
of change in accounting principle 208.0 187.2 696.2 528.1
Cumulative effect of change in
accounting for postretirement
benefits ($190.0 less income
tax benefit of $74.1) - - (115.9) -
--------- --------- --------- ---------
Net earnings $ 208.0 187.2 580.3 528.1
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
___________________________________________________________________________
NOTE: Including the pretax impact of the cumulative effect of accounting
change, earnings before income taxes would have been $910.9 million for
the nine months ended June 30, 1994 compared to $831.7 million for the same
period of the prior year.
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EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
CONSOLIDATED STATEMENTS OF EARNINGS (Continued)
THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 1994 AND 1993
(Dollars in millions except per share amounts; unaudited)
Three Months Nine Months
-------------------- --------------------
1994 1993 1994 1993
--------- --------- --------- ---------
Per common share:
- - -----------------
Earnings before cumulative effect
of change in accounting principle $ .93 .83 3.11 2.35
Cumulative effect of change in
accounting for postretirement
benefits - - (.52) -
--------- --------- --------- ---------
Earnings per common share $ .93 .83 2.59 2.35
========= ========= ========= =========
Cash dividends per common share $ .39 .36 1.17 1.08
========= ========= ========= =========
Average number of shares used in
computing earnings per common
share (in thousands) 224,083 225,206 224,332 225,033
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
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EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
CONSOLIDATED BALANCE SHEETS
(Dollars in millions except per share amounts; unaudited)
June 30, September 30,
ASSETS 1994 1993
------ --------- -------
CURRENT ASSETS
Cash and equivalents $ 219.4 101.9
Receivables, less allowances of $40.4 and $35.7 1,617.1 1,392.1
Inventories 1,320.3 1,298.3
Other current assets 281.6 282.0
--------- -------
Total current assets 3,438.4 3,074.3
--------- -------
PROPERTY, PLANT AND EQUIPMENT, NET 1,879.7 1,880.1
--------- -------
OTHER ASSETS
Excess of cost over net assets of purchased
businesses 1,827.5 1,834.3
Other 1,042.3 1,025.8
--------- -------
Total other assets 2,869.8 2,860.1
--------- -------
$ 8,187.9 7,814.5
========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Short-term borrowings and current maturities
of long-term debt $ 1,182.9 1,183.9
Accounts payable 527.7 492.8
Accrued expenses 938.2 870.0
Income taxes 116.4 145.9
--------- -------
Total current liabilities 2,765.2 2,692.6
--------- -------
LONG-TERM DEBT 317.8 438.0
--------- -------
OTHER LIABILITIES 916.6 768.8
--------- -------
STOCKHOLDERS' EQUITY
Preferred stock of $2.50 par value per share.
Authorized 5,400,000 shares; issued - none - -
Common stock of $1 par value per share.
Authorized 400,000,000 shares; issued
238,338,503 shares and 238,338,503 shares 238.3 238.3
Additional paid-in capital - 4.1
Retained earnings 4,498.2 4,182.5
Cumulative translation adjustments (49.3) (69.1)
Cost of common stock in treasury, 14,336,394
shares and 13,575,263 shares (498.9) (440.7)
--------- -------
Total stockholders' equity 4,188.3 3,915.1
--------- -------
$ 8,187.9 7,814.5
========= =======
See accompanying notes to consolidated financial statements.
4
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1994 AND 1993
(Dollars in millions; unaudited)
1994 1993
OPERATING ACTIVITIES --------- -------
Net earnings $ 580.3 528.1
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 261.0 264.0
Changes in operating working capital (185.3) (142.8)
Cumulative effect of change in accounting principle 115.9 -
Gain on sale of business and other non-recurring
items, net of income taxes (117.1) -
Income taxes paid on sale of business (95.8) -
Other 1.5 (5.5)
--------- -------
Net cash provided by operating activities 560.5 643.8
--------- -------
INVESTING ACTIVITIES
Capital expenditures (217.0) (208.7)
Purchases of businesses, net of cash and
equivalents acquired (38.6)(1,254.6)
Proceeds from divestiture of business 301.3 -
Other 2.4 58.6
--------- -------
Net cash provided by (used in) investing activities 48.1 (1,404.7)
--------- -------
FINANCING ACTIVITIES
Net increase in short-term borrowings
with maturities of 90 days or less 15.2 1,105.1
Proceeds from short-term borrowings 227.6 74.7
Principal payments on short-term borrowings (265.0) (132.7)
Proceeds from long-term debt 1.1 187.8
Principal payments on long-term debt (113.8) (85.6)
Net issuances (purchases) of treasury stock (98.2) 6.6
Dividends paid (262.5) (243.1)
--------- -------
Net cash provided by (used in) financing activities (495.6) 912.8
--------- -------
Effect of exchange rate changes on cash and equivalents 4.5 (13.9)
--------- -------
INCREASE IN CASH AND EQUIVALENTS 117.5 138.0
Beginning cash and equivalents 101.9 80.2
--------- -------
ENDING CASH AND EQUIVALENTS $ 219.4 218.2
========= =======
CHANGES IN OPERATING WORKING CAPITAL
Receivables $ (201.0) (76.7)
Inventories (28.6) 16.8
Other current assets 31.0 22.2
Accounts payable 39.0 (69.3)
Accrued expenses .1 (28.0)
Income taxes (25.8) (7.8)
--------- -------
$ (185.3) (142.8)
========= =======
See accompanying notes to consolidated financial statements.
5
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. 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, 1993.
2. Other Financial Information
(Dollars in millions; unaudited)
June 30, September 30,
Inventories 1994 1993
----------- --------- -------
Finished products $ 471.5 484.6
Raw materials and work in process 848.8 813.7
--------- -------
$ 1,320.3 1,298.3
========= =======
June 30, September 30,
Property, plant and equipment, net 1994 1993
---------------------------------- --------- -------
Property, plant and equipment, at cost $ 3,730.2 3,586.6
Less accumulated depreciation 1,850.5 1,706.5
--------- -------
$ 1,879.7 1,880.1
========= =======
3. The Company has guaranteed performance under certain contracts
related to the government and defense businesses distributed to
stockholders in 1990, and has effectively guaranteed 50 percent
of the indebtedness of a joint venture. For further information,
refer to the Company's 1993 Annual Report on Form 10-K.
4. On December 14, 1993, the Company sold the Aerospace unit (Aero) of
its Rosemount Inc. subsidiary (fiscal 1993 sales of approximately
$130 million) for $301 million. The transaction resulted in a
pretax gain of $242 million. The net earnings impact of this gain
was substantially offset in the first quarter by other non-recurring
items ($50 million pretax impact) and the adoption of SFAS No. 106 (see
note 5). Other non-recurring items principally consist of severance and
related costs arising from relocation of several operations, or
workforce reductions, primarily in the Company's European heating,
ventilating and air conditioning, and process control businesses.
Excluding income taxes paid on the Aero divestiture ($95.8 million),
cash flow provided by operating activities would have been
$656.3 million compared to $643.8 million for the same period of the
prior year.
6
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
5. Effective October 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", which requires that
these costs be accrued over the service lives of employees. The
Company recognized the transition obligation arising from service
prior to adoption in the first quarter as a cumulative effect
of change in accounting principle of $115.9 million (net of
$74.1 million in related income tax benefits). The statement will
not have a material impact on the Company's ongoing results of
operations.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.
Results of Operations
Sales, net earnings and earnings per share for the third quarter and
first nine months of fiscal 1994 were the highest for any quarter and
first nine-month period in the Company's history.
Net sales were $2,243.7 million for the quarter ended June 30, 1994,
up 7.2 percent over net sales of $2,092.1 million for the quarter ended
June 30, 1993, and $6,369.7 million for the nine months ended June 30,
1994, up 3.9 percent over net sales of $6,132.6 million for the same
period a year ago. Orders grew faster than sales for the second
consecutive quarter.
Domestic sales, excluding acquisitions and divestitures, increased over
11 percent as the Company's businesses continued to benefit from the
domestic economic recovery. Underlying non-U.S. subsidiary sales
increased approximately 2 percent as subsidiaries in all geographic regions
except Japan reported sales growth, while export sales for the quarter
increased modestly.
The Appliance and Construction-Related segment reported a double-digit sales
increase compared to the third quarter of 1993. The heating, ventilating
and air conditioning business reported the largest sales gain in the
quarter, as it experienced a very strong increase in sales due to hot
weather and increased market penetration. The appliance components business
had a robust sales gain aided by an acquisition and continued strong end
market demand. The fractional motor business experienced a double-digit
sales increase as the result of strong performances by the appliance,
hermetic and specialty divisions. Consolidated tool business sales
experienced a nearly double-digit increase, while the unconsolidated
tool joint ventures reported robust sales growth due to a strong domestic
housing market and successful new product programs.
Commercial and Industrial segment sales were up slightly compared to the
third quarter of the prior year. A double-digit sales increase for the
electronics business resulted from continued success of new product
programs and geographic expansion efforts. Sales of the industrial
components and equipment and industrial motors and drives businesses rose
modestly as European markets showed signs of strengthening. Sales in
the process control business declined primarily due to the divestiture of
Aero.
7
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
Cost of sales for the third quarter was $1,459.7 million or 65.1 percent
of sales, compared with $1,356.4 million, or 64.8 percent of sales, for
the third quarter of 1993. Cost of sales for the nine months ended
June 30, 1994 was $4,133.9 million, or 64.9 percent of sales, compared to
$3,994.9 million, or 65.1 percent of sales for the same period a year ago.
Selling, general and administrative expenses for the three months ended
June 30, 1994 were $422.2 million, or 18.8 percent of sales, compared to
$404.1 million, or 19.3 percent of sales for the same period a year ago.
For the first nine months of 1994, selling, general and administrative
expenses were $1,225.1 million, or 19.2 percent of sales, compared to
$1,193.1 million, or 19.5 percent of sales for the same period in 1993.
The third quarter consolidated profit margins remained at high levels
as the result of ongoing commitment to cost reduction efforts and
productivity improvement programs. Interest expense for the third quarter
decreased by $7.5 million compared to the prior year due to continued strong
cash flow.
Earnings in the first quarter of 1994 included a gain on sale of business
which was substantially offset by other non-recurring items and the adoption
of SFAS No. 106 (see notes 4 and 5).
Financial Condition
A comparison of key elements of the Company's financial condition at
the end of the third quarter as compared to the end of the prior
fiscal year follows:
June 30, September 30,
1994 1993
-------- --------
Working capital (in millions) $673.2 381.7
Current ratio 1.2 to 1 1.1 to 1
Total debt to total capital 26.4% 29.3%
Net debt to net capital 23.4% 27.9%
The Company's interest coverage ratio (earnings before income taxes,
non-recurring items and interest expense, divided by interest expense)
was 14.3 times for the nine months ended June 30, 1994 compared to
10.2 times for the same period one year earlier.
Cash and equivalents increased by $117.5 million during the nine months
ended June 30, 1994. Accounts receivable increased by $225.0 million from
September 30, 1993 due primarily to strong sales growth and minor
seasonality. Operating cash flow and proceeds from the Aero divestiture
($205.5 million net of income taxes) were primarily used to pay dividends
of $262.5 million, fund capital expenditures of $217.0 million and manage
the capital structure.
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.
8
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. None.
(b) Reports on Form 8-K. The Company did not file any reports on
Form 8-K during the quarter ended June 30, 1994.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
EMERSON ELECTRIC CO.
Date: August 12, 1994 By: /s/ Walter J. Galvin
-----------------------
Walter J. Galvin
Senior Vice President - Finance
and Chief Financial Officer
(on behalf of the registrant and as
Principal Financial Officer)
9