Exhibit 13
FINANCIAL REVIEW
RESULTS OF OPERATIONS
NET SALES
Emerson achieved record sales in fiscal 1994 of $8.6 billion, up $433 million or
5.3 percent from 1993. This sales performance was primarily attributable to a
$358 million increase in domestic sales. Excluding acquisitions and
divestitures, domestic sales increased more than 8 percent, reflecting strong
sales volume and slight price increases. International sales increased
approximately $135 million, excluding the impact of unfavorable exchange rates
in 1994 of approximately $60 million. Several minor acquisitions, which
contributed approximately $75 million to sales in 1994, were more than offset by
the impact of the divestiture of the Aerospace unit (Aero) of Rosemount Inc. of
approximately $100 million. See note 2 for additional discussion of the
Company's acquisition and divestiture activities. New product sales, from
products introduced in the past five years, increased $167 million or 8.6
percent to a record $2.1 billion, representing 24.6 percent of sales.
The joint ventures in which Emerson is a partner had combined annual sales of
approximately $2.2 billion, $2.0 billion and $1.4 billion in 1994, 1993 and
1992, respectively, which were not consolidated in Emerson's financial
statements. Emerson's proportionate share of these sales was approximately $1
billion, $900 million and $625 million, respectively. Equity earnings were $48
million in 1994, up from $38 million and $14 million in 1993 and 1992,
respectively. The 1994 increases reflect improved performance by each of the
Company's major equity investees, with the tools joint ventures reporting
double-digit sales gains. The 1993 increases reflect the impact of the Skil
transaction in 1992 as well as improved performance by other equity investees.
In 1993, sales were $8.2 billion, up $468 million or 6.1 percent from $7.7
billion in 1992. The 1993 sales comparison reflects the impact of the October 1,
1992 acquisition of Fisher Controls International (1993 sales of approximately
$900 million), the September 30, 1992 contribution of Skil to a 50-50 joint
venture (1992 sales of approximately $350 million) and the impact of unfavorable
exchange rates in 1993 (approximately $120 million). Excluding the impact of
Fisher, Skil and foreign exchange, sales increased slightly as strong new
product growth, modest domestic sales gains and slight price increases were
substantially offset by recessionary European and Japanese economies. New
product sales increased 10.3 percent to $2.0 billion.
INTERNATIONAL SALES
International sales, including U.S. exports, increased $75 million or 2.4
percent to a record $3.2 billion in 1994, representing approximately 38 percent
of the Company's total sales. Asia Pacific sales, excluding Japan, experienced
double-digit increases, with sales to China up approximately 20 percent. Sales
by non-U.S. subsidiaries were $2.7 billion in 1994, up $48 million or 1.8
percent from 1993, despite unfavorable currency translation. European and
Canadian markets strengthened in the second half of the year, and continued
solid growth in Latin American and other Asia Pacific subsidiaries more than
offset the impact of the continued recession in Japan. U.S. exports increased
$27 million to a record $589 million in 1994, while
20
underlying export sales were up more than 8 percent despite the stronger dollar.
In 1993, international sales increased 3.4 percent to $3.2 billion compared to
$3.1 billion in 1992. Sales by non-U.S. subsidiaries were $2.6 billion in 1993,
up slightly from 1992. Excluding Fisher, Skil and the impact of unfavorable
exchange rates of approximately $120 million, non-U.S. subsidiary sales declined
moderately due to recessions in Europe and Japan partially offset by strong
growth sustained in other Asia Pacific and Latin American subsidiaries. U.S.
exports increased 15.5 percent to $562 million in 1993, while underlying export
sales were up 4.2 percent despite the stronger dollar.
INDUSTRY SEGMENT SALES
Sales in the Appliance and Construction-Related segment were $3.7 billion in
1994, an increase of $377 million or 11.5 percent from 1993, primarily
reflecting strong domestic volume growth in all businesses. The largest sales
gain was achieved by the heating, ventilating and air conditioning business, as
it experienced a double-digit sales increase resulting from hot summer weather,
strong demand for new products and market penetration gains. The fractional
horsepower motors business realized a double-digit sales increase due to strong
domestic end-market demand. The appliance components business also reported
double-digit growth due to strong domestic demand, market penetration gains, and
an acquisition. Sales of the tools business increased moderately with double-
digit sales gains in the second half of the year.
Sales in the Commercial and Industrial segment were $4.9 billion in 1994, up $56
million or 1.1 percent from 1993. Excluding acquisitions, the Aero divestiture
and foreign exchange, sales of the segment increased approximately 3 percent,
reflecting modest domestic sales volume gains, slight price increases and
improved international sales in the second half of the year. The electronics
business experienced double-digit growth primarily as a result of the
introduction of new products and sales of environmental systems in the U.S. and
Asia Pacific. Sales of the industrial components and equipment business
increased modestly as European economies strengthened in the second half of the
year. Sales of the industrial motors and drives business increased slightly as
domestic gains were offset by weak international sales, which were impacted by
unfavorable exchange rates. Sales of the underlying process control business
increased slightly while total process control sales were negatively impacted by
the divestiture of Aero.
In 1993, sales in the Commercial and Industrial segment increased $812 million,
or 19.9 percent, to $4.9 billion. Excluding Fisher and foreign exchange, sales
of the segment were unchanged. Sales of the industrial components and equipment,
industrial motors and drives, and process control businesses (excluding Fisher)
were down modestly as improvements in domestic sales were more than offset by
weak non-U.S. subsidiary sales, which were impacted by unfavorable exchange
rates. The electronics business was down moderately due to the stronger dollar
and sluggish mainframe computer markets.
Sales in the Appliance and Construction-Related segment decreased $344 million,
or 9.5 percent, to $3.3 billion in 1993. Excluding the effects of the Skil joint
venture transaction, sales of the segment increased slightly. The appliance
components business recorded strong gains due to continued improvements in
appliance end-markets, while sales in the tools business (excluding Skil)
increased slightly. Sales of the fractional horsepower motors business
increased, aided by improved sales in the second half of the year. Sales in the
heating, ventilating and air conditioning components business were down due to
strong 1992 performance and the persistence of high industry inventory levels
throughout most of 1993.
21
TOTAL COSTS AND EXPENSES
Cost of sales for 1994 was $5.6 billion, an increase of 5.0 percent over 1993,
due primarily to increased sales volume. In 1993, cost of sales was $5.3 billion
compared to $5.1 billion in 1992, an increase of 4.7 percent. Excluding the
impact of Fisher and Skil, cost of sales decreased modestly in 1993, due
primarily to the impact of foreign exchange, cost savings from plant
consolidations and material cost reductions. Cost of sales as a percent of net
sales was 64.5 percent in 1994 compared to 64.7 percent and 65.6 percent in 1993
and 1992, respectively. As a result of ongoing cost reduction efforts and
productivity improvement programs, cost of sales increases have remained below
sales growth rates.
Selling, general and administrative (SG&A) expenses were $1.7 billion, $1.6
billion and $1.5 billion in 1994, 1993 and 1992, respectively. As a percent of
net sales, SG&A expenses were 19.5 percent in 1994 compared to 19.7 percent and
18.9 percent in 1993 and 1992, respectively. The decrease in SG&A expenses as a
percent of net sales in 1994 is due primarily to higher volume, positive
contribution from product mix, and ongoing cost reduction efforts, partially
offset by increased investment in new product development and other top-line
growth programs. The increase in SG&A expenses as a percent of net sales in 1993
is due primarily to the Fisher acquisition. The Company continued its commitment
to new product development by increasing engineering and development expense 9.5
percent to a record $298 million in 1994, compared to $272 million and $245
million in 1993 and 1992, respectively.
Interest expense of $89 million in 1994 decreased from $119 million in 1993 due
to reduction of debt resulting from continued strong operating cash flow. In
1993, interest expense increased $28 million from $91 million in 1992, resulting
from the additional U.S. commercial paper issued to finance the Fisher
acquisition.
The first quarter of 1994 included a gain on sale of the Aero business of $242
million and other non-recurring items of $50 million. 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. The
net earnings impact of these non-recurring items was substantially offset by the
adoption of SFAS No. 106. See notes 2 and 7 for additional information.
Other deductions, net, was $50 million in 1994, compared to $46 million and $56
million in 1993 and 1992, respectively. In 1992, other deductions, net, included
restructuring charges of approximately $50 million and a gain on the Skil
transaction of $43 million.
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE
Income before income taxes and cumulative effect of change in accounting
principle included the Aero gain and other non-recurring items in 1994.
Excluding these items, income increased 11 percent, reflecting increased
domestic sales volume, improved underlying domestic and international operating
margins, and reduced interest expense.
Income before interest expense, income taxes and accounting change in the
Appliance and Construction-Related segment increased $44 million, or 7.9
percent, to $602 million in 1994. These results reflect a solid increase in
domestic sales volume in all businesses, partially offset by non-recurring
items. As a percent of net sales, income of the segment was 16.4 percent in 1994
and 17.0 percent in 1993. Excluding
22
non-recurring items, income of the segment as a percent of sales increased
slightly in 1994.
Income in the Commercial and Industrial segment increased $19 million, or 2.9
percent, to $675 million in 1994. Income of the segment was 13.6 percent and
13.4 percent of net sales in 1994 and 1993, respectively. These improvements are
primarily a result of a modest increase in domestic sales volume and ongoing
cost reduction efforts. See note 12 for additional information by industry
segment and geographic area.
In 1993, income before income taxes was $1,112 million, up 6.5 percent from
$1,044 million in 1992, reflecting improved domestic operating margins and
increased equity earnings. As a result of ongoing cost reduction efforts and
productivity improvement programs, consolidated profit margins increased over
the prior year despite the lower profit margins of Fisher. Income before
interest expense and income taxes in the Commercial and Industrial segment
increased $122 million or 22.8 percent, to $656 million, reflecting the Fisher
acquisition and cost reduction efforts. Income in the Appliance and
Construction-Related segment increased slightly to $558 million despite the Skil
transaction. Margins in both segments improved despite the persistently
difficult global economic environment.
INCOME TAXES
Income taxes in 1994 increased $119 million to $523 million, compared to $404
million and $381 million in 1993 and 1992, respectively. The effective income
tax rate was 36.7 percent in 1994 (36.3 percent excluding non-recurring items),
compared to 36.3 percent in 1993 and 36.5 percent in 1992. The 1994 increases
were due primarily to $95 million of income taxes on the Aero divestiture.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
Effective October 1, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." This statement requires that other postretirement benefits
(primarily health care) 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 which decreased 1994 net earnings and earnings per common share by
$115.9 million and $.52, respectively. In addition, ongoing expense for these
benefits increased to $27 million in 1994, compared to $16 million and $11
million in 1993 and 1992, respectively.
NET EARNINGS AND RETURN ON EQUITY
Net earnings for 1994 were a record $789 million, up 11.4 percent from $708
million in 1993. Net earnings as a percent of sales was 9.2 percent, the highest
level achieved during the Company's 37 consecutive years of increased earnings.
Earnings per common share were a record $3.52, up 11.7 percent from $3.15 in
1993. Emerson achieved a return on average stockholders' equity of 19.1 percent
compared to 18.5 percent and 19.0 percent in 1993 and 1992, respectively.
Net earnings for 1993 were up 6.8 percent from $663 million in 1992. Earnings
per common share were up 6.4 percent from $2.96 in 1992. The Fisher and Skil
transactions did not materially impact 1993 net earnings or earnings per share.
OTHER MATTERS
Emerson is in the process of acquiring several companies with combined annual
sales of approximately $450 million. If completed, the total cost of these
transactions would approximate $550 million. These
23
companies include F.G. Wilson (Engineering) Ltd., a manufacturer of diesel
generator sets located in the United Kingdom, and Control Techniques, plc, an
industry leader in the design and production of electronic drives for electric
motors. Prior to the proposed transaction, Emerson owned nearly 30 percent of
Control Techniques.
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY
The Company continues to generate substantial cash from operations, which has
been used to significantly reduce leverage since the Fisher acquisition (see
notes 2 and 3). The Company remains in a strong financial position and has the
resources available for reinvestment in existing businesses, strategic
acquisitions and managing the capital structure.
CASH FLOW
Emerson's earnings growth and focus on asset management generated record
operating cash flow of $1,097 million in 1994, compared to $1,075 million and
$1,001 million in 1993 and 1992, respectively. Accounts receivable, inventories
and accounts payable increased from September 30, 1993, due primarily to
stronger 1994 operations and the impact of foreign exchange. Operating working
capital was approximately 18 percent of sales in 1994 and 1993, down from 20
percent in 1992. This reduction reflects an improvement in average inventory
turnover.
Dividends were a record $350 million ($1.56 per share) in 1994, compared with
$324 million ($1.44 per share) in 1993 and $309 million ($1.38 per share) in
1992. On November 1, 1994, the Board of Directors approved a 10.3 percent
increase in the quarterly dividend to an annualized rate of $1.72 per share, an
amount consistent with the Company's long-standing target payout ratio of 45 to
50 percent of prior year earnings.
Capital expenditures were $332 million in 1994, compared to $306 million in 1993
and $346 million in 1992, as construction spending on the Copeland Compliant
Scroll compressor project peaked in 1992. Emphasis continues to be placed on
programs designed to improve productivity by incorporating advanced processes
and technology into existing facilities, cost reduction projects and new
products.
LEVERAGE/CAPITALIZATION
Strong operating cash flow and the net proceeds from the Aero divestiture of
$206 million in 1994 enabled the Company to reduce total debt $449 million to
$1.2 billion and fund net treasury stock purchases of $111 million. In 1993,
total debt increased to $1.6 billion from $882 million in 1992, reflecting the
issuance of U.S. commercial paper related to the October 1, 1992 acquisition of
Fisher for $1.25 billion. Strong operating cash flow in 1993 allowed the Company
to reduce debt by $483 million subsequent to the Fisher acquisition.
The total debt to total capital ratio was 21.7 percent at year-end 1994,
compared to 29.3 percent in 1993 and 19.1 percent in 1992. At September 30,
1994, net debt (total debt less cash and equivalents and short-term investments)
was 20.0 percent of net capital, compared to 27.9 percent in 1993 (35.5 percent
immediately after the Fisher acquisition) and 17.7 percent in 1992. The
Company's interest coverage ratio (income before income taxes, non-recurring
items and interest expense divided by interest expense) was 15.0 times in 1994
compared to 10.3 times in 1993 and 12.5 times in 1992.
At year-end 1994, the Company maintained lines of credit of $700 million to
support U.S. commercial paper and had available non-U.S. bank credit facilities
of $455 million to support non-U.S. operations. In addition, the Company can
issue up to $330 million of debt securities under its shelf registration with
the Securities and Exchange Commission. The Company has swapped approximately
$650 million of its floating interest rate obligations to fixed rates for up to
one year.
24
CONSOLIDATED STATEMENTS OF EARNINGS
EMERSON ELECTRIC CO. AND SUBSIDIARIES
Years ended September 30
(Dollars in millions except per share amounts)
1994 1993 1992
-------- ------- -------
NET SALES $8,607.2 8,173.8 7,706.0
-------- ------- -------
Costs and expenses:
Cost of sales 5,553.0 5,289.8 5,054.6
Selling, general and administrative expenses 1,679.6 1,606.6 1,460.1
Interest expense 88.5 119.2 91.0
Gain on sale of business and other non-recurring items (192.0) -- --
Other deductions, net 50.3 46.2 56.4
-------- ------- -------
Total costs and expenses 7,179.4 7,061.8 6,662.1
-------- ------- -------
Income before income taxes and cumulative
effect of change in accounting principle 1,427.8 1,112.0 1,043.9
Income taxes 523.4 403.9 381.0
-------- ------- -------
Income before cumulative effect of change
in accounting principle 904.4 708.1 662.9
Cumulative effect of change in accounting for postretirement benefits
($190.0 less income tax benefit of $74.1); $.52 per common share (115.9) -- --
-------- ------- -------
NET EARNINGS $ 788.5 708.1 662.9
======== ======= =======
EARNINGS PER COMMON SHARE $ 3.52 3.15 2.96
======== ======= =======
See accompanying notes to consolidated financial statements.
- -------------------------------------------------------------------------------
NOTE: Including the pretax impact of the cumulative effect of accounting
change, income before income taxes would have been $1,237.8 million in 1994,
compared to $1,112.0 million and $1,043.9 million in 1993 and 1992,
respectively.
25
CONSOLIDATED BALANCE SHEETS
EMERSON ELECTRIC CO. AND SUBSIDIARIES
September 30
(Dollars in millions except per share amounts)
ASSETS
1994 1993
-------- --------
CURRENT ASSETS
Cash and equivalents $ 113.3 101.9
Receivables, less allowances of $42.0 in 1994
and $35.7 in 1993 1,542.6 1,392.1
Inventories:
Finished products 506.5 484.6
Raw materials and work in process 885.7 813.7
-------- -------
Total inventories 1,392.2 1,298.3
Other current assets 290.1 282.0
-------- -------
Total current assets 3,338.2 3,074.3
-------- -------
PROPERTY, PLANT AND EQUIPMENT
Land 150.3 146.5
Buildings 860.6 836.6
Machinery and equipment 2,671.0 2,447.9
Construction in progress 158.8 155.6
-------- -------
3,840.7 3,586.6
Less accumulated depreciation 1,893.4 1,706.5
-------- -------
Property, plant and equipment, net 1,947.3 1,880.1
-------- -------
OTHER ASSETS
Excess of cost over net assets of purchased businesses,
less accumulated amortization of $237.3 in 1994 and $184.7 in 1993 1,862.9 1,834.3
Other 1,066.6 1,025.8
-------- -------
Total other assets 2,929.5 2,860.1
-------- -------
$8,215.0 7,814.5
======== =======
See accompanying notes to consolidated financial statements.
26
LIABILITIES AND STOCKHOLDERS' EQUITY
1994 1993
-------- -------
CURRENT LIABILITIES
Short-term borrowings and current
maturities of long-term debt $ 923.3 1,183.9
Accounts payable 611.4 492.8
Accrued expenses 936.4 870.0
Income taxes 146.2 145.9
-------- -------
Total current liabilities 2,617.3 2,692.6
-------- -------
LONG-TERM DEBT 279.9 438.0
-------- -------
OTHER LIABILITIES 976.0 768.8
-------- -------
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 in
1994 and 1993 238.3 238.3
Additional paid-in capital -- 4.1
Retained earnings 4,619.1 4,182.5
Cumulative translation adjustments 8.7 (69.1)
-------- -------
4,866.1 4,355.8
Less cost of common stock in treasury, 14,752,649
shares in 1994 and 13,575,263 shares in 1993 524.3 440.7
-------- -------
Total stockholders' equity 4,341.8 3,915.1
-------- -------
$8,215.0 7,814.5
======== =======
27
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
EMERSON ELECTRIC CO. AND SUBSIDIARIES
Years ended September 30
(Dollars in millions except per share amounts)
1994 1993 1992
-------- ------- -------
COMMON STOCK $ 238.3 238.3 238.3
-------- ------- -------
ADDITIONAL PAID-IN CAPITAL
Beginning balance 4.1 -- --
Treasury stock issued (.6) (.9) --
Stock plans (3.5) 5.0 --
-------- ------- -------
Ending balance -- 4.1 --
-------- ------- -------
RETAINED EARNINGS
Beginning balance 4,182.5 3,798.6 3,445.7
Net earnings 788.5 708.1 662.9
Cash dividends (per share: 1994, $1.56;
1993, $1.44; 1992, $1.38) (349.9) (324.2) (309.5)
Stock plans (2.0) -- (.5)
-------- ------- -------
Ending balance 4,619.1 4,182.5 3,798.6
-------- ------- -------
CUMULATIVE TRANSLATION ADJUSTMENTS
Beginning balance (69.1) 133.0 17.6
Translation adjustments 77.8 (202.1) 115.4
-------- ------- -------
Ending balance 8.7 (69.1) 133.0
-------- ------- -------
TREASURY STOCK
Beginning balance (440.7) (440.1) (444.7)
Acquired (116.5) (30.6) (7.1)
Issued 6.4 3.5 1.2
Issued under stock plans 26.5 26.5 10.5
-------- ------- -------
Ending balance (524.3) (440.7) (440.1)
-------- ------- -------
TOTAL STOCKHOLDERS' EQUITY $4,341.8 3,915.1 3,729.8
======== ======= =======
See accompanying notes to consolidated financial statements.
28
CONSOLIDATED STATEMENTS OF CASH FLOWS
EMERSON ELECTRIC CO. AND SUBSIDIARIES
Years ended September 30
(Dollars in millions)
1994 1993 1992
-------- -------- --------
OPERATING ACTIVITIES
Net earnings $ 788.5 708.1 662.9
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 274.0 269.3 253.1
Amortization of intangibles 90.5 71.4 42.1
Changes in operating working capital (82.4) 25.7 43.5
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) -- --
Other 27.4 .3 (.4)
-------- -------- -------
Net cash provided by operating activities 1,096.8 1,074.8 1,001.2
-------- -------- -------
INVESTING ACTIVITIES
Capital expenditures (332.3) (305.6) (345.5)
Purchases of businesses, net of cash and equivalents acquired (58.1) (1,263.4) (61.2)
Proceeds from divestiture of businesses, net 205.9 -- 19.9
Other (1.2) 74.9 46.3
-------- -------- -------
Net cash used in investing activities (185.7) (1,494.1) (340.5)
-------- -------- -------
FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings
with maturities of 90 days or less (239.7) 726.4 (259.8)
Proceeds from short-term borrowings 227.6 99.7 98.0
Principal payments on short-term borrowings (266.8) (132.7) (180.2)
Proceeds from long-term debt 4.6 190.4 65.0
Principal payments on long-term debt (175.0) (91.6) (117.9)
Net issuances (purchases) of treasury stock (110.8) (8.2) .2
Dividends paid (349.9) (324.2) (309.5)
-------- -------- -------
Net cash provided by (used in) financing activities (910.0) 459.8 (704.2)
-------- -------- -------
Effect of exchange rate changes on cash and equivalents 10.3 (18.8) 21.3
-------- -------- -------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 11.4 21.7 (22.2)
Beginning cash and equivalents 101.9 80.2 102.4
-------- -------- -------
ENDING CASH AND EQUIVALENTS $ 113.3 101.9 80.2
======== ======== =======
CHANGES IN OPERATING WORKING CAPITAL
Receivables $ (93.2) (11.5) 16.3
Inventories (88.5) 53.4 45.2
Other current assets 26.2 14.2 (10.9)
Accounts payable 96.0 (29.4) (58.4)
Accrued expenses (23.7) 6.9 9.4
Income taxes .8 (7.9) 41.9
-------- -------- -------
$ (82.4) 25.7 43.5
======== ======== =======
See accompanying notes to consolidated financial statements.
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EMERSON ELECTRIC CO. AND SUBSIDIARIES
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries. All significant intercompany transactions,
profits and balances are eliminated in consolidation. Investments of 20 to 50
percent are accounted for by the equity method. Investments of less than 20
percent are carried at cost.
FOREIGN CURRENCY TRANSLATION
The functional currency of nearly all of the Company's non-U.S. subsidiaries is
the local currency. Adjustments resulting from the translation of financial
statements are reflected as a separate component of stockholders' equity.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original maturities
of three months or less.
INVENTORIES
Inventories are stated at the lower of cost or market. The majority of inventory
values are based upon standard costs which approximate average costs, while the
remainder are principally valued on a first-in, first-out basis. Standard costs
are revised at the beginning of the fiscal year and variances incurred during
the year are allocated between inventories and cost of sales.
PROPERTY, PLANT AND EQUIPMENT
The Company records investments in land, buildings, and machinery and equipment
at cost. For assets placed in service prior to fiscal 1992, depreciation is
computed principally using accelerated methods over estimated service lives.
Effective October 1, 1991, the Company began depreciating newly acquired assets
using the straight-line method, which conforms to prevailing industry practice.
The effect of the change was not material to the financial results. Service
lives for principal assets are 30 to 40 years for buildings and 8 to 12 years
for machinery and equipment.
EXCESS OF COST OVER NET ASSETS OF PURCHASED BUSINESSES
Assets and liabilities related to business combinations accounted for as
purchase transactions are recorded at their respective fair values. Excess of
cost over net assets of purchased businesses is amortized on a straight-line
basis over the periods estimated to be benefited, not exceeding 40 years.
REVENUE RECOGNITION
The Company recognizes the vast majority of its revenues through the sale of
manufactured products as shipped.
INTEREST RATE SWAP AGREEMENTS
The net amount to be paid or received under interest rate swap agreements is
accrued over the life of the agreements as a separate component of interest
expense.
INCOME TAXES
No provision is made for U.S. income taxes on the undistributed earnings of
non-U.S. subsidiaries (approximately $550 million at September 30, 1994),
primarily because retention of a significant portion of these earnings is
considered essential for continuing operations. In those cases where
distributions have been made, additional income taxes, if any, have been minimal
due to available foreign tax credits.
EARNINGS PER COMMON SHARE
Earnings per common share is computed by dividing net earnings by the weighted
average number of common shares outstanding during the applicable periods. The
weighted average number of common shares outstanding was 224,232,225 shares,
225,082,844 shares, and 224,252,059 shares in 1994, 1993 and 1992, respectively.
FINANCIAL PRESENTATION CHANGES
Certain prior year amounts have been reclassified to conform to the current year
presentation.
30
(2) BUSINESS COMBINATIONS AND DIVESTITURES
On October 1, 1992, the Company acquired Fisher Controls International, Inc.,
and its subsidiaries and other related operations for $1,254.7 million (net of
cash and equivalents acquired) in a business combination accounted for as a
purchase. Fisher is a worldwide manufacturer of control valves and control
systems for major process industries including chemical, oil and gas, and pulp
and paper. Assets (excluding cash and equivalents) acquired and liabilities
assumed in connection with the Company's purchase acquisitions follow (dollars
in millions):
1994 1993 1992
----- ------- ----
Fair value of assets acquired....................... $96.7 1,644.1 74.7
Less liabilities assumed............................ 38.6 380.7 13.5
----- ------- ----
Cash paid, net..................................... $58.1 1,263.4 61.2
===== ======= ====
On December 14, 1993, the Company sold the Aerospace unit of its Rosemount Inc.
subsidiary (fiscal 1993 sales of approximately $130 million) for $301 million
($206 million net of income taxes). 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 7). Other non-recurring items principally
consist of severance and related costs arising from relocation of several
operations, or work force reductions, primarily in the Company's European
heating, ventilating and air conditioning, and process control businesses.
On September 30, 1992, Emerson and Robert Bosch GmbH established a 50-50 joint
venture for the development, manufacture and distribution of power tools. The
Company contributed its Skil business (excluding receivables totaling $65
million and certain non-U.S. businesses) and Bosch contributed its U.S. power
tool operations and cash of $130 million to form S-B Power Tool Company. Emerson
received $44 million from the sale of the non-U.S. businesses to the newly
formed partnership. The joint venture is accounted for under the equity method;
Skil had 1992 sales of approximately $350 million. The transaction resulted in a
1992 pretax gain of $43 million which is included in Corporate and other items
in note 12. The fourth quarter 1992 results also included a pretax charge of
approximately $50 million for the shutdown and restructuring of facilities and
operations, the majority of which is reflected in the Commercial and Industrial
segment in note 12. In fiscal 1995, the Company received a preferential
distribution from S-B Power Tool Company of approximately $41 million.
On an unaudited pro forma basis, assuming consummation of the Fisher and
Skil/Bosch transactions at the beginning of fiscal 1992, net sales would have
been approximately $8,275 million in 1992. Net earnings and earnings per share
would not have been significantly different from reported amounts.
The results of operations of these businesses have been included in the
Company's consolidated results of operations since the respective dates of the
acquisitions and prior to the dates of the divestitures.
(3) SHORT-TERM BORROWINGS AND LINES OF CREDIT
Short-term borrowings consist primarily of commercial paper and non-U.S. bank
borrowings as follows (dollars in millions):
United States Non-U.S.
----------------------------- -------------------------
1994 1993 1992 1994 1993 1992
-------- -------- ------- ------- -------- -------
Borrowings at year end........................ $ 502.2 920.4 176.6 264.2 108.2 175.8
Weighted average interest rate at year end.... 4.6% 4.6% 3.8% 6.2% 7.5% 10.5%
Month-end average borrowings during the year.. $ 741.7 1,335.1 462.3 175.5 133.9 190.7
Month-end weighted average
interest rate during the year................ 4.6% 4.4% 4.3% 6.8% 10.0% 10.1%
Highest month-end level of
borrowings during the year................... $1,014.4 1,546.3 581.2 264.2 168.8 230.5
In October 1992, in connection with the Fisher acquisition (see note 2), the
Company issued $1.275 billion of U.S. commercial paper and swapped these
borrowings to a weighted average fixed rate of 4.6 percent. At September 30,
1994, approximately $650 million of the Company's floating interest rate
borrowings remained swapped for up to one year; at September 30, 1993,
borrowings of approximately $900 million were swapped for periods up to two
years. Excluding the impact of these swaps, interest expense would have been $83
million and $105 million, and the U.S. year-end weighted average interest rate
would have been 4.9 percent and 3.1 percent in 1994 and 1993, respectively.
31
Lines of credit amounting to $700 million were maintained with various banks at
September 30, 1994, to support U.S. commercial paper and to assure availability
of funds. These lines of credit are effective through January 1995. There were
no borrowings against U.S. lines of credit in the last three years. The
Company's non-U.S. subsidiaries maintained bank credit facilities in various
currencies approximating $560 million ($455 million unused) at September 30,
1994. In some instances, borrowings against these credit facilities have been
guaranteed by the Company to assure the availability of funds at favorable
interest rates.
(4) LONG-TERM DEBT
Long-term debt is summarized as follows (dollars in millions):
1994 1993
------ -----
7 7/8% Eurodollar notes due 1998.............................................. $100.0 100.0
Medium-term notes due through 1996 swapped to a weighted average
effective interest rate of 4.2 percent at September 30, 1994.................. 153.5 292.6
8% convertible subordinated debentures due 1997 through 2011................... 45.6 47.1
Lease obligations payable in installments through 2009 with a weighted
average interest rate of 6.5 percent at September 30, 1994.................... 25.7 39.4
Other, principally notes payable in installments through 2006 with a weighted
average interest rate of 6.5 percent at September 30, 1994.................... 112.0 114.2
------ -----
436.8 593.3
Less current maturities........................................................ 156.9 155.3
------ -----
Total......................................................................... $279.9 438.0
====== =====
The 7 7/8% Eurodollar notes were exchanged for non-U.S. dollar obligations of
the same maturity. The non-U.S. dollar obligations have a weighted average
interest rate of 5.5 percent and 6.1 percent at September 30, 1994 and 1993,
respectively, and are composed of 136 million Dutch guilders, 5 billion Japanese
yen and 27 million Swiss francs. These non-U.S. dollar obligations have been
designated as a partial hedge of the Company's non-U.S. dollar net asset
exposure. The effects of exchange rate fluctuations on these obligations are
included in cumulative translation adjustments and other liabilities.
Long-term debt maturing during each of the four years after 1995 is $71.1
million, $9.9 million, $132.2 million and $8.3 million, respectively. Total
interest paid related to short-term borrowings and long-term debt was
approximately $90 million, $126 million and $86 million in 1994, 1993 and 1992,
respectively.
(5) FINANCIAL INSTRUMENTS
The Company is a party to various financial instruments with off-balance-sheet
risk. No loss is anticipated due to nonperformance by the counterparties to
these agreements.
In addition to the 7 7/8% notes described above, the Company has entered into
foreign currency and interest rate exchange agreements that partially hedge
non-U.S. dollar net asset exposures and provide for the legal right of offset.
At September 30, 1994, the Company was required to deliver 133 million German
marks in fiscal 1995 with interest at 6.6 percent in exchange for U.S. $82
million with interest at U.S. commercial paper rates. At September 30, 1993,
these agreements required the Company to deliver 267 million German marks with
interest at a weighted average rate of 6.9 percent and 2.5 billion Japanese yen
with interest at 4.99 percent in exchange for U.S. $184 million with interest at
U.S. commercial paper rates.
As part of its currency hedging strategy, the Company also utilizes option and
forward exchange contracts to minimize the impact of currency fluctuations on
transactions, cash flows and firm commitments. These contracts for the sale or
purchase of European and other currencies generally mature within one year. The
Company and its subsidiaries had approximately $225 million and $250 million of
contracts outstanding at September 30, 1994 and 1993, respectively.
Fair values of the Company's financial instruments are estimated by reference to
quoted prices from market sources and financial institutions, as well as other
valuation techniques. Unless otherwise stated, the estimated fair value of each
class of financial instruments approximated the related carrying value at
September 30, 1994 and 1993.
32
(6) RETIREMENT PLANS
The Company sponsors retirement plans covering substantially all employees.
Benefits are provided to employees under defined benefit pay-related and
flat-dollar plans which are primarily noncontributory. Annual contributions to
retirement plans equal or exceed the minimum funding requirements of the
Employee Retirement Income Security Act or applicable local regulations.
The Company also sponsors defined contribution plans and participates in
multiemployer plans for certain union employees. Benefits are determined and
funded annually based on terms of the plans or as stipulated in collective
bargaining agreements.
Retirement plan expense for the years ended September 30, 1994, 1993 and 1992,
follows (dollars in millions):
U.S. Plans Non-U.S. Plans
------------------------- --------------------
1994 1993 1992 1994 1993 1992
------ ------ ------ ---- ---- ----
Defined benefit plans:
Service cost (benefits earned during the period).. $ 27.9 23.5 18.5 7.2 7.8 7.3
Interest cost..................................... 75.6 69.0 51.2 13.3 13.6 11.0
Actual return on plan assets...................... (26.3) (137.3) (68.7) (8.9) (21.9) (.6)
Net amortization and deferral..................... (76.8) 38.2 (9.1) (3.3) 8.8 (8.1)
------ ------ ------ ---- ----- ----
Net periodic pension expense (income)........... .4 (6.6) (8.1) 8.3 8.3 9.6
Defined contribution and multiemployer plans....... 39.5 41.5 35.3 3.9 3.5 4.5
------ ------ ------ ---- ----- ----
Total retirement plan expense..................... $ 39.9 34.9 27.2 12.2 11.8 14.1
====== ====== ====== ==== ===== ====
The retirement plan expense information reflects the impact of the October 1,
1992 Fisher acquisition.
The actuarial present value of benefit obligations and the funded status of the
Company's defined benefit pension plans as of September 30, 1994 and 1993,
follow (dollars in millions):
U.S. Plans Non-U.S. Plans
----------------- --------------
1994 1993 1994 1993
------ ------ ------ ------
Accumulated benefit obligation...................................... $ 840.0 768.4 167.7 143.9
======== ======= ===== ======
Vested benefits included in accumulated benefit obligation.......... $ 729.3 698.0 139.8 123.7
======== ======= ===== ======
Projected benefit obligation........................................ $1,000.6 934.3 193.6 169.7
Plan assets at fair value (primarily corporate equity
and fixed income securities)....................................... 1,057.5 1,064.5 136.7 125.2
-------- ------- ----- ------
Plan assets in excess of (less than) projected benefit obligation 56.9 130.2 (56.9) (44.5)
Unamortized transition amount....................................... (58.1) (65.3) (1.8) (2.5)
Unrecognized net loss (gain)........................................ 73.8 1.7 (3.5) (8.5)
Unrecognized prior service costs.................................... 23.8 27.2 1.1 1.1
-------- ------- ----- ------
Pension asset (liability) recognized in the balance sheet.......... $ 96.4 93.8 (61.1) (54.4)
======== ======= ===== ======
For 1994, the assumed discount rate, rate of increase in compensation levels and
expected long-term rate of return on plan assets used in the actuarial
calculations were, respectively, 8.0 percent, 5.0 percent and 10.5 percent for
U.S. plans; and an average of 7.6 percent, 4.4 percent and 9.1 percent for
non-U.S. plans. For 1993, the assumed discount rate, rate of increase in
compensation levels and expected long-term rate of return on plan assets were,
respectively, 8.0 percent, 5.0 percent and 10.0 percent for U.S. plans; and an
average of 8.0 percent, 4.7 percent and 8.9 percent for non-U.S. plans.
33
(7) POSTRETIREMENT PLANS
The Company sponsors unfunded postretirement benefit plans (primarily health
care) for U.S. retirees and their dependents. Effective October 1, 1993, the
Company adopted Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" (OPEB), 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). In addition, prior to adoption the Company had recorded OPEB
liabilities of approximately $100 million in accordance with Accounting
Principles Board Opinion No. 16. The statement will not have a material impact
on the Company's ongoing results of operations.
Total postretirement plan expense for the year ended September 30, 1994 was
$27.3 million, consisting of $5.6 million service cost and $21.7 million
interest. Prior to the adoption of SFAS No. 106, postretirement plan expense was
approximately $16 million and $11 million for 1993 and 1992, respectively.
The actuarial present value of accumulated postretirement benefit obligations as
of September 30, 1994 and October 1, 1993 follows (dollars in millions):
1994 1993
------ -----
Retirees.................................................................... $186.5 177.4
Fully eligible active plan participants..................................... 17.6 26.9
Other active plan participants.............................................. 74.0 91.7
------ -----
Accumulated postretirement benefit obligation............................. 278.1 296.0
Unrecognized net gain....................................................... 27.7 --
------ -----
Postretirement benefit liability.......................................... $305.8 296.0
====== =====
The assumed discount rate used in measuring the obligation as of September 30,
1994 was 7.75 percent; the initial assumed health care cost trend rate was 11.0
percent, declining to 5.0 percent in the year 2001. The assumed discount rate
used in measuring the obligation as of October 1, 1993 was 7.25 percent; the
initial assumed health care cost trend rate was 12.0 percent, declining to 5.0
percent in the year 2008. A one-percentage-point increase in the assumed health
care cost trend rate for each year would increase the obligation as of September
30, 1994 by approximately 6 percent and increase the 1994 postretirement plan
expense by approximately 8 percent.
(8) COMMON STOCK
The Company has various stock option plans which permit certain officers and
employees to purchase common stock at specified prices. At September 30, 1994,
2,716,074 options were available for grant under these plans. Changes in the
number of shares subject to option during 1994 follow:
SHARES
AVERAGE SUBJECT
PRICE TO OPTION
------- ---------
Beginning of year............................................................ $34.51 1,595,449
Options granted............................................................. 56.63 805,884
Options exercised (419,730 shares in 1993 and 325,316 shares in 1992)....... 30.79 (337,780)
Options canceled............................................................ 53.16 (33,056)
---------
End of year.................................................................. 43.61 2,030,497
=========
Exercisable at year end (1,261,532 shares in 1993)................................... 1,019,440
=========
The 1993 Incentive Shares Plan authorizes the distribution of a maximum of 3
million shares of common stock to key management personnel. At September 30,
1994, 212,000 incentive shares had been issued and 952,485 rights to receive
common shares had been awarded, contingent upon accomplishing certain objectives
by 1997.
At September 30, 1994, 9,291,714 shares of common stock were reserved, including
7,602,726 shares for issuance under the Company's stock plans and 1,688,988
shares for conversion of the outstanding 8% convertible subordinated debentures
at a price of $26.97 per share. The estimated fair value of the debentures was
$101 million and $103 million at September 30, 1994 and 1993, respectively.
During 1994, 1,976,906 treasury shares were acquired and 799,520 treasury shares
were issued.
34
Approximately 2.5 million preferred shares are reserved for issuance under a
Preferred Share Purchase Rights Plan. Under certain conditions involving
acquisition of or an offer for 20 percent or more of the Company's common stock,
all holders of Rights, except an acquiring entity, would be entitled (i) to
purchase, at an exercise price of $120, common stock of the Company or an
acquiring entity with a value twice the exercise price, or (ii) at the option of
the Board, to exchange each Right for one share of common stock. The Rights
remain in existence until November 1, 1998, unless earlier redeemed (at one cent
per Right), exercised or exchanged under the terms of the plan.
(9) INCOME TAXES
In the fourth quarter of 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," effective October
1, 1992. The adoption of this standard changed the Company's method of
accounting for income taxes from the deferred method to the liability method.
The effect of the change was not material to the financial statements.
The principal components of income tax expense follow (dollars in millions):
1994 1993 1992
------- ----- -----
Federal:
Current............................................... $ 383.1 258.5 255.7
Deferred.............................................. 8.9 35.5 14.3
State and local........................................ 57.5 41.0 37.8
Non-U.S................................................ 73.9 68.9 73.2
------- ----- -----
Income tax expense.................................... $ 523.4 403.9 381.0
======= ===== =====
The federal corporate statutory rate is reconciled to the Company's effective
income tax rate as follows:
1994 1993 1992
----- ----- -----
Federal corporate statutory rate....................... 35.0% 34.8% 34.0%
State and local taxes, less federal tax benefit....... 2.4 2.4 2.4
Other................................................. (.7) (.9) .1
---- ---- ----
Effective income tax rate.............................. 36.7% 36.3% 36.5%
==== ==== ====
The principal components of deferred tax assets (liabilities) follow (dollars in
millions):
1994 1993
-------- -------
Property, plant and equipment and intangibles.......... $(205.7) (177.2)
Leveraged leases....................................... (189.8) (183.1)
Pension................................................ (42.0) (37.1)
Accrued liabilities.................................... 193.8 172.8
Postretirement benefits................................ 119.2 41.1
Employee compensation and benefits..................... 78.7 83.3
Other.................................................. 57.0 25.4
------- ------
Total deferred tax assets (liabilities)............... $ 11.2 (74.8)
======= ======
At September 30, 1994 and 1993, respectively, net current deferred tax assets
were $244.0 million and $219.4 million, and net noncurrent deferred tax
liabilities were $232.8 million and $294.2 million. Total income taxes paid were
approximately $535 million, $365 million and $315 million in 1994, 1993 and
1992, respectively.
35
(10) OTHER FINANCIAL DATA
Items charged to earnings during the years ended September 30, 1994, 1993 and
1992, included the following (dollars in millions):
1994 1993 1992
------ ----- -----
Research, new product development and product improvement costs.......... $298.2 272.4 244.8
Maintenance and repairs.................................................. 155.1 138.9 126.8
Rent expense............................................................. 113.1 109.2 103.4
The Company leases computers, transportation equipment and various other
property under operating lease agreements. The minimum annual rentals under
noncancelable long-term leases, exclusive of maintenance, taxes, insurance and
other operating costs, will approximate $54 million in 1995 and decline
substantially thereafter.
Other assets at September 30, 1994 and 1993, included the following (dollars in
millions):
1994 1993
------ -----
Equity investments.................................... $410.0 375.6
Investment in leveraged leases........................ 201.1 203.4
The market value of the Company's equity investments in publicly traded
companies exceeded the related carrying value by approximately $108 million and
$78 million at September 30, 1994 and 1993, respectively.
Selected accrued expenses at September 30, 1994 and 1993, follow (dollars in
millions):
1994 1993
------ -----
Employee compensation................................. $218.2 221.4
Insurance, including self-insurance................... 109.0 115.5
Taxes, excluding income taxes......................... 93.2 87.1
Warranty.............................................. 84.4 68.7
Pension and profit-sharing plans...................... 47.9 49.5
Interest.............................................. 25.6 25.9
(11) CONTINGENT LIABILITIES AND COMMITMENTS
At September 30, 1994, the Company had guaranteed $373 million of indebtedness
of a 50-percent-owned joint venture, Vermont American Corporation. If required
to perform under the guarantee, the Company will be indemnified for up to $146
million by its joint venture partner, Robert Bosch GmbH.
In the normal course of business prior to the distribution to stockholders of
ESCO Electronics Corporation in 1990, the Company had guaranteed certain of
ESCO's contracts with agencies of the U.S. Government or as a subcontractor.
ESCO will pay the Company an annual fee of $7.4 million through 1995 in
connection with the guaranteed contracts. The remaining backlog of work expected
to be performed under contracts guaranteed by the Company totaled approximately
$82 million at September 30, 1994. In certain circumstances, if ESCO fails to
secure its obligation to indemnify the Company with respect to one or more of
the guaranteed contracts, the Company will have the right to direct the removal
and election of ESCO's Board of Directors until such time as conditions giving
rise to this right are rectified. Management believes it is highly unlikely that
the Company will incur a loss as a result of the guaranteed contracts, or that
circumstances will arise under which the Company would exercise this right.
At September 30, 1994, there were no other known contingent liabilities
(including guarantees, pending litigation, taxes and other claims) that, in the
opinion of management, are expected to be material in relation to the Company's
financial position, nor were there any material commitments outside the normal
course of business.
Emerson is in the process of acquiring several companies with combined annual
sales of approximately $450 million. If completed, the total cost of these
transactions would approximate $550 million. These companies include F.G. Wilson
(Engineering) Ltd., a manufacturer of diesel generator sets located in the
United Kingdom, and Control Techniques, plc, an industry leader in the design
and production of electronic drives for electric motors. Prior to the proposed
transaction, Emerson owned nearly 30 percent of Control Techniques.
36
<PAGE
(12) INDUSTRY SEGMENT INFORMATION
The Company is engaged principally in the design, manufacture and sale of a
broad range of electrical, electromechanical and electronic products and
systems. The products manufactured by the Company are classified into the
following industry segments: Commercial and Industrial Components and Systems;
and Appliance and Construction-Related Components. The Commercial and Industrial
segment includes process control instrumentation, valves and systems; industrial
motors and drives; industrial machinery, equipment and components; and
electronics. The Appliance and Construction-Related segment consists of
fractional horsepower motors; appliance components; heating, ventilating and air
conditioning components; and tools. Summarized information about the Company's
operations in each industry segment and geographic area follows (dollars in
millions):
INDUSTRY SEGMENTS
(See note 2)
Net Sales to Income Before Income
Unaffiliated Customers Taxes and Accounting Change Total Assets
---------------------- ----------------------------- ----------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
------ ------ ------ ------ ------ ------ ------ ------ ------
Commercial and Industrial.... $4,947 4,891 4,079 675 656 534 5,009 4,816 3,603
Appliance and Construction-
Related..................... 3,660 3,283 3,627 602 558 552 2,711 2,512 2,510
Corporate and other items*... -- -- -- 240 17 49 495 486 514
Interest expense............. -- -- -- (89) (119) (91) -- -- --
------ ----- ----- ----- ----- ----- ----- ----- -----
Total....................... $8,607 8,174 7,706 1,428 1,112 1,044 8,215 7,814 6,627
====== ===== ===== ===== ===== ===== ===== ===== =====
Depreciation and Capital
Amortization Expense Expenditures
---------------------- ----------------------
1994 1993 1992 1994 1993 1992
------ ------ ------ ---- ---- ----
Commercial and Industrial............................ $215 202 148 161 137 121
Appliance and Construction-Related................... 145 135 143 156 148 210
Corporate and other items............................ 5 4 4 15 21 15
---- --- --- --- --- ---
Total............................................... $365 341 295 332 306 346
==== === === === === ===
GEOGRAPHIC AREAS
Net Sales to Income Before Income
Unaffiliated Customers Taxes and Accounting Change Total Assets
---------------------- ----------------------------- ----------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
-------- ------ ------ ------ ------ ------ ------ ------ ------
United States................ $5,953 5,568 5,128 956 862 773 4,910 4,828 3,683
Europe....................... 1,933 1,948 2,075 147 162 160 2,140 1,893 2,091
Other Areas.................. 721 658 503 85 71 62 840 759 453
Corporate and other items*... -- -- -- 240 17 49 495 486 514
Eliminations................. -- -- -- -- -- -- (170) (152) (114)
------ ----- ----- ----- ----- ----- ----- ----- -----
Total....................... $8,607 8,174 7,706 1,428 1,112 1,044 8,215 7,814 6,627
====== ===== ===== ===== ===== ===== ===== ===== =====
*Income includes $242 million Aero gain in 1994.
37
(13) QUARTERLY FINANCIAL INFORMATION (Unaudited)
(Dollars in millions except per share amounts)
FINANCIAL RESULTS
Net Sales Gross Profit Net Earnings
----------------- ---------------- -------------
1994 1993 1994 1993 1994 1993
-------- -------- ------- ------- ------ ------
First Quarter*............ $2,009.5 1,983.8 706.1 687.6 178.0 163.2
Second Quarter............ 2,116.5 2,056.7 745.7 714.4 194.3 177.7
Third Quarter............. 2,243.7 2,092.1 784.0 735.7 208.0 187.2
Fourth Quarter............ 2,237.5 2,041.2 818.4 746.3 208.2 180.0
-------- ------- ------- ------- ----- -----
Fiscal Year.............. $8,607.2 8,173.8 3,054.2 2,884.0 788.5 708.1
======== ======= ======= ======= ===== =====
Earnings Per Dividends Per
Common Share Common Share
---------------- -------------
1994 1993 1994 1993
------ ------ -------------
First Quarter*.......................... $ .79 .73 .39 .36
Second Quarter.......................... .87 .79 .39 .36
Third Quarter........................... .93 .83 .39 .36
Fourth Quarter.......................... .93 .80 .39 .36
----- ---- ---- ----
Fiscal Year............................ $3.52 3.15 1.56 1.44
===== ==== ==== ====
* Income before cumulative effect of change in accounting principle was $293.9
million, or $1.31 per common share, in the first quarter of 1994, reflecting the
gain on sale of Aero and other non-recurring items (see notes 2 and 7).
- --------------------------------------------------------------------------------
Stock Prices
Price Range Per Common Share
---------------------------------
1994 1993
---------------- ---------------
High Low High Low
-------- ------ ------ -------
First Quarter.............................. $61 55 3/8 55 3/4 50 1/4
Second Quarter............................. 65 7/8 57 7/8 60 52 3/4
Third Quarter.............................. 61 1/8 56 1/8 62 3/8 56 7/8
Fourth Quarter............................. 64 57 61 1/4 57 5/8
Fiscal Year............................... $65 7/8 55 3/8 62 3/8 50 1/4
Emerson Electric Co. common stock (Symbol EMR) is listed on the New York Stock
Exchange and Chicago Stock Exchange.
38
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
EMERSON ELECTRIC CO.:
We have audited the accompanying consolidated balance sheets of Emerson Electric
Co. and subsidiaries as of September 30, 1994 and 1993, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the years in the three-year period ended September 30, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Emerson Electric Co.
and subsidiaries as of September 30, 1994 and 1993, and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 1994, in conformity with generally accepted accounting
principles.
As discussed in note 7 to the consolidated financial statements, effective
October 1, 1993, the Company changed its method of accounting for
postretirement benefits other than pensions.
KPMG Peat Marwick LLP
St. Louis, Missouri
November 1, 1994