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, 1996
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, 1996: 224,074,496 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, 1996 AND 1995
(Dollars in millions except per share amounts; unaudited)
Three Months Six Months
-------------------- -------------------
1996 1995 1996 1995
--------- -------- -------- --------
Net sales $ 2,819.8 2,514.1 5,385.6 4,798.7
--------- -------- -------- --------
Costs and expenses:
Cost of sales 1,821.1 1,635.2 3,471.5 3,127.8
Selling, general and
administrative expenses 544.0 476.4 1,061.0 917.3
Interest expense 33.9 27.8 64.0 49.0
Gain on sale of business
and other non-recurring items - - - (34.3)
Other deductions, net 18.4 18.2 24.8 28.1
--------- -------- -------- --------
Total costs and expenses 2,417.4 2,157.6 4,621.3 4,087.9
Income before income taxes and
cumulative effect of change
in accounting principle 402.4 356.5 764.3 710.8
Income taxes 147.5 129.4 278.9 259.0
--------- -------- -------- --------
Income before cumulative effect of
change in accounting principle 254.9 227.1 485.4 451.8
Cumulative effect of change in
accounting principle; $.10
per common share - - - (21.3)
--------- -------- -------- --------
Net earnings $ 254.9 227.1 485.4 430.5
========= ======== ======== ========
Earnings per common share $ 1.14 1.02 2.17 1.93
========= ======== ======== ========
Cash dividends per common share $ .49 .43 .98 .86
========= ======== ======== ========
Average number of shares used in
computing earnings per common
share (in thousands) 224,056 223,363 224,054 223,444
========= ======== ======== ========
See accompanying notes to consolidated financial statements.
____________________________________________________________________________
NOTE: Including the pretax impact of the cumulative
effect of accounting change, income before income
taxes for the six months ended March 31, 1996 and 1995
would have been: $ 764.3 675.8
======== ========
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 1996 1995
------ --------- -------
CURRENT ASSETS
Cash and equivalents $ 194.6 117.3
Receivables, less allowances of $53.2 and $45.2 2,054.6 1,757.6
Inventories 1,684.2 1,602.6
Other current assets 315.5 306.6
--------- -------
Total current assets 4,248.9 3,784.1
--------- -------
PROPERTY, PLANT AND EQUIPMENT, NET 2,325.3 2,134.9
--------- -------
OTHER ASSETS
Excess of cost over net assets of purchased
businesses 2,648.9 2,384.9
Other 1,153.7 1,095.1
--------- -------
Total other assets 3,802.6 3,480.0
--------- -------
$10,376.8 9,399.0
========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Short-term borrowings and current maturities
of long-term debt $ 1,456.5 1,387.1
Accounts payable 644.6 740.2
Accrued expenses 950.4 979.8
Income taxes 202.7 173.6
--------- -------
Total current liabilities 3,254.2 3,280.7
--------- -------
LONG-TERM DEBT 816.1 208.6
--------- -------
OTHER LIABILITIES 1,213.8 1,038.9
--------- -------
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 13.0 15.0
Retained earnings 5,394.1 5,128.3
Cumulative translation adjustments (22.1) 17.0
Cost of common stock in treasury, 14,264,007
shares and 14,439,861 shares (530.6) (527.8)
--------- -------
Total stockholders' equity 5,092.7 4,870.8
--------- -------
$10,376.8 9,399.0
========= =======
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, 1996 AND 1995
(Dollars in millions; unaudited)
1996 1995
--------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 338.2 249.4
INVESTING ACTIVITIES
Capital expenditures (218.8) (183.1)
Purchases of businesses, net of cash and
equivalents acquired (54.9) (208.3)
Proceeds from divestitures of businesses, net - 8.3
Other (37.1) 39.8
--------- -------
Net cash (used in) investing activities (310.8) (343.3)
--------- -------
FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings
with maturities of 90 days or less 83.8 592.1
Proceeds from short-term borrowings 9.7 -
Principal payments on short-term borrowings (4.5) (28.7)
Proceeds from long-term debt 257.4 1.5
Principal payments on long-term debt (16.7) (127.9)
Dividends paid (219.6) (192.3)
Other (59.4) (47.7)
--------- -------
Net cash provided by financing activities 50.7 197.0
--------- -------
Effect of exchange rate changes on cash and equivalents (.8) (.4)
--------- -------
INCREASE IN CASH AND EQUIVALENTS 77.3 102.7
Beginning cash and equivalents 117.3 113.3
--------- -------
ENDING CASH AND EQUIVALENTS $ 194.6 216.0
========= =======
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.
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. Certain prior year amounts have been reclassified to
conform to the current year presentation. 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, 1995.
2. Emerson began consolidating Vermont American Corporation, the
Company's joint venture with Robert Bosch GmbH, in the second
quarter of fiscal 1996, as a result of an agreement which provides
Emerson control over the venture. The increases in total assets and
long-term debt reflect this consolidation. Emerson has guaranteed
the indebtedness of this subsidiary. If required to perform under
the guarantee, the Company will be partially indemnified by Robert
Bosch GmbH. For further information, refer to the Company's 1995
Annual Report on Form 10-K.
3. Other Financial Information
(Dollars in millions; unaudited)
March 31, September 30,
Inventories 1996 1995
----------- --------- -------
Finished products $ 677.7 587.2
Raw materials and work in process 1,006.5 1,015.4
--------- -------
$ 1,684.2 1,602.6
========= =======
March 31, September 30,
Property, plant and equipment, net 1996 1995
---------------------------------- --------- -------
Property, plant and equipment, at cost $ 4,631.2 4,230.5
Less accumulated depreciation 2,305.9 2,095.6
--------- -------
$ 2,325.3 2,134.9
========= =======
5
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
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 second quarter and
first six months of fiscal 1996 were the highest for any quarter and
first six-month period in the Company's history.
Net sales were $2,819.8 million for the quarter ended March 31, 1996,
up 12.2 percent over net sales of $2,514.1 million for the quarter ended
March 31, 1995, and $5,385.6 million for the six months ended March 31,
1996, up 12.2 percent over net sales of $4,798.7 for the same period a
year ago. The second quarter results reflect improvement in the market
for the Appliance and Construction-Related Segment, solid demand for the
Commercial and Industrial Segment, and the impact of acquisitions and
consolidation of Vermont American Corporation. Underlying international
sales including exports reported strong sales growth as all major regions,
with the exception of North America, benefited from continued market
strength.
The Appliance and Construction-Related segment reported a double-digit
sales increase compared to the second quarter of 1995. The tools business
reported the largest sales gains for the quarter due to double-digit
underlying domestic and international subsidiary sales growth plus the
consolidation of Vermont American. The tools business benefited from
strong growth at Sears. Strong sales by the heating, ventilating and air
conditioning business reflected slight domestic growth, continued robust
international growth and further acceptance of new products and market
penetration. Sales of the fractional motor business increased slightly,
while sales of the appliance components business decreased as domestic and
international appliance markets were sluggish for the quarter.
The Commercial and Industrial segment also reported a double-digit sales
increase compared to the second quarter of 1995. The industrial motors
and drives business reported a double-digit sales increase resulting from
strong international capital goods growth and the acquisitions of F.G.
Wilson and Control Techniques. The process business achieved double-digit
sales growth as a result of continued strength in the international
markets and the benefit of recent acquisitions. The electronics business
experienced strong sales growth due to solid domestic demand, success of
new products in penetrating new markets, and recent acquisitions. Sales
of the industrial components and equipment business increased modestly as
international market demand improved.
6
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
Cost of sales for the second quarter was $1,821.1 million or 64.6
percent of sales, compared with $1,635.2 million, or 65.0 percent of
sales, for the second quarter of 1995. Cost of sales for the six months
ended March 31, 1996 was $3,471.5 million or 64.5 percent of sales,
compared to $3,127.8 million or 65.2 percent of sales for the same period
a year ago. Selling, general and administrative expenses for the three
months ended March 31, 1996 were $544.0 million, or 19.3 percent of
sales, compared to $476.4 million, or 19.0 percent of sales for the same
period a year ago. For the first six months of 1996, selling, general
and administrative expenses were $1,061.0 million or 19.7 percent of
sales, compared to $917.3 million or 19.1 percent of sales for the same
period in 1995. The consolidated operating profit margin improved from
the high level of the prior year as a result of the Company's ongoing
commitments to cost reduction efforts and productivity improvement
programs across the company.
Earnings in the first quarter of fiscal 1995 included a $41.3 million
preferential distribution from the S-B Power Tool joint venture which
was substantially offset by other non-recurring items and the adoption of
SFAS No. 112 ($21.3 million, net of $13.7 million in related income tax
benefits).
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,
1996 1995
-------- --------
Working capital (in millions) $994.7 503.4
Current ratio 1.3 to 1 1.2 to 1
Total debt to total capital 30.9% 24.7%
Net debt to net capital 28.9% 23.3%
The Company's interest coverage ratio (earnings before income taxes,
non-recurring items and interest expense, divided by interest expense)
was 12.9 times for the six months ended March 31, 1996 compared to 14.8
times for the same period one year earlier. The decrease in interest
coverage ratio and increases in debt to capital ratios reflect the
consolidation of Vermont American and acquisitions. In the first
quarter, the Company issued $250 million of 6.3%, 10-year notes which
were used to reduce outstanding U.S. commercial paper.
Cash flow provided by operating activities was $338.2 million for the six
months ended March 31, 1996 versus $249.4 million for the same period in
the prior year. Receivables increased due to continued sales growth and
international mix. Cash and equivalents increased by $77.3 million
during the six months ended March 31, 1996. Cash flow provided by
operating activities and an increase in borrowings of $329.7 million were
7
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
used primarily to pay dividends of $219.6 million and fund capital
expenditures of $218.8 million. In the six months ended March
31, 1995, $320 million of notes were issued to sellers to partially
finance the F.G. Wilson and Control Techniques acquisitions.
The Company has reached a definitive agreement with Caterpillar Inc.
for the development and manufacture of diesel generator sets.
Caterpillar will take an equity position in Emerson's F.G. Wilson
(Engineering) Ltd. subsidiary. The transaction is contingent upon
receiving applicable regulatory approvals.
The Company is in a strong financial position, is generating strong
operating cash flow, and has the resources available for reinvestment in
existing businesses, strategic acquisitions and managing the capital
structure.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on February 6, 1996.
The directors listed in the Notice of Annual Meeting of Stockholders
dated December 15, 1995 were elected for terms ending in 1999 with voting
for each as follows:
DIRECTOR FOR WITHHELD
-------- ----------- ----------
D. C. Farrell 194,861,381 717,676
J. A. Frates 194,782,475 796,582
C. F. Knight 194,893,034 686,023
R. B. Loynd 194,834,913 744,144
R. W. Staley 194,888,580 690,477
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. 1989 Form
10-K, Exhibit 3(a).
3(b) Bylaws of Emerson Electric Co., as amended through May 3,
1995, incorporated by reference to Emerson Electric Co. 1995
Form 10-K, Exhibit 3(b).
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, 1996.
8
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 13, 1996 By /s/ Walter J. Galvin
-----------------------
Walter J. Galvin
Senior Vice President - Finance
and Chief Financial Officer
(on behalf of the registrant and
as Chief Financial Officer)
9