UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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, 1998: 442,711,369 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, 1998 AND 1997
(Dollars in millions except per share amounts; unaudited)
Three Months Six Months
-------------------- -------------------
1998 1997 1998 1997
--------- -------- -------- --------
Net sales $ 3,382.4 3,103.5 6,553.9 5,934.1
--------- -------- -------- --------
Costs and expenses:
Cost of sales 2,159.7 1,987.4 4,189.5 3,792.8
Selling, general and
administrative expenses 673.3 612.2 1,319.7 1,195.5
Interest expense 39.7 29.8 75.5 57.3
Other deductions, net 29.1 28.4 47.5 37.5
--------- -------- -------- --------
Total costs and expenses 2,901.8 2,657.8 5,632.2 5,083.1
Income before income taxes 480.6 445.7 921.7 851.0
Income taxes 173.0 165.3 331.8 315.7
--------- -------- -------- --------
Net earnings $ 307.6 280.4 589.9 535.3
========= ======== ======== ========
Basic earnings per common share $ .70 .63 1.34 1.20
========= ======== ======== ========
Diluted earnings per common share $ .69 .62 1.33 1.19
========= ======== ======== ========
Cash dividends per common share $ .295 .27 .59 .54
========= ======== ======== ========
See accompanying notes to consolidated financial statements.
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 1998 1997
------ --------- --------
CURRENT ASSETS
Cash and equivalents $ 426.5 221.1
Receivables, less allowances of $58.8 and $54.0 2,385.9 2,200.2
Inventories 1,877.3 1,881.6
Other current assets 405.6 413.9
--------- --------
Total current assets 5,095.3 4,716.8
--------- --------
PROPERTY, PLANT AND EQUIPMENT, NET 2,806.8 2,735.4
--------- --------
OTHER ASSETS
Excess of cost over net assets of purchased
businesses 3,317.4 3,116.0
Other 891.1 895.1
--------- --------
Total other assets 4,208.5 4,011.1
--------- --------
$12,110.6 11,463.3
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Short-term borrowings and current maturities
of long-term debt $ 1,921.0 1,445.1
Accounts payable 725.7 942.1
Accrued expenses 1,171.2 1,241.9
Income taxes 256.9 213.3
--------- --------
Total current liabilities 4,074.8 3,842.4
--------- --------
LONG-TERM DEBT 601.9 570.7
--------- --------
OTHER LIABILITIES 1,703.0 1,629.5
--------- --------
STOCKHOLDERS' EQUITY
Preferred stock of $2.50 par value per share.
Authorized 5,400,000 shares; issued - none - -
Common stock of $.50 par value per share.
Authorized 1,200,000,000 shares; issued
476,677,006 shares 238.3 238.3
Additional paid in capital 34.9 3.3
Retained earnings 6,677.9 6,348.9
Cumulative translation adjustments (230.1) (205.9)
Cost of common stock in treasury, 33,965,637
shares and 35,873,321 shares (990.1) (963.9)
--------- --------
Total stockholders' equity 5,730.9 5,420.7
--------- --------
$12,110.6 11,463.3
========= ========
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, 1998 AND 1997
(Dollars in millions; unaudited)
1998 1997
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 586.7 412.9
-------- --------
INVESTING ACTIVITIES
Capital expenditures (265.2) (227.1)
Purchases of businesses, net of cash and
equivalents acquired (107.7) (22.7)
Other, net 1.0 .9
-------- --------
Net cash used in investing activities (371.9) (248.9)
-------- --------
FINANCING ACTIVITIES
Net increase in short-term borrowings 479.0 384.3
Proceeds from long-term debt 3.4 5.9
Principal payments on long-term debt (7.6) (9.3)
Dividends paid (260.9) (241.3)
Net purchases of treasury stock (210.9) (152.4)
-------- --------
Net cash provided by (used in) financing activities 3.0 (12.8)
-------- --------
Effect of exchange rate changes on cash and equivalents (12.4) (16.0)
-------- --------
INCREASE IN CASH AND EQUIVALENTS 205.4 135.2
Beginning cash and equivalents 221.1 149.0
-------- --------
ENDING CASH AND EQUIVALENTS $ 426.5 284.2
======== ========
See accompanying notes to consolidated financial statements.
4
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
Notes to Consolidated Financial Statements
1. The accompanying unaudited consolidated financial statements, in
the opinion of management, include all adjustments necessary for
a fair presentation of the results for the interim periods presented.
These adjustments consist of normal recurring accruals. The
consolidated financial statements are presented in accordance
with the requirements of Form 10-Q and consequently do not include
all the disclosures required by generally accepted accounting
principles. For further information refer to the consolidated
financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended September 30, 1997.
2. Other Financial Information
(Dollars in millions; unaudited)
March 31, September 30,
Inventories 1998 1997
----------- --------- -------
Finished products $ 783.9 789.6
Raw materials and work in process 1,093.4 1,092.0
--------- -------
$ 1,877.3 1,881.6
========= =======
March 31, September 30,
Property, plant and equipment, net 1998 1997
---------------------------------- --------- -------
Property, plant and equipment, at cost $ 5,676.1 5,433.7
Less accumulated depreciation 2,869.3 2,698.3
--------- -------
$ 2,806.8 2,735.4
========= =======
3. In December 1997, the Company purchased Computational Systems, Inc.
(CSI) for approximately $160 million, primarily in common stock. CSI
is a supplier of condition monitoring and diagnostic products and
services for motors and other rotational equipment.
5
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
4. In the quarter ended December 31, 1997, the Company adopted Statement
of Financial Accounting Standards No. 128, "Earnings per Share," (SFAS
128) which establishes standards for computing and presenting earnings
per share. Basic earnings per common share considers only the weighted
average of common shares outstanding while diluted earnings per common
share considers the dilutive effects of stock options, incentive shares
and convertible securities. Previously reported earnings per share
amounts have been restated to conform to SFAS 128 requirements.
Reconciliations of basic earnings per common share and diluted earnings
per common share follow (dollars and shares in millions except per share
amounts):
1998 1997
---------------------------- ----------------------------
Weighted- Earnings Weighted- Earnings
Average Per Average Per
Earnings Shares Share Earnings Shares Share
-------- -------- -------- -------- -------- --------
Three Months Ended
March 31,
- ------------------
Basic $ 307.6 440.8 $ .70 $ 280.4 446.1 $ .63
======== ========
Convertible debt .1 1.0 .2 1.5
Stock plans 4.4 3.0
-------- -------- -------- --------
Diluted $ 307.7 446.2 $ .69 $ 280.6 450.6 $ .62
======== ======== ======== ======== ======== ========
Six Months Ended
March 31,
- ----------------
Basic $ 589.9 440.0 $ 1.34 $ 535.3 446.8 $ 1.20
======== ========
Convertible debt .3 1.0 .5 1.5
Stock plans 4.0 2.8
-------- -------- -------- --------
Diluted $ 590.2 445.0 $ 1.33 $ 535.8 451.1 $ 1.19
======== ======== ======== ======== ======== ========
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EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
Items 2 and 3. Management's Discussion and Analysis of Results
of Operations and Financial Condition.
Results of Operations
Sales, net earnings and earnings per share for the second quarter and
first six months of fiscal 1998 were the highest for any quarter and
first six-month period in the Company's history.
Net sales were $3,382.4 million for the quarter ended March 31, 1998,
up 9.0 percent (12 percent at constant currency) over net sales of
$3,103.5 million for the quarter ended March 31, 1997, and $6,553.9
million for the six months ended March 31, 1998, up 10.4 percent (14
percent at constant currency) over net sales of $5,934.1 million for the
same period a year ago. The second quarter results reflect strong U.S.
and Latin American growth, solid European performance and the
contribution of acquisitions. Excluding the negative impact of currency,
underlying international subsidiary sales showed solid improvement.
Continued weakness in Asia-Pacific limited export sales, particularly
those of the heating, ventilating and air-conditioning business.
In the Commercial and Industrial segment, the electronics business
achieved very strong underlying sales growth, driven by contributions
from all product lines and service offerings. Excluding the impact of
the strengthening dollar, the process business achieved strong sales
growth, reflecting very strong domestic demand and solid international
demand. Sales of the industrial motors and drives business were solid
before the effects of unfavorable currency due to strong international
demand and recent acquisitions. Excluding the impact of currency
translation, the industrial components and equipment business achieved
moderate underlying domestic and international sales growth.
In the Appliance and Construction-Related segment, sales of the
underlying fractional motors and appliance components business were
strong, benefiting from robust domestic markets and new products.
The tools business achieved modest underlying sales growth, while the
heating, ventilating and air-conditioning business reported a moderate
decrease in sales as weakness in Asia-Pacific severely limited export
sales.
Cost of sales for the second quarter was $2,159.7 million or 63.9
percent of sales, compared with $1,987.4 million, or 64.0 percent of
sales, for the second quarter of 1997. Cost of sales for the six months
ended March 31, 1998, was $4,189.5 million or 63.9 percent of sales,
compared to $3,792.8 million or 63.9 percent of sales for the same period
a year ago. Selling, general and administrative expenses for the three
months ended March 31, 1998, were $673.3 million, or 19.9 percent of
sales, compared to $612.2 million, or 19.8 percent of sales for the same
period a year ago. For the first six months of 1998, selling, general
and administrative expenses were $1,319.7 million or 20.2 percent of
sales, compared to $1,195.5 million or 20.2 percent of sales for the same
period in 1997. Consolidated profit margins remained at high levels
despite the inclusion of lower margin acquisitions. Underlying operating
margins showed solid improvement, reflecting both domestic and
international gains, as a result of continuing cost reduction efforts
and productivity improvement programs.
7
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
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,
1998 1997
-------- --------
Working capital (in millions) $1,020.5 874.4
Current ratio 1.3 to 1 1.2 to 1
Total debt to total capital 30.6% 27.1%
Net debt to net capital 26.8% 24.9%
The Company's interest coverage ratio (earnings before income taxes
and interest expense, divided by interest expense) was 13.2 times for the
six months ended March 31, 1998, compared to 15.9 times for the same
period one year earlier. The decrease in the interest coverage ratio
reflects higher average borrowings resulting from share repurchases
and acquisitions, partially offset by earnings growth. In the first
quarter of fiscal 1998, the Company entered into an interest rate
agreement which caps the rate on $250 million of commercial paper at
6.0 percent through September 1999.
Cash and equivalents increased by $205.4 million during the six months
ended March 31, 1998. Cash flow provided by operating activities of
$586.7 million and a net increase in borrowings of $474.8 million were
used primarily to pay dividends of $260.9 million, fund capital
expenditures of $265.2 million, fund net purchases of treasury stock of
$210.9 million and fund purchases of businesses of $107.7 million.
The Company is in a strong financial position, continues to generate
strong operating cash flows, and has the resources available for
reinvestment in existing businesses, strategic acquisitions and managing
the capital structure on a short- and long-term basis.
Statements in this report that are not strictly historical may be
"forward-looking" statements which involve risks and uncertainties.
These include economic and currency conditions, market demand, pricing,
and competitive and technological factors, among others which are set
forth in the Company's Annual Report on Form 10-K for the year ended
September 30, 1997.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders on February 3, 1998, two
matters described in the Notice of Annual Meeting of Stockholders dated
December 12, 1997, were voted upon.
1. The directors listed below were elected for terms ending in 2001
with voting for each as follows:
8
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
DIRECTOR FOR WITHHELD
------------------- ----------- ----------
J. G. Berges 368,146,384 5,916,643
R. L. Ridgway 368,807,865 5,255,162
A. E. Suter 368,097,528 5,965,499
W. M. Van Cleve 363,369,644 10,693,383
E. E. Whitacre, Jr. 368,889,905 5,173,122
2. The proposal to approve the 1998 Stock Option Plan was approved by
a vote of 349,790,759 in favor to 16,758,486 against, with
3,605,774 abstaining.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits (Listed by numbers corresponding to the Exhibit Table
of Item 601 in Regulation S-K).
3(a) Restated Articles of Incorporation of Emerson Electric Co.,
incorporated by reference to Emerson Electric Co. Form 10-Q
for the quarter ended March 31, 1997, Exhibit 3(a).
3(b) Bylaws of Emerson Electric Co., as amended through October 7,
1997, incorporated by reference to Emerson Electric Co. 1997
Form 10-K, Exhibit 3(b).
10(l) Fourth Amendment to the Supplemental Executive Savings
Investment Plan, filed herewith.
10(o) 1998 Stock Option Plan, incorporated by reference to Emerson
Electric Co. 1998 Proxy Statement dated December 12, 1997,
Appendix A.
27 Financial Data Schedules
(b) Reports on Form 8-K. The Company did not file any reports on
Form 8-K during the quarter ended March 31, 1998.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
EMERSON ELECTRIC CO.
Date: May 12, 1998 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