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 December 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 December 31, 1998: 437,380,167 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 ENDED DECEMBER 31, 1998 AND 1997
(Dollars in millions except per share amounts; unaudited)
Three Months Ended
December 31,
---------------------
1998 1997
-------- --------
Net sales $3,426.7 3,171.5
-------- --------
Costs and expenses:
Cost of sales 2,211.6 2,029.8
Selling, general and administrative expenses 691.4 646.4
Interest expense 44.9 35.8
Other deductions, net 6.4 18.4
-------- --------
Total costs and expenses 2,954.3 2,730.4
-------- --------
Income before income taxes 472.4 441.1
Income taxes 170.0 158.8
-------- --------
Net earnings $ 302.4 282.3
======== ========
Basic earnings per common share $ .69 .64
======== ========
Diluted earnings per common share $ .69 .64
======== ========
Cash dividends per common share $ .325 .295
======== ========
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)
December 31, September 30,
ASSETS 1998 1998
------ --------- --------
CURRENT ASSETS
Cash and equivalents $ 321.7 209.7
Receivables, less allowances of $55.9 and $54.6 2,396.1 2,416.1
Inventories 1,998.4 1,996.5
Other current assets 374.5 379.0
--------- --------
Total current assets 5,090.7 5,001.3
--------- --------
PROPERTY, PLANT AND EQUIPMENT, NET 3,053.9 3,011.6
--------- --------
OTHER ASSETS
Excess of cost over net assets of purchased
businesses 4,002.3 3,702.7
Other 1,014.7 944.2
--------- --------
Total other assets 5,017.0 4,646.9
--------- --------
$13,161.6 12,659.8
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Short-term borrowings and current maturities
of long-term debt $ 2,009.2 1,524.4
Accounts payable 831.3 1,036.7
Accrued expenses 1,138.7 1,252.7
Income taxes 320.3 207.9
--------- --------
Total current liabilities 4,299.5 4,021.7
--------- --------
LONG-TERM DEBT 1,243.3 1,056.6
--------- --------
OTHER LIABILITIES 1,646.9 1,778.2
--------- --------
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 26.8 27.9
Retained earnings 7,216.5 7,056.5
Cumulative translation adjustments (166.9) (236.2)
Cost of common stock in treasury, 39,296,839
shares and 38,452,823 shares (1,342.8) (1,283.2)
--------- --------
Total stockholders' equity 5,971.9 5,803.3
--------- --------
$13,161.6 12,659.8
========= ========
See accompanying notes to consolidated financial statements.
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EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(Dollars in millions; unaudited)
1998 1997
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 275.6 246.0
-------- --------
INVESTING ACTIVITIES
Capital expenditures (136.8) (112.5)
Purchases of businesses, net of cash and
equivalents acquired (468.0) --
Other, net .8 6.1
-------- --------
Net cash used in investing activities (604.0) (106.4)
-------- --------
FINANCING ACTIVITIES
Net increase in short-term borrowings 495.6 403.5
Proceeds from long-term debt 175.1 1.4
Principal payments on long-term debt (6.0) (6.1)
Dividends paid (142.4) (130.2)
Net purchases of treasury stock (94.3) (152.4)
-------- --------
Net cash provided by financing activities 428.0 116.2
-------- --------
Effect of exchange rate changes on cash and equivalents 12.4 (12.7)
-------- --------
INCREASE IN CASH AND EQUIVALENTS 112.0 243.1
Beginning cash and equivalents 209.7 221.1
-------- --------
ENDING CASH AND EQUIVALENTS $ 321.7 464.2
======== ========
See accompanying notes to consolidated financial statements.
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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, 1998.
2. Other Financial Information
(Dollars in millions; unaudited)
December 31, September 30,
Inventories 1998 1998
----------- -------- --------
Finished products $ 870.2 858.6
Raw materials and work in process 1,128.2 1,137.9
-------- --------
$1,998.4 1,996.5
======== ========
December 31, September 30,
Property, plant and equipment, net 1998 1998
---------------------------------- -------- --------
Property, plant and equipment, at cost $6,212.7 6,070.7
Less accumulated depreciation 3,158.8 3,059.1
-------- --------
$3,053.9 3,011.6
======== ========
3. During the first quarter of 1999, the Company completed the acquisition
of the Westinghouse Process Control Division (PCD) from CBS Corporation
for approximately $257 million. PCD is a supplier of process controls
for the power generation, water and wastewater treatment industries. In
addition, in the first quarter the Company paid $202 million to increase
its ownership of Astec (BSR) Plc to 96 percent and has subsequently
acquired the remaining interest.
During the second quarter of 1999, the Company announced that Caterpillar
has agreed to acquire the Company's joint venture interest in F.G. Wilson
(Engineering) Ltd. In addition, the Company has entered into agreements
in principle to acquire two generator operations.
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EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
4. In the quarter ended December 31, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
This statement requires the reporting of changes in stockholders' equity
that do not result from transactions with stockholders. As reflected in
the financial statements, nonstockholder changes in equity for the quarter
ended December 31, 1998, were $371.7 million, comprised of net earnings
of $302.4 million and foreign currency translation adjustments of $69.3
million. The corresponding amount for the quarter ended December 31,
1997, was $297.3 million, comprised of net earnings of $282.3 million
and foreign currency translation adjustments of $15.0 million. The
adoption of this statement had no impact on the Company's results of
operations or financial condition.
5. The weighted average number of common shares outstanding (in millions)
was 436.0 and 439.2 for the three months ended December 31, 1998 and
1997, respectively. The weighted average number of shares outstanding
assuming dilution (in millions) was 440.6 and 443.9 for the three months
ended December 31, 1998 and 1997, respectively. Dilutive shares
primarily relate to stock plans.
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EMERSON ELECTRIC CO. AND SUBSIDIARIES 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 first quarter of
fiscal 1999 were the highest for any first quarter in the Company's
history.
Net sales for the quarter ended December 31, 1998, were $3,426.7 million,
an increase of 8.0 percent over net sales of $3,171.5 million for the
quarter ended December 31, 1997. These results were achieved despite
continued weakness in Asia and other developing markets and the continuing
low price of crude oil, which affects process and other industrial markets.
In the Commercial and Industrial segment, sales in the electronics business
increased significantly due in part to the contributions of Advanced Power
Systems and Hiross, recent acquisitions that expand Emerson's position in the
telecommunications equipment market. In addition, demand for power
conditioning equipment and services continued to be very strong. Industrial
motors and drives business realized a solid increase in sales due to the
contribution of acquisitions and U.S. and European demand. Sales for the
process business were up slightly versus 1998, supported by strong demand for
PlantWeb (TM) products and systems. The industrial components and equipment
business reported a modest increase in sales due to acquisitions.
In the Appliance and Construction-Related segment, the heating, ventilating
and air conditioning business achieved very strong sales growth, driven by
both the U.S. and Asia-Pacific regions. The fractional motors and appliance
components business reported a strong increase in sales driven by recent
acquisitions and solid demand in the United States. Underlying tools business
sales declined moderately compared with very strong growth in the prior year.
Cost of sales for the first quarter was $2,211.6 million or 64.5
percent of sales, compared with $2,029.8 million, or 64.0 percent of
sales, for the first quarter of 1998. Selling, general and
administrative expenses for the three months ended December 31, 1998,
were $691.4 million, or 20.2 percent of sales, compared to $646.4
million, or 20.4 percent of sales for the same period a year ago.
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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 first quarter as compared to the end of the prior
fiscal year follows:
December 31, September 30,
1998 1998
--------- ---------
Working capital (in millions) $ 791.2 $ 979.6
Current ratio 1.2 to 1 1.2 to 1
Total debt to total capital 35.3% 30.8%
Net debt to net capital 32.9% 29.0%
The Company's interest coverage ratio (earnings before income taxes and
interest expense, divided by interest expense) was 11.5 times for the
quarter ended December 31, 1998, compared to 13.3 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.
Cash and equivalents increased by $112.0 million during the three months
ended December 31, 1998. Cash flow provided by operating activities of
$275.6 million and an increase in borrowings of $664.7 million were used
primarily to fund acquisitions of $468.0 million, fund capital expenditures
of $136.8 million, pay dividends of $142.4 million, and fund net treasury
stock purchases of $94.3 million.
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 on a short- and long-term basis.
Year 2000 readiness was discussed in the Company's 1998 Annual Report on
Form 10-K under the caption "Year 2000 Readiness." Subsequently, the Company
has completed the assessment phase. Remediation and testing activities
at the Company's divisions are at various stages, with more than three-
fourths of the work completed on critical systems. Substantially all
computer applications and systems are expected to be Year 2000 compliant
by June 30, 1999.
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, 1998.
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EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits (Listed by numbers corresponding to the Exhibit Table
of Item 601 in Regulation S-K).
3(a) Restated Articles of Incorporation of Emerson Electric Co.,
incorporated by reference to Emerson Electric Co. Form 10-Q
for the quarter ended March 31, 1997, Exhibit 3(a).
3(b) Bylaws of Emerson Electric Co., as amended through November 3,
1998, incorporated by reference to Emerson Electric Co. 1998
Form 10-K, Exhibit 3(b).
27 Financial Data Schedule
(b) Reports on Form 8-K. Pursuant to Item 5, the Company filed a Report on
Form 8-K dated October 6, 1998, regarding the adoption of a Preferred
Stock Purchase Rights plan.
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: February 16, 1999 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