10-Q: Quarterly report [Sections 13 or 15(d)]
Published on August 14, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 June 30, 1996: 224,206,838 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 NINE MONTHS ENDED JUNE 30, 1996 AND 1995
(Dollars in millions except per share amounts; unaudited)
Three Months Nine Months
-------------------- -------------------
1996 1995 1996 1995
--------- -------- -------- --------
Net sales $ 2,896.8 2,629.7 8,282.4 7,428.4
--------- -------- -------- --------
Costs and expenses:
Cost of sales 1,859.8 1,707.0 5,331.3 4,834.8
Selling, general and
administrative expenses 567.1 498.7 1,628.1 1,416.0
Interest expense 32.2 31.2 96.2 80.2
Gain on sale of business
and other non-recurring items - - - (34.3)
Other deductions, net 15.9 16.7 40.7 44.8
--------- -------- -------- --------
Total costs and expenses 2,475.0 2,253.6 7,096.3 6,341.5
Income before income taxes and
cumulative effect of change
in accounting principle 421.8 376.1 1,186.1 1,086.9
Income taxes 154.9 136.6 433.8 395.6
--------- -------- -------- --------
Income before cumulative effect of
change in accounting principle 266.9 239.5 752.3 691.3
Cumulative effect of change in
accounting principle; $.10
per common share - - - (21.3)
--------- -------- -------- --------
Net earnings $ 266.9 239.5 752.3 670.0
========= ======== ======== ========
Earnings per common share $ 1.19 1.07 3.36 3.00
========= ======== ======== =======
Cash dividends per common share $ .49 .43 1.47 1.29
========= ======== ======== =======
Average number of shares used in
computing earnings per common
share (in thousands) 224,105 223,633 224,071 223,507
========= ======== ======== =======
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 nine months ended June 30, 1996 and 1995
would have been: $1,186.1 1,051.9
======== ========
2
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
CONSOLIDATED BALANCE SHEETS
(Dollars in millions except per share amounts; unaudited)
June 30, September 30,
ASSETS 1996 1995
------ --------- -------
CURRENT ASSETS
Cash and equivalents $ 213.1 117.3
Receivables, less allowances of $55.4 and $45.2 2,055.3 1,757.6
Inventories 1,671.7 1,602.6
Other current assets 310.1 306.6
--------- -------
Total current assets 4,250.2 3,784.1
--------- -------
PROPERTY, PLANT AND EQUIPMENT, NET 2,356.0 2,134.9
--------- -------
OTHER ASSETS
Excess of cost over net assets of purchased
businesses 2,678.5 2,384.9
Other 1,160.9 1,095.1
--------- -------
Total other assets 3,839.4 3,480.0
--------- -------
$10,445.6 9,399.0
========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Short-term borrowings and current maturities
of long-term debt $ 1,402.7 1,387.1
Accounts payable 599.1 740.2
Accrued expenses 992.9 979.8
Income taxes 165.4 173.6
--------- -------
Total current liabilities 3,160.1 3,280.7
--------- -------
LONG-TERM DEBT 786.2 208.6
--------- -------
OTHER LIABILITIES 1,288.5 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 11.8 15.0
Retained earnings 5,551.3 5,128.3
Cumulative translation adjustments (58.4) 17.0
Cost of common stock in treasury, 14,131,665
shares and 14,439,861 shares (532.2) (527.8)
--------- -------
Total stockholders' equity 5,210.8 4,870.8
--------- -------
$10,445.6 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
NINE MONTHS ENDED JUNE 30, 1996 AND 1995
(Dollars in millions; unaudited)
1996 1995
--------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 682.2 556.5
--------- -------
INVESTING ACTIVITIES
Capital expenditures (344.8) (298.1)
Purchases of businesses, net of cash and
equivalents acquired (167.8) (236.0)
Proceeds from divestiture of business, net - 8.3
Other 64.6 27.8
--------- -------
Net cash used in investing activities (448.0) (498.0)
--------- -------
FINANCING ACTIVITIES
Net increase in short-term borrowings
with maturities of 90 days or less 42.1 524.3
Proceeds from short-term borrowings 3.4 0.1
Principal payments on short-term borrowings (8.9) (28.7)
Proceeds from long-term debt 249.9 1.5
Principal payments on long-term debt (20.3) (128.8)
Dividends paid (329.4) (288.4)
Net purchases of treasury stock (71.7) (42.7)
--------- -------
Net cash provided by (used in) financing activities (134.9) 37.3
--------- -------
Effect of exchange rate changes on cash and equivalents (3.5) 4.1
--------- -------
INCREASE IN CASH AND EQUIVALENTS 95.8 99.9
Beginning cash and equivalents 117.3 113.3
--------- -------
ENDING CASH AND EQUIVALENTS $ 213.1 213.2
========= =======
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 only of normal recurring accruals, except
for those otherwise disclosed. 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,
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, long-term
debt and other liabilities 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. During the third quarter of fiscal 1996, the Company received
regulatory approvals to develop and manufacture equipment used for
temporary and standby power applications with Caterpillar Inc.
Caterpillar has taken an equity position in Emerson's subsidiary,
F.G. Wilson (Engineering) Ltd.
4. Other Financial Information
(Dollars in millions; unaudited)
June 30, September 30,
Inventories 1996 1995
----------- --------- -------
Finished products $ 669.0 587.2
Raw materials and work in process 1,002.7 1,015.4
--------- -------
$ 1,671.7 1,602.6
========= =======
June 30, September 30,
Property, plant and equipment, net 1996 1995
---------------------------------- --------- -------
Property, plant and equipment, at cost $ 4,719.8 4,230.5
Less accumulated depreciation 2,363.8 2,095.6
--------- -------
$ 2,356.0 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 third quarter and
first nine months of fiscal 1996 were the highest for any quarter and
first nine-month period in the Company's history.
Net sales were $2,896.8 million for the quarter ended June 30, 1996,
up 10.2 percent over net sales of $2,629.7 million for the quarter ended
June 30, 1995, and $8,282.4 million for the nine months ended June 30,
1996, up 11.5 percent over net sales of $7,428.4 for the same period a
year ago. The third quarter results reflect solid improvement in the
Appliance and Construction-Related segment, modest sales growth for the
Commercial and Industrial segment, and the contribution of acquisitions
and consolidation of Vermont American Corporation. Domestic sales,
excluding acquisitions, showed solid improvement as this market
strengthened during the quarter. International sales including exports
increased as a result of very strong growth in Asia Pacific and modest
growth in Europe.
In the Appliance and Construction-Related segment, the heating,
ventilating and air-conditioning business reported strong sales growth due
to strengthening domestic demand and continued acceptance of new products.
Strong sales growth in the fractional motors business reflected a
strengthening domestic consumer market. The underlying tools business
reported modest sales growth due to higher Sears demand and the
acceptance of new products. Sales of the appliance components business
were unchanged as improved domestic demand was offset by a sluggish
international market.
In the Commercial and Industrial segment, process business sales growth
reflected continued strength in domestic and international capital goods
demand and recent acquisitions. The electronics business experienced
excellent sales growth due to strong domestic demand, recent acquisitions
and the success of new products. Sales of the industrial motors and
drives business increased modestly as international demand weakened while
sales of the industrial components and equipment business decreased
slightly.
Cost of sales for the third quarter was $1,859.8 million or 64.2
percent of sales, compared with $1,707.0 million, or 64.9 percent of
sales, for the third quarter of 1995. Cost of sales for the nine months
ended June 30, 1996 was $5,331.3 million or 64.4 percent of sales,
compared to $4,834.8 million or 65.1 percent of sales for the same period
a year ago. Selling, general and administrative expenses for the three
months ended June 30, 1996 were $567.1 million, or 19.6 percent of
sales, compared to $498.7 million, or 19.0 percent of sales for the same
period a year ago. For the first nine months of 1996, selling, general
and administrative expenses were $1,628.1 million or 19.6 percent of
sales, compared to $1,416.0 million or 19.0 percent of sales for the same
6
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
period in 1995. Consolidated profit margins improved from the high levels
of the previous year as a result of 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 third quarter as compared to the end of the prior
fiscal year follows:
June 30, September 30,
1996 1995
-------- --------
Working capital (in millions) $ 1,090.1 503.4
Current ratio 1.3 to 1 1.2 to 1
Total debt to total capital 29.6% 24.7%
Net debt to net capital 27.4% 23.3%
The Company's interest coverage ratio (earnings before income taxes,
non-recurring items and interest expense, divided by interest expense)
was 13.3 times for the nine months ended June 30, 1996 compared to 14.1
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. The Company has extended $500
million of its U.S. lines of credit to 2001.
Cash flow provided by operating activities was $682.2 million for the
nine months ended June 30, 1996 versus $556.5 million for the same period
in the prior year. Receivables increased primarily due to sales growth
and minor seasonality. Cash and equivalents increased by $95.8 million
during the nine months ended June 30, 1996. Cash flow provided by
operating activities and an increase in borrowings of $266.2 million were
used primarily to fund capital expenditures of $344.8 million, purchase
businesses (net of cash and equivalents acquired) for $167.8 million, and
pay dividends of $329.4 million. In the first half of the prior year,
$320 million of notes were issued to sellers to partially finance the F.G.
Wilson and Control Techniques acquisitions.
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 on a short and long-term basis.
7
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. 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).
10(1) Third amendment to the Supplemental Executive Savings
Investment Plan filed herewith.
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 June 30, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
EMERSON ELECTRIC CO.
Date: August 14, 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)
8