10-Q: Quarterly report [Sections 13 or 15(d)]
Published on May 14, 1999
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, 1999
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, 1999: 435,249,144 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, 1999 AND 1998
(Dollars in millions except per share amounts; unaudited)
Three Months Six Months
-------------------- -------------------
1999 1998 1999 1998
--------- -------- -------- --------
Net sales $ 3,588.7 3,382.4 7,015.4 6,553.9
--------- -------- -------- --------
Costs and expenses:
Cost of sales 2,309.8 2,159.7 4,521.4 4,189.5
Selling, general and
administrative expenses 698.7 673.3 1,390.1 1,319.7
Interest expense 44.8 39.7 89.7 75.5
Other deductions, net 31.1 29.1 37.5 47.5
--------- -------- -------- --------
Total costs and expenses 3,084.4 2,901.8 6,038.7 5,632.2
--------- -------- -------- --------
Income before income taxes 504.3 480.6 976.7 921.7
Income taxes 178.4 173.0 348.4 331.8
--------- -------- -------- --------
Net earnings $ 325.9 307.6 628.3 589.9
========= ======== ======== ========
Basic earnings per common share $ .75 .70 1.44 1.34
========= ======== ======== ========
Diluted earnings per common share $ .74 .69 1.43 1.33
========= ======== ======== ========
Cash dividends per common share $ .325 .295 .65 .59
========= ======== ======== ========
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 1999 1998
------ --------- --------
CURRENT ASSETS
Cash and equivalents $ 305.6 209.7
Receivables, less allowances of $54.9 and $54.6 2,566.1 2,416.1
Inventories 1,926.2 1,996.5
Other current assets 392.3 379.0
--------- --------
Total current assets 5,190.2 5,001.3
--------- --------
PROPERTY, PLANT AND EQUIPMENT, NET 3,048.2 3,011.6
--------- --------
OTHER ASSETS
Excess of cost over net assets of purchased
businesses 4,004.1 3,702.7
Other 1,013.3 944.2
--------- --------
Total other assets 5,017.4 4,646.9
--------- --------
$13,255.8 12,659.8
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Short-term borrowings and current maturities
of long-term debt $ 2,046.0 1,524.4
Accounts payable 872.3 1,036.7
Accrued expenses 1,242.9 1,252.7
Income taxes 229.5 207.9
--------- --------
Total current liabilities 4,390.7 4,021.7
--------- --------
LONG-TERM DEBT 1,286.3 1,056.6
--------- --------
OTHER LIABILITIES 1,631.7 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 25.1 27.9
Retained earnings 7,400.7 7,056.5
Cumulative translation adjustments (250.4) (236.2)
Cost of common stock in treasury, 41,427,862
shares and 38,452,823 shares (1,466.6) (1,283.2)
--------- --------
Total stockholders' equity 5,947.1 5,803.3
--------- --------
$13,255.8 12,659.8
========= ========
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, 1999 AND 1998
(Dollars in millions; unaudited)
1999 1998
OPERATING ACTIVITIES -------- --------
Net earnings $ 628.3 589.9
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 317.2 279.1
Changes in operating working capital (263.6) (288.7)
Other (35.6) 6.4
-------- --------
Net cash provided by operating activities 646.3 586.7
-------- --------
INVESTING ACTIVITIES
Capital expenditures (267.0) (265.2)
Purchases of businesses,net of cash and
equivalents acquired (536.5) (107.7)
Other, net (27.3) (1.0)
-------- --------
Net cash used in investing activities (830.8) (371.9)
-------- --------
FINANCING ACTIVITIES
Net increase in short-term borrowings 570.7 479.0
Proceeds from long-term debt 426.6 3.4
Principal payments on long-term debt (216.0) (7.6)
Dividends paid (284.1) (260.9)
Net purchases of treasury stock (216.6) (210.9)
-------- --------
Net cash provided by financing activities 280.6 3.0
-------- --------
Effect of exchange rate changes on cash and equivalents (.2) (12.4)
-------- --------
INCREASE IN CASH AND EQUIVALENTS 95.9 205.4
Beginning cash and equivalents 209.7 221.1
-------- --------
ENDING CASH AND EQUIVALENTS $ 305.6 426.5
======== ========
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, 1998.
2. Other Financial Information
(Dollars in millions; unaudited)
March 31, September 30,
1999 1998
Inventories --------- -------
-----------
Finished products $ 816.5 858.6
Raw materials and work in process 1,109.7 1,137.9
--------- -------
$ 1,926.2 1,996.5
========= =======
Property, plant and equipment, net
----------------------------------
Property, plant and equipment, at cost $ 6,241.8 6,070.7
Less accumulated depreciation 3,193.6 3,059.1
--------- -------
$ 3,048.2 3,011.6
========= =======
Other assets, other
-------------------
Equity and other investments $ 241.5 187.9
Retirement plans 217.6 205.9
Leveraged leases 185.7 187.5
Other 368.5 362.9
--------- -------
$ 1,013.3 944.2
========= =======
Other liabilities
-----------------
Minority interest $ 453.6 619.9
Postretirement plans 311.4 292.7
Deferred taxes 306.6 306.6
Other 560.1 559.0
--------- -------
$ 1,631.7 1,778.2
========= =======
5
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
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 and second quarters,
the Company paid $234 million to acquire the remaining ownership
interest in Astec (BSR) Plc.
During the second quarter of 1999, the Company announced that
Caterpillar agreed to acquire the Company's joint venture interest
in F.G. Wilson. The completion of this transaction should occur
in the third quarter. In addition, the Company completed the
acquisition of MagneTek's alternator operations during the third
quarter of 1999.
Subsequent to quarter end, the Company entered into an agreement to
acquire Daniel Industries, Inc. through a cash tender offer of
approximately $460 million. The transaction is subject to regulatory
and other customary conditions. Daniel is a provider of measurement
and control products and services for the oil and gas industry.
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 three months ended March 31,
1999 and 1998, were $242.4 million and $268.4 million, comprised of
net earnings of $325.9 million and $307.6 million and foreign
currency translation adjustments of $(83.5) million and $(39.2)
million, respectively. Nonstockholder changes in equity for the six
months ended March 31, 1999 and 1998, were $614.1 million and $565.7
million, comprised of net earnings of $628.3 million and $589.9
million and foreign currency translation adjustments of $(14.2)
million and $(24.2) million, respectively. 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 434.3 and 440.8 for the three months ended March 31,
1999 and 1998, and 435.1 and 440.0 for the six months ended March 31,
1999 and 1998, respectively. The weighted average number of shares
outstanding assuming dilution (in millions) was 438.5 and 446.2 for
the three months ended March 31, 1999 and 1998, and 439.6 and 445.0
for the six months ended March 31, 1999 and 1998, respectively.
Dilutive shares primarily relate to stock plans.
6
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 1999 were the highest for any quarter and
first six-month period in the Company's history.
Net sales were $3,588.7 million for the quarter ended March 31, 1999,
up 6.1 percent over net sales of $3,382.4 million for the quarter ended
March 31, 1998, and $7,015.4 million for the six months ended March 31,
1999, up 7.0 percent over net sales of $6,553.9 million for the same
period a year ago. Sales growth in the United States has been modest
after a strong performance last year. Europe has also softened relative
to a solid 1998, and the remaining international regions have stabilized
after a difficult 1998.
In the Commercial and Industrial segment, sales in the electronics
business increased significantly due to the contributions of Advanced
Power Systems and Hiross, recent acquisitions that expand Emerson's
position in the telecommunications equipment market. Despite softness
associated with recent low oil prices, the process business experienced a
strong increase in sales compared with the 1998 period, driven by the
Westinghouse Process Control acquisition. The industrial motors and
drives business experienced a modest sales decrease driven by weak
capital goods markets worldwide. The industrial components and equipment
business reported a slight increase in sales over a solid performance
last year due to recent acquisitions that broadened product offerings.
In the Appliance and Construction-Related segment, the heating,
ventilating and air conditioning business continued to achieve very
strong sales growth, driven by demand for residential and light
commercial air conditioning products in the United States and China.
Sales of the underlying tools business increased, benefiting from strong
demand for the ClosetMaid (TM) line of home storage products and
increased demand for In-Sink-Erator (TM) waste disposers. The fractional
motors and appliance components business reported a modest increase in
sales after a very strong 1998, driven by recent acquisitions and higher
demand in the United States.
Cost of sales for the second quarter was $2,309.8 million or 64.4 percent
of sales, compared with $2,159.7 million, or 63.9 percent of sales,
for the second quarter of 1998. Cost of sales for the six months ended
March 31, 1999, was $4,521.4 million or 64.5 percent of sales, compared
to $4,189.5 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, 1999, were $698.7 million, or 19.4 percent of sales,
compared to $673.3 million, or 19.9 percent of sales for the same period
a year ago. For the first six months of 1999, selling, general and
administrative expenses were $1,390.1 million or 19.8 percent of sales,
compared to $1,319.7 million or 20.2 percent of sales for the same period
in 1998. Solid underlying profit improvement and rapid integration of
several lower-margin acquisitions enabled the Company to maintain profit
margins in line with 1998 results.
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,
1999 1998
-------- --------
Working capital (in millions) $ 799.5 $ 979.6
Current ratio 1.2 to 1 1.2 to 1
Total debt to total capital 35.9% 30.8%
Net debt to net capital 33.7% 29.0%
The Company's interest coverage ratio (earnings before income taxes
and interest expense, divided by interest expense) was 11.9 times for the
six months ended March 31, 1999, compared to 13.2 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 second
quarter of fiscal 1999, the Company issued $250 million of 5.85%, 10-year
notes and $250 million of 5.125%, 1-year notes. The notes were
simultaneously swapped to floating U.S. commercial paper rates.
Cash and equivalents increased by $95.9 million during the six months
ended March 31, 1999. Cash flow provided by operating activities of
$646.3 million and a net increase in borrowings of $781.3 million were
used primarily to fund purchases of businesses of $536.5 million, pay
dividends of $284.1 million, fund capital expenditures of $267.0 million,
and fund net purchases of treasury stock of $216.6 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.
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 80 percent of critical systems completed. 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.
8
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of Stockholders on February 2, 1999, a
matter described in the Notice of Annual Meeting of Stockholders dated
December 15, 1998, was voted upon.
The directors listed below were elected for terms ending in 2002 with
voting for each as follows:
DIRECTOR FOR WITHHELD
------------------- ----------- ----------
D. C. Farrell 354,369,225 23,069,282
J. A. Frates 354,328,065 23,110,442
C. F. Knight 354,562,745 22,875,762
R. B. Loynd 354,178,492 23,260,015
R. W. Staley 354,627,934 22,810,573
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).
10(j) Fifth Amendment to the Supplemental Executive Savings
Investment Plan, filed herewith.
12 Computation of Ratio of Earnings to Fixed Charges
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, 1999.
9
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 14, 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)
10