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, 2006
OR
o
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
(State
or other jurisdiction of
incorporation
or organization)
|
|
43-0259330
(I.R.S.
Employer
Identification
No.)
|
|
|
|
8000
W. Florissant Ave.
P.O.
Box 4100
St.
Louis, Missouri
(Address
of principal executive offices)
|
|
63136
(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 (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
Accelerated Filer x Accelerated
Filer o Non-Accelerated
Filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No
x
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date. Common stock of $0.50 par value
per
share outstanding at January 31, 2007: 797,892,707 shares.
PART
I. FINANCIAL INFORMATION
Item
1. Financial Statements.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF EARNINGS
THREE
MONTHS ENDED DECEMBER 31, 2005 AND 2006
(Dollars
in millions, except per share amounts; unaudited)
|
|
|
|
|
|
|
|
Three
Months Ended
December
31,
|
|
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
4,548
|
|
|
5,051
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
2,955
|
|
|
3,256
|
|
Selling,
general and administrative expenses
|
|
|
950
|
|
|
1,078
|
|
Other
deductions, net
|
|
|
23
|
|
|
19
|
|
Interest
expense (net of interest income of $5
and $7, respectively)
|
|
|
50
|
|
|
58
|
|
|
|
|
|
|
|
|
|
Earnings
before income taxes
|
|
|
570
|
|
|
640
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
171
|
|
|
195
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
399
|
|
|
445
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$
|
0.49
|
|
|
0.56
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share
|
|
$
|
0.48
|
|
|
0.55
|
|
|
|
|
|
|
|
|
|
Cash
dividends per common share
|
|
$
|
0.2225
|
|
|
0.2625
|
|
See
accompanying Notes to Consolidated Financial Statements.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Dollars
in millions, except per share amounts; unaudited)
|
|
September
30,
|
|
December
31,
|
|
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash
and equivalents
|
|
$
|
810
|
|
|
1,090
|
|
Receivables,
less allowances of $74
and $73, respectively
|
|
|
3,716
|
|
|
3,673
|
|
Inventories
|
|
|
2,222
|
|
|
2,410
|
|
Other
current assets
|
|
|
582
|
|
|
573
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
7,330
|
|
|
7,746
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
3,220
|
|
|
3,220
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
|
|
|
|
|
Goodwill
|
|
|
6,013
|
|
|
6,077
|
|
Other
|
|
|
2,109
|
|
|
2,060
|
|
|
|
|
|
|
|
|
|
Total
other assets
|
|
|
8,122
|
|
|
8,137
|
|
|
|
$
|
18,672
|
|
|
19,103
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Short-term
borrowings and current maturities
of long-term debt
|
|
$
|
898
|
|
|
1,167
|
|
Accounts
payable
|
|
|
2,305
|
|
|
2,086
|
|
Accrued
expenses
|
|
|
1,933
|
|
|
1,951
|
|
Income
taxes
|
|
|
238
|
|
|
322
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
5,374
|
|
|
5,526
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
3,128
|
|
|
3,375
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
2,016
|
|
|
1,996
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
Preferred
stock of $2.50 par value per share
|
|
|
|
|
|
|
|
Authorized
5,400,000 shares; issued - none
|
|
|
-
|
|
|
-
|
|
Common
stock of $0.50 par value per share
|
|
|
|
|
|
|
|
Authorized
1,200,000,000 shares; issued 953,354,012 shares;
|
|
|
|
|
|
|
|
outstanding
804,693,798 shares and 799,032,568 shares, respectively
|
|
|
238
|
|
|
477
|
|
Additional
paid-in capital
|
|
|
161
|
|
|
4
|
|
Retained
earnings
|
|
|
11,314
|
|
|
11,471
|
|
Accumulated
other comprehensive income
|
|
|
306
|
|
|
376
|
|
Cost
of common stock in treasury, 148,660,214 shares
|
|
|
|
|
|
|
|
and
154,321,444 shares, respectively
|
|
|
(3,865
|
)
|
|
(4,122
|
)
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
8,154
|
|
|
8,206
|
|
|
|
$
|
18,672
|
|
|
19,103
|
|
See
accompanying Notes to Consolidated Financial Statements.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
THREE
MONTHS ENDED DECEMBER 31, 2005 AND 2006
(Dollars
in millions; unaudited)
|
|
Three
Months Ended
|
|
|
|
December
31,
|
|
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
Net
earnings
|
|
$
|
399
|
|
|
445
|
|
Adjustments
to reconcile net earnings to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
141
|
|
|
161
|
|
Changes
in operating working capital
|
|
|
(263
|
)
|
|
(327
|
)
|
Other
|
|
|
42
|
|
|
48
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
319
|
|
|
327
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(101
|
)
|
|
(121
|
)
|
Purchases
of businesses, net of cash and equivalents acquired
|
|
|
(57
|
)
|
|
-
|
|
Other
|
|
|
(5
|
)
|
|
43
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(163
|
)
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
Net
increase (decrease) in short-term borrowings
|
|
|
(262
|
)
|
|
270
|
|
Proceeds
from long-term debt
|
|
|
-
|
|
|
248
|
|
Principal
payments on long-term debt
|
|
|
(254
|
)
|
|
(1
|
)
|
Dividends
paid
|
|
|
(183
|
)
|
|
(211
|
)
|
Purchases
of treasury stock
|
|
|
(41
|
)
|
|
(283
|
)
|
Other
|
|
|
(17
|
)
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
(757
|
)
|
|
17
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and equivalents
|
|
|
(8
|
)
|
|
14
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and equivalents
|
|
|
(609
|
)
|
|
280
|
|
|
|
|
|
|
|
|
|
Beginning
cash and equivalents
|
|
|
1,233
|
|
|
810
|
|
|
|
|
|
|
|
|
|
Ending
cash and equivalents
|
|
$
|
624
|
|
|
1,090
|
|
|
|
|
|
|
|
|
|
Changes
in operating working capital
|
|
|
|
|
|
|
|
Receivables
|
|
$
|
24
|
|
|
67
|
|
Inventories
|
|
|
(125
|
)
|
|
(174
|
)
|
Other
current assets
|
|
|
55
|
|
|
6
|
|
Accounts
payable
|
|
|
(90
|
)
|
|
(227
|
)
|
Accrued
expenses
|
|
|
(111
|
)
|
|
(90
|
)
|
Income
taxes
|
|
|
(16
|
)
|
|
91
|
|
|
|
$
|
(263
|
)
|
|
(327
|
)
|
See
accompanying Notes to Consolidated Financial Statements.
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 for
annual
financial statements presented in conformity with U.S. 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, 2006.
|
2. |
On
December 11, 2006, a two-for-one split of the Company’s common stock was
effected in the form of a 100 percent stock dividend (shares began
trading
on a post-split basis on December 12, 2006). This stock split resulted
in
the issuance of approximately 476.7 million additional shares of
common
stock and was accounted for by the transfer of approximately $161
million
from additional paid-in capital and $77 million from retained earnings
to
common stock. All share and per share data have been retroactively
restated to reflect this split.
|
3. |
Reconciliations
of weighted average common shares for basic earnings per common share
and
diluted earnings per common share follow (shares in
millions):
|
|
|
Three
Months Ended
|
|
|
|
December
31,
|
|
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
Basic
|
|
|
819.6
|
|
|
799.4
|
|
Dilutive
shares
|
|
|
7.6
|
|
|
9.1
|
|
Diluted
|
|
|
827.2
|
|
|
808.5
|
|
4. |
Comprehensive
income is summarized as follows (dollars in
millions):
|
|
|
Three
Months Ended
|
|
|
|
December
31,
|
|
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
399
|
|
|
445
|
|
Changes
in foreign currency translation, cash
flow hedges and other
|
|
|
(20
|
)
|
|
70
|
|
|
|
$
|
379
|
|
|
515
|
|
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
5. |
Other
Financial Information (dollars in
millions):
|
|
|
September
30,
|
|
December
31,
|
|
|
|
2006
|
|
2006
|
|
Inventories
|
|
|
|
|
|
Finished
products
|
|
$
|
887
|
|
|
1,001
|
|
Raw
materials and work in process
|
|
|
1,335
|
|
|
1,409
|
|
|
|
$
|
2,222
|
|
|
2,410
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
|
|
|
|
|
Property,
plant and equipment, at cost
|
|
$
|
7,889
|
|
|
8,008
|
|
Less
accumulated depreciation
|
|
|
4,669
|
|
|
4,788
|
|
|
|
$
|
3,220
|
|
|
3,220
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
Process
Management
|
|
$
|
1,778
|
|
|
1,795
|
|
Industrial
Automation
|
|
|
1,016
|
|
|
1,051
|
|
Network
Power
|
|
|
2,162
|
|
|
2,169
|
|
Climate
Technologies
|
|
|
408
|
|
|
410
|
|
Appliance
and Tools
|
|
|
649
|
|
|
652
|
|
|
|
$
|
6,013
|
|
|
6,077
|
|
Changes
in the goodwill balances since September 30, 2006, are primarily due to the
translation of non-U.S. currencies to the U.S. dollar.
Other
assets, other
|
|
|
|
|
|
Pension
plans
|
|
$
|
1,037
|
|
|
1,029
|
|
Intellectual
property and customer relationships
|
|
|
470
|
|
|
462
|
|
Equity
and other investments
|
|
|
171
|
|
|
133
|
|
Capitalized
software
|
|
|
163
|
|
|
163
|
|
Leveraged
leases
|
|
|
109
|
|
|
109
|
|
Other
|
|
|
159
|
|
|
164
|
|
|
|
$
|
2,109
|
|
|
2,060
|
|
|
|
|
|
|
|
|
|
Product
warranty liability
|
|
$
|
206
|
|
|
190
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
$
|
724
|
|
|
746
|
|
Postretirement
plans, excluding current portion
|
|
|
371
|
|
|
377
|
|
Retirement
plans
|
|
|
253
|
|
|
259
|
|
Minority
interest
|
|
|
176
|
|
|
173
|
|
Other
|
|
|
492
|
|
|
441
|
|
|
|
$
|
2,016
|
|
|
1,996
|
|
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
6. |
Net
periodic pension expense is summarized as follows (dollars in
millions):
|
|
|
Three
Months Ended
|
|
|
|
December
31,
|
|
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
20
|
|
|
16
|
|
Interest
cost
|
|
|
44
|
|
|
49
|
|
Expected
return on plan assets
|
|
|
(57
|
)
|
|
(63
|
)
|
Net
amortization
|
|
|
29
|
|
|
25
|
|
|
|
$
|
36
|
|
|
27
|
|
Net
postretirement plan expense is summarized as follows (dollars in
millions):
|
|
Three
Months Ended
|
|
|
|
December
31,
|
|
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
2
|
|
|
1
|
|
Interest
cost
|
|
|
6
|
|
|
7
|
|
Net
amortization
|
|
|
7
|
|
|
7
|
|
|
|
$
|
15
|
|
|
15
|
|
7. |
Other
deductions, net are summarized as follows (dollars in
millions):
|
|
|
Three
Months Ended
|
|
|
|
December
31,
|
|
|
|
2005
|
|
2006
|
|
Other
deductions, net
|
|
|
|
|
|
|
|
Rationalization
of operations
|
|
$
|
12
|
|
|
16
|
|
Amortization
of intangibles
|
|
|
9
|
|
|
14
|
|
Other
|
|
|
26
|
|
|
31
|
|
Gains
|
|
|
(24
|
)
|
|
(42
|
)
|
|
|
$
|
23
|
|
|
19
|
|
For
the
three months ended December 31, 2006 and 2005, the Company recorded gains of
approximately $24 million and $18 million, respectively, for payments received
under the U.S. Continued Dumping and Subsidy Offset Act. During
the three months ended December 31, 2006, the Company sold approximately 2.2
million shares of MKS Instruments, Inc. (MKS), a publicly-traded company, and
held approximately 2.3 million shares at December 31, 2006; the Company recorded
a pretax gain of $13 million on these sales.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
8. |
The
change in the liability for rationalization of operations during
the three
months ended December 31, 2006, follows (dollars in
millions):
|
|
|
September
30,
|
|
|
|
|
|
December
31,
|
|
|
|
2006
|
|
Expense
|
|
Paid
/ Utilized
|
|
2006
|
|
Severance
and benefits
|
|
$
|
31
|
|
|
8
|
|
|
11
|
|
|
28
|
|
Lease/contract
terminations
|
|
|
12
|
|
|
1
|
|
|
3
|
|
|
10
|
|
Vacant
facility and other shutdown
costs
|
|
|
1
|
|
|
2
|
|
|
2
|
|
|
1
|
|
Start-up
and moving costs
|
|
|
1
|
|
|
5
|
|
|
5
|
|
|
1
|
|
|
|
$
|
45
|
|
|
16
|
|
|
21
|
|
|
40
|
|
Rationalization
of operations by business segment is summarized as follows (dollars in
millions):
|
|
Three
Months Ended December 31,
|
|
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
Process
Management
|
|
$
|
2
|
|
|
2
|
|
Industrial
Automation
|
|
|
2
|
|
|
3
|
|
Network
Power
|
|
|
3
|
|
|
4
|
|
Climate
Technologies
|
|
|
1
|
|
|
3
|
|
Appliance
and Tools
|
|
|
4
|
|
|
4
|
|
|
|
$
|
12
|
|
|
16
|
|
During
the first quarter of 2007, rationalization actions included the following.
Industrial Automation included severance and start-up and moving costs related
to the consolidation of certain power transmission facilities in Asia to obtain
operational efficiencies. Network
Power included severance related to the closure of certain power conversion
facilities acquired with Artesyn, as well as start-up and moving costs related
to the shifting of certain power systems production from the United States
to
Mexico to remain competitive on a global basis. Climate Technologies included
start-up costs related to capacity expansion in Mexico and Eastern Europe and
start-up and moving costs related to the consolidation of certain production
facilities in the United States to improve profitability.
Including
the $16 million of rationalization costs incurred during the three months ended
December 31, 2006, the Company expects rationalization expense for the entire
2007 fiscal year to total approximately $85 million to $100 million, including
the costs to complete actions initiated before the end of the first quarter
and
actions anticipated to be approved and initiated during the remainder of the
year.
Rationalization
actions during the first quarter of 2006 included the following. Industrial
Automation included start-up and moving costs related to shifting certain motor
production in Western Europe to Eastern Europe, China and Mexico to leverage
costs and remain competitive on a global basis. Network Power included mainly
severance and vacant facility costs related to the consolidation of certain
power systems operations in North America and the consolidation of
administrative facilities in Europe to obtain operational synergies. Appliance
and Tools included start-up and moving costs related to the shifting of certain
tool and motor manufacturing operations from the United States and Western
Europe to China and Mexico in order to consolidate facilities and improve
profitability.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
9. |
Summarized
information about the Company's operations by business segment follows
(dollars in millions):
|
|
|
Sales
|
|
Earnings
|
|
Three
months ended December 31,
|
|
2005
|
|
2006
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Process
Management
|
|
$
|
1,097
|
|
|
1,218
|
|
|
176
|
|
|
217
|
|
Industrial
Automation
|
|
|
860
|
|
|
994
|
|
|
143
|
|
|
166
|
|
Network
Power
|
|
|
939
|
|
|
1,199
|
|
|
108
|
|
|
117
|
|
Climate
Technologies
|
|
|
748
|
|
|
688
|
|
|
102
|
|
|
90
|
|
Appliance
and Tools
|
|
|
1,040
|
|
|
1,088
|
|
|
120
|
|
|
133
|
|
|
|
|
4,684
|
|
|
5,187
|
|
|
649
|
|
|
723
|
|
Differences
in accounting methods
|
|
|
|
|
|
|
|
|
40
|
|
|
48
|
|
Corporate
and other
|
|
|
|
|
|
|
|
|
(69
|
)
|
|
(73
|
)
|
Eliminations/Interest
|
|
|
(136
|
)
|
|
(136
|
)
|
|
(50
|
)
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales/Earnings before income taxes
|
|
$
|
4,548
|
|
|
5,051
|
|
|
570
|
|
|
640
|
|
Intersegment
sales of the Appliance and Tools segment for the three months ended December
31,
2006 and 2005, respectively, were $113 million and $117 million.
10. |
In
January 2007, the Company acquired Damcos Holding AS (Damcos) for
approximately $214 million (net of cash and equivalents acquired
and
including assumed debt of approximately $50 million). Damcos
supplies valve remote controls and tank monitoring equipment to the
marine
and shipbuilding industries. Damcos has annual revenues of
approximately $90 million and will be included in the Process Management
segment.
|
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
Items
2 and 3. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
OVERVIEW
The
first
quarter of fiscal 2007 was strong, with sales and earnings for four of the
five
business segments increasing over the prior year period. The Network Power,
Industrial Automation and Process Management businesses drove gains as
international demand expanded during the first quarter. Strong growth in Asia
and Europe, 2006 acquisitions and favorable foreign currency translation
contributed to the first quarter results. Emerson's financial position remains
strong and the Company continues to generate substantial cash flow.
THREE
MONTHS ENDED DECEMBER 31, 2006, COMPARED WITH THREE MONTHS ENDED
DECEMBER
31, 2005
RESULTS
OF OPERATIONS
Three
months ended December 31,
|
|
2005
|
|
2006
|
|
Change
|
|
(dollars
in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
4,548
|
|
|
5,051
|
|
|
11
|
%
|
Gross
profit
|
|
$
|
1,593
|
|
|
1,795
|
|
|
13
|
%
|
Percent
of sales
|
|
|
35.0
|
%
|
|
35.5
|
%
|
|
|
|
SG&A
|
|
$
|
950
|
|
|
1,078
|
|
|
|
|
Percent
of sales
|
|
|
20.9
|
%
|
|
21.3
|
%
|
|
|
|
Other
deductions, net
|
|
$
|
23
|
|
|
19
|
|
|
|
|
Interest
expense, net
|
|
$
|
50
|
|
|
58
|
|
|
|
|
Earnings
before income taxes
|
|
$
|
570
|
|
|
640
|
|
|
12
|
%
|
Net
earnings
|
|
$
|
399
|
|
|
445
|
|
|
12
|
%
|
Percent
of sales
|
|
|
8.8
|
%
|
|
8.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS
|
|
$
|
0.48
|
|
|
0.55
|
|
|
15
|
%
|
Net
sales
for the quarter ended December 31, 2006 were $5,051 million, an increase of
$503
million, or 11 percent, over net sales of $4,548 million for the quarter ended
December 31, 2005, with international sales leading the overall growth. The
consolidated results reflect increases in four of the five business segments,
with a 4 percent ($187 million) increase in underlying sales (which exclude
acquisitions, divestitures and foreign currency translation), a 5 percent ($218
million) positive impact from acquisitions, net of divestitures, and a 2 percent
($98 million) favorable impact from foreign currency translation. The underlying
sales increase of 4 percent for the first quarter was driven by an 11 percent
increase in total international sales partially offset by a 2 percent decrease
in the United States. The international sales growth reflects strong
international demand in all of the segments, driven by increases in Asia (14
percent) and Europe (9 percent). The decline in the United States was primarily
attributable to the Climate Technologies segment, which reflects the efficiency
standard change in the prior year. The Company estimates that the underlying
growth primarily reflects a nearly 2 percent impact from higher sales prices,
a
more than 1 percent gain from volume and a 1 percent impact from penetration
gains.
Cost
of
sales for the first quarters of fiscal 2007 and 2006 were $3,256 million and
$2,955 million, respectively. Cost of sales as a percent of net sales was 64.5
percent in the first quarter of 2007, compared with 65.0 percent in the first
quarter of 2006. Gross profit was $1,795 million and $1,593 million for the
first quarters ended December 31, 2006 and 2005, respectively, resulting in
gross profit margins of 35.5 percent and 35.0 percent. The increase in the
gross
profit margin primarily reflects higher sales prices and benefits realized
from
productivity improvements, which were substantially offset by higher raw
material costs.
Selling,
general and administrative (SG&A) expenses for the first quarter of 2007
were $1,078 million, or 21.3 percent of net sales, compared with $950 million,
or 20.9 percent of net sales, for the first quarter of 2006. The increase of
$128 million was largely due to the increase in variable costs on higher sales.
The increase in SG&A as a percent of sales was primarily the result of
higher compensation costs, as well as other inflationary pressures.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
Other
deductions, net were $19 million for the first quarter of 2007, a $4 million
decrease from the $23 million for the same period in the prior year. For the
three months ended December 31, 2006, the Company recorded a pretax gain of
approximately $13 million related to the sale of shares of MKS. For the three
months ended December 31, 2006, ongoing costs for the rationalization of
operations were $16 million, compared to $12 million in the prior year period,
which reflects a higher level of activity as the Company integrates
acquisitions. See notes 7 and 8 for further details regarding other deductions,
net and rationalization costs.
Earnings
before income taxes for the first quarter of 2007 increased $70 million, or
12
percent, to $640 million, compared to $570 million for the first quarter of
2006. The earnings results predominantly reflect increases of $41 million in
the
Process Management and $23 million in the Industrial Automation business
segments.
Income
taxes were $195 million and $171 million for the three months ended December
31,
2006 and 2005, respectively, resulting in effective tax rates of 30 percent
for
both periods. The effective tax rate for the entire fiscal year 2007 is
currently estimated to be 31 percent to 32 percent.
Net
earnings were $445 million and earnings per share were $0.55 for the three
months ended December 31, 2006, increases of 12 percent and 15 percent,
respectively, compared to $399 million and $0.48 for the three months ended
December 31, 2005. The 15 percent increase in earnings per share also reflects
the purchase of treasury shares.
BUSINESS
SEGMENTS
Process
Management
Three
months ended December 31,
|
|
2005
|
|
2006
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,097
|
|
|
1,218
|
|
|
11
|
%
|
Earnings
|
|
$
|
176
|
|
|
217
|
|
|
23
|
%
|
Margin
|
|
|
16.1
|
%
|
|
17.8
|
%
|
|
|
|
Process
Management sales were $1,218 million in the first quarter of fiscal 2007, an
increase of 11 percent over the prior year period, as this segment continues
to
grow internationally. Nearly all of the businesses reported higher
sales, with
sales and earnings (defined as earnings before interest and taxes for the
business segments discussion) particularly strong for the systems, measurement
and valves businesses, primarily due to continued demand in the energy markets,
particularly power, and oil and gas. Underlying sales increased 6 percent
primarily reflecting volume, while favorable foreign currency translation added
3 percent ($32 million) and the Bristol acquisition contributed 2 percent ($22
million). The underlying sales increase reflects growth in Asia (6 percent)
and
in the Middle East (70 percent) from a smaller base compared with the prior
year
period, while sales in the United States increased 3 percent. First quarter
earnings increased 23 percent to $217 million from $176 million in the prior
year period, reflecting higher sales volume, as well as acquisitions. The margin
increase also reflects leverage on the higher volume and favorable product
mix.
A slight increase in sales prices and material cost containment were more than
offset by higher wage costs.
Industrial
Automation
Three
months ended December 31,
|
|
2005
|
|
2006
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
860
|
|
|
994
|
|
|
16
|
%
|
Earnings
|
|
$
|
143
|
|
|
166
|
|
|
16
|
%
|
Margin
|
|
|
16.6
|
%
|
|
16.7
|
%
|
|
|
|
Sales
rose 16 percent to $994 million in the Industrial Automation segment for the
three months ended December 31, 2006, reflecting sales growth in all of the
businesses and in nearly all of the major geographic regions. The first quarter
results were driven by continued strength in the power generating alternator
and
electronic drives businesses. Underlying sales grew 11 percent, foreign currency
translation had an approximate 4 percent ($28 million) favorable impact and
acquisitions, net of divestitures, added approximately 1 percent ($10 million).
The underlying growth reflects both increased global industrial demand and
an
estimated 3 percent positive impact from price and penetration gains. The
underlying sales increase included 6 percent growth in the United States and
15
percent internationally. The increase in international sales primarily reflects
growth in Europe (15 percent) and Asia (18 percent). Earnings were $166 million,
an increase of 16 percent, in line with sales growth. The increase reflects
higher sales volume and increased sales prices which were substantially offset
by higher material costs. The earnings increase was aided by a $24 million
payment received by the power transmission business from dumping duties related
to the U.S. Continued Dumping and Subsidy Offset Act in the current quarter,
compared with an $18 million payment received in the prior year first quarter.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
Network
Power
Three
months ended December 31,
|
|
2005
|
|
2006
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
939
|
|
|
1,199
|
|
|
28
|
%
|
Earnings
|
|
$
|
108
|
|
|
117
|
|
|
9
|
%
|
Margin
|
|
|
11.5
|
%
|
|
9.8
|
%
|
|
|
|
Sales
in
the Network Power segment increased 28 percent to $1,199 million for the first
quarter of 2007 compared to the prior year period, reflecting continued strength
in the power systems, embedded power and precision cooling businesses. The
sales
increase reflects an underlying sales growth of 9 percent, a 17 percent ($162
million) contribution from the Artesyn and Knürr acquisitions, net of
divestitures, and a 2 percent ($17 million) favorable impact from foreign
currency translation. The underlying sales increase of 9 percent primarily
reflects higher volume and was also aided by penetration gains, partially offset
by slightly lower prices. Geographically, underlying sales reflect a 6 percent
increase in the United States and 21 percent growth in Asia (primarily China),
while sales in Europe were flat. The growth in the United States reflects
substantial investment in data room construction and non-residential computer
equipment which was partially offset by weakness in the North American
telecommunications power market. The Company’s market penetration in China and
other Asian markets continued. Earnings of $117 million increased $9 million,
or
9 percent, from the prior year period primarily due to higher sales volume.
The
margin was primarily diluted by the Artesyn acquisition, higher wage costs,
as
well as declines in sales prices.
Climate
Technologies
Three
months ended December 31,
|
|
2005
|
|
2006
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
748
|
|
|
688
|
|
|
(8
|
%)
|
Earnings
|
|
$
|
102
|
|
|
90
|
|
|
(13
|
%)
|
Margin
|
|
|
13.7
|
%
|
|
13.0
|
%
|
|
|
|
Climate
Technologies sales decreased 8 percent to $688 million for the quarter ended
December 31, 2006. The sales decrease was driven by an 11 percent decline in
underlying sales partially offset by a 2 percent ($13 million) contribution
from
acquisitions and a 1 percent ($8 million) favorable impact from foreign currency
translation. The underlying sales decline was net of an approximate 4 percent
growth impact from penetration gains and higher sales prices. The decrease
in
sales is primarily attributable to tough comparisons, since the first quarter
of
fiscal 2006 included approximately $100 million of purchases of legacy products
in anticipation of the efficiency standard change in the United States that
became effective on January 23, 2006. The decline also reflects slowing
construction rates in the United States. However, international sales increased
13 percent reflecting growth in Europe (33 percent) and Asia (11 percent)
compared with the prior year period. Earnings decreased 13 percent during the
quarter to $90 million primarily due to lower sales volume. The profit margin
was negatively impacted as higher material and wage costs more than offset
sales
price increases while favorable product mix and benefits from prior cost
reduction initiatives were partially offset by deleverage on lower sales
volumes.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
Appliance
and Tools
Three
months ended December 31,
|
|
2005
|
|
2006
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,040
|
|
|
1,088
|
|
|
5
|
%
|
Earnings
|
|
$
|
120
|
|
|
133
|
|
|
11
|
%
|
Margin
|
|
|
11.5
|
%
|
|
12.2
|
%
|
|
|
|
The
Appliance and Tools segment sales increased 5 percent to $1,088 million in
the
first quarter of 2007. This increase reflects more than 2 percent growth in
underlying sales, a more than 1 percent ($13 million) favorable impact from
foreign currency translation and a more than 1 percent ($11 million)
contribution from acquisitions. The first quarter results were mixed across
the
businesses. Strong growth in the tools and storage businesses reflects higher
demand at major retailers. The motors and appliance components businesses
declined, reflecting weakness in the United States for industrial and hermetic
motors and electromechanical appliance controls. The underlying sales increase
of more than 2 percent reflects an approximate 5 percent positive impact from
price and an estimated 3 percent decline in volume. Total international
underlying sales grew approximately 11 percent during the quarter, while
underlying sales in the United States were flat. Earnings were $133 million,
an
increase of 11 percent compared to the prior year period. The overall increase
in margin primarily reflects savings from prior cost reduction efforts partially
offset by deleverage on lower volume in motors and appliance components.
Higher
sales prices were offset by higher raw material costs (particularly copper
and
steel in the motors business).
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:
|
|
September
30,
|
|
December
31,
|
|
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
Working
capital (in millions)
|
|
$
|
1,956
|
|
|
2,220
|
|
Current
ratio
|
|
|
1.4
to 1
|
|
|
1.4
to 1
|
|
Total
debt to total capital
|
|
|
33.1
|
%
|
|
35.6
|
%
|
Net
debt to net capital
|
|
|
28.1
|
%
|
|
29.4
|
%
|
The
ratio
of total debt to total capital has increased to 35.6 percent, or 3.6 percentage
points above the 32.0
percent ratio for the prior year first quarter. The Company's long-term debt
is
rated A2 by Moody's Investors Service and A by Standard and Poor's. The
Company's interest coverage ratio (earnings before income taxes and interest
expense, divided by interest expense) was 10.8 times for the three months ended
December 31, 2006, compared to 11.3 times for the same period in the prior
year
primarily due to higher average borrowings.
Cash
and
equivalents increased by $280 million during the three months ended December
31,
2006. During the first quarter of 2007, the Company issued $250 million of
5.125%, ten-year notes under a shelf registration statement filed with the
Securities and Exchange Commission. Cash flow provided by operating activities
of $327 million was up $8 million compared to $319 million in the prior year
period. Operating cash flow, the net increase in short-term borrowings of $270
million and the $248 million of proceeds from long-term debt were used primarily
to fund treasury stock purchases of $283 million, pay dividends of $211 million
and fund capital expenditures of $121 million. For the three months ended
December 31, 2006, free cash flow of $206 million (operating cash flow of $327
million less capital expenditures of $121 million) was down 6 percent from
free
cash flow of $218 million (operating cash flow of $319 million less capital
expenditures of $101 million) for the same period in the prior year, primarily
due to higher capital expenditures in the current quarter as compared to the
prior year period.
The
Company is in a strong financial position, with total assets of $19 billion
and
stockholders' equity of $8 billion, and has the resources available for
reinvestment in existing businesses, strategic acquisitions and managing the
capital structure on a short- and long-term basis.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
OUTLOOK
The
outlook for Emerson remains positive for fiscal 2007. Underlying sales growth
for fiscal 2007 is expected to be in the range of 5 percent to 7 percent, which
excludes the expected 3 percent to 4 percent favorable impact from foreign
currency translation, acquisitions and divestitures. Reported sales growth
is
expected to be in the range of 8 percent to 11 percent. Based on this level
of
sales growth, the Company expects to generate 2007 earnings per share in the
range of $2.50 to $2.60, which would represent growth in the range of 12 percent
to 16 percent above the $2.24 per share earned in fiscal 2006. Rationalization
of operations expense is estimated to be approximately $85 million to $100
million for fiscal 2007. Operating cash flow is estimated at approximately
$2.7
billion and capital expenditures are estimated to be $0.7 billion for
2007.
Statements
in this report that are not strictly historical may be "forward-looking"
statements, which involve risks and uncertainties, and Emerson undertakes no
obligation to update any such statement to reflect later developments. These
include economic and currency conditions, market demand, pricing, and
competitive and technological factors, among others which are set forth in
the
“Risk Factors” of Part I, Item 1, and the "Safe Harbor Statement" of Exhibit 13,
to the Company's Annual Report on Form 10-K for the year ended September 30,
2006, which are hereby incorporated by reference.
Item
4. Controls and Procedures
Emerson
maintains a system of disclosure controls and procedures which are designed
to
ensure that information required to be disclosed by the Company in the reports
filed or submitted under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms and is accumulated and communicated to management,
including the Company’s certifying officers, as appropriate to allow timely
decisions regarding required disclosure. Based on an evaluation performed,
the
Company's certifying officers have concluded that the disclosure controls and
procedures were effective as of December 31, 2006, to provide reasonable
assurance of the achievement of these objectives.
Notwithstanding
the foregoing, there can be no assurance that the Company's disclosure controls
and procedures will detect or uncover all failures of persons within the Company
and its consolidated subsidiaries to report material information otherwise
required to be set forth in the Company's reports.
There
was
no change in the Company's internal control over financial reporting during
the
quarter ended December
31, 2006, that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial
reporting.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
PART
II. OTHER INFORMATION
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
(c) Issuer
Purchases of Equity Securities.
Period
|
|
(a)
Total Number of Shares Purchased
(000s)
|
|
(b)
Average Price Paid
per Share
|
|
(c)
Total Number of Shares Purchased as Part of Publicly Announced Plans
or Programs (000s)
|
|
(d)
Maximum Number of Shares that May Yet Be Purchased Under the
Plans
or Programs (000s)
|
|
October
2006
|
|
|
2,600
|
|
$
|
42.32
|
|
|
2,600
|
|
|
31,073
|
|
November
2006
|
|
|
2,227
|
|
$
|
43.26
|
|
|
2,227
|
|
|
28,846
|
|
December
2006
|
|
|
1,550
|
|
$
|
43.27
|
|
|
1,550
|
|
|
27,296
|
|
Total
|
|
|
6,377
|
|
$
|
42.88
|
|
|
6,377
|
|
|
27,296
|
|
The
amounts above reflect the Company’s December 2006 two-for-one stock split. See
Note 2 of the Notes to Consolidated Financial Statements for additional
information. The Company’s Board of Directors authorized the repurchase of up to
80 million shares under the November 2001 program, as adjusted for the stock
split. The maximum number of shares that may yet be purchased under this program
is 27.3 million as of December 31, 2006.
Item
6. Exhibits.
(a) |
Exhibits
(Listed by numbers corresponding to the Exhibit Table of Item 601
in
Regulation S-K).
|
|
4 |
Emerson
agrees to furnish to the Securities and Exchange Commission,
upon request,
copies of any long-term debt instruments that authorize an amount
of
securities constituting 10 percent or less of the total assets
of Emerson
and its subsidiaries on a consolidated
basis.
|
|
12 |
Ratio
of Earnings to Fixed Charges. |
|
31 |
Certifications pursuant to Exchange
Act Rule
13a-14(a). |
|
32 |
Certifications pursuant to Exchange
Act Rule
13a-14(b) and 18 U.S.C. Section
1350. |
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 7, 2007 |
By |
/s/
Walter J. Galvin |
|
Walter
J. Galvin
Senior
Executive Vice President
and
Chief Financial Officer
|
|
|
|
(on
behalf of the registrant and
as
Chief Financial Officer)
|
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
INDEX
TO EXHIBITS
Exhibits
are listed by numbers corresponding to the Exhibit Table of Item 601 in
Regulation S-K.
Exhibit
No.
|
|
Exhibit
|
|
|
|
12
|
|
Ratio
of Earnings to Fixed Charges.
|
|
|
|
31
|
|
Certifications
pursuant to Exchange Act Rule 13a-14(a).
|
|
|
|
32
|
|
Certifications
pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. Section
1350.
|