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, 2007
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
March
31, 2007: 795,262,988
shares.
FORM
10-Q
PART
I. FINANCIAL INFORMATION
Item
1. Financial Statements.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF EARNINGS
THREE
MONTHS AND SIX MONTHS ENDED MARCH 31, 2006 AND 2007
(Dollars
in millions, except per share amounts; unaudited)
|
|
Three
Months Ended
March
31,
|
|
Six
Months Ended
March
31,
|
|
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
4,852
|
|
|
5,513
|
|
|
9,400
|
|
|
10,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
3,118 |
|
|
3,561
|
|
|
6,073
|
|
|
6,817
|
|
Selling,
general and administrative expenses
|
|
|
1,005 |
|
|
1,115
|
|
|
1,955
|
|
|
2,193
|
|
Other
deductions, net
|
|
|
54 |
|
|
43
|
|
|
77
|
|
|
62
|
|
Interest
expense (net of interest income of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$4,
$7, $9 and $14, respectively)
|
|
|
50 |
|
|
58
|
|
|
100
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
before income taxes
|
|
|
625 |
|
|
736
|
|
|
1,195
|
|
|
1,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
191 |
|
|
242
|
|
|
362
|
|
|
437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
434
|
|
|
494
|
|
|
833
|
|
|
939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$
|
0.53
|
|
|
0.62
|
|
|
1.02
|
|
|
1.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share
|
|
$
|
0.52
|
|
|
0.61
|
|
|
1.00
|
|
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends per common share
|
|
$
|
0.2225
|
|
|
0.2625
|
|
|
0.4450
|
|
|
0.5250
|
|
See
accompanying Notes to Consolidated Financial Statements.
FORM
10-Q
EMERSON
ELECTRIC CO. AND
SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Dollars
in millions, except per share amounts; unaudited)
|
|
September
30,
|
|
March
31,
|
|
|
|
2006
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
and equivalents
|
|
$
|
810
|
|
|
1,094
|
|
Receivables,
less allowances of $74 and $75, respectively
|
|
|
3,716
|
|
|
3,888
|
|
Inventories
|
|
|
2,222
|
|
|
2,388
|
|
Other
current assets
|
|
|
582
|
|
|
619
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
7,330
|
|
|
7,989
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
3,220
|
|
|
3,259
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
|
|
|
|
|
Goodwill
|
|
|
6,013
|
|
|
6,240
|
|
Other
|
|
|
2,109
|
|
|
2,044
|
|
|
|
|
|
|
|
|
|
Total
other assets
|
|
|
8,122
|
|
|
8,284
|
|
|
|
$
|
18,672
|
|
|
19,532
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Short-term
borrowings and current maturities of long-term debt
|
|
$
|
898
|
|
|
1,349
|
|
Accounts
payable
|
|
|
2,305
|
|
|
2,137
|
|
Accrued
expenses
|
|
|
1,933
|
|
|
2,016
|
|
Income
taxes
|
|
|
238
|
|
|
284
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
5,374
|
|
|
5,786
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
3,128
|
|
|
3,375
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
2,016
|
|
|
2,025
|
|
|
|
|
|
|
|
|
|
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 795,262,988 shares,
respectively
|
|
|
238
|
|
|
477
|
|
Additional
paid-in capital
|
|
|
161
|
|
|
13
|
|
Retained
earnings
|
|
|
11,314
|
|
|
11,755
|
|
Accumulated
other comprehensive income
|
|
|
306
|
|
|
403
|
|
Cost
of common stock in treasury, 148,660,214
|
|
|
|
|
|
|
|
shares
and 158,091,024 shares, respectively
|
|
|
(3,865
|
) |
|
(4,302
|
)
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
8,154
|
|
|
8,346
|
|
|
|
$
|
18,672
|
|
|
19,532
|
|
See
accompanying Notes to Consolidated Financial
Statements.
FORM
10-Q
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
SIX
MONTHS ENDED MARCH 31, 2006 AND 2007
(Dollars
in millions; unaudited)
|
|
Six
Months Ended
March
31,
|
|
|
|
2006
|
|
2007
|
|
Operating
activities
|
|
|
|
|
|
|
|
Net
earnings
|
|
|
|
|
|
939
|
|
Adjustments
to reconcile net earnings to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
294
|
|
|
328
|
|
Changes
in operating working capital
|
|
|
(376
|
)
|
|
(464
|
)
|
Other
|
|
|
117
|
|
|
72
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
868
|
|
|
875
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(214
|
)
|
|
(276
|
)
|
Purchases
of businesses, net of cash and equivalents acquired
|
|
|
(269
|
)
|
|
(172
|
)
|
Other
|
|
|
13
|
|
|
86
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(470
|
)
|
|
(362
|
)
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
Net
increase (decrease) in short-term borrowings
|
|
|
(311
|
)
|
|
398
|
|
Proceeds
from long-term debt
|
|
|
5
|
|
|
248
|
|
Principal
payments on long-term debt
|
|
|
(257
|
)
|
|
(3
|
)
|
Dividends
paid
|
|
|
(367
|
)
|
|
(421
|
)
|
Purchases
of treasury stock
|
|
|
(111
|
)
|
|
(478
|
)
|
Other
|
|
|
15
|
|
|
6
|
|
|
|
|
|
|
|
|
|
Net
cash used in financing activities
|
|
|
(1,026
|
)
|
|
(250
|
)
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and equivalents
|
|
|
(1
|
)
|
|
21
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and equivalents
|
|
|
(629
|
)
|
|
284
|
|
|
|
|
|
|
|
|
|
Beginning
cash and equivalents
|
|
|
1,233
|
|
|
810
|
|
|
|
|
|
|
|
|
|
Ending
cash and equivalents
|
|
|
604
|
|
|
1,094
|
|
|
|
|
|
|
|
|
|
Changes
in operating working capital
|
|
|
|
|
|
|
|
Receivables
|
|
|
|
|
|
(105
|
)
|
Inventories
|
|
|
(209
|
)
|
|
(122
|
)
|
Other
current assets
|
|
|
18
|
|
|
(21
|
)
|
Accounts
payable
|
|
|
(4
|
)
|
|
(212
|
)
|
Accrued
expenses
|
|
|
(84
|
)
|
|
(51
|
)
|
Income
taxes
|
|
|
(7
|
)
|
|
47
|
|
|
|
|
|
|
|
(464
|
)
|
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
|
|
Six
Months Ended
|
|
|
|
March
31,
|
|
March
31,
|
|
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
821.0
|
|
|
795.3
|
|
|
820.3
|
|
|
797.3
|
|
Dilutive
shares
|
|
|
8.0
|
|
|
9.6
|
|
|
7.8
|
|
|
9.4
|
|
Diluted
|
|
|
829.0
|
|
|
804.9
|
|
|
828.1
|
|
|
806.7
|
|
4. |
Comprehensive
income is summarized as follows (dollars in
millions):
|
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
March
31,
|
|
March
31,
|
|
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
434
|
|
|
494
|
|
|
833
|
|
|
939
|
|
Changes
in foreign currency translation,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
flow hedges and other
|
|
|
115 |
|
|
27
|
|
|
95
|
|
|
97
|
|
|
|
$
|
549
|
|
|
521
|
|
|
928
|
|
|
1,036
|
|
EMERSON ELECTRIC CO. AND
SUBSIDIARIES |
FORM
10-Q
|
5. |
Other
Financial Information (dollars in
millions):
|
|
|
September
30,
|
|
March
31,
|
|
|
|
2006
|
|
2007
|
|
Inventories
|
|
|
|
|
|
|
|
Finished
products
|
|
$
|
887
|
|
|
977
|
|
Raw
materials and work in process
|
|
|
1,335 |
|
|
1,411
|
|
|
|
$
|
2,222
|
|
|
2,388
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
|
|
|
|
|
Property,
plant and equipment, at cost
|
|
$
|
7,889
|
|
|
8,156
|
|
Less
accumulated depreciation
|
|
|
4,669 |
|
|
4,897
|
|
|
|
$
|
3,220
|
|
|
3,259
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
Process
Management
|
|
$
|
1,778
|
|
|
1,933
|
|
Industrial
Automation
|
|
|
1,016 |
|
|
1,051
|
|
Network
Power
|
|
|
2,162 |
|
|
2,180
|
|
Climate
Technologies
|
|
|
408 |
|
|
411
|
|
Appliance
and Tools
|
|
|
649 |
|
|
665
|
|
|
|
$
|
6,013
|
|
|
6,240
|
|
Changes
in the goodwill balances since September 30, 2006, are primarily due to
additions from acquisitions, particularly in the Process Management segment
($139 million), as well as from the translation of non-U.S. currencies to the
U.S. dollar. Third-party valuations of assets are in-process; purchase price
allocations are subject to refinement.
Other
assets, other
|
|
|
|
|
|
|
|
Pension
plans
|
|
$
|
1,037
|
|
|
1,005
|
|
Intellectual
property and customer relationships
|
|
|
470
|
|
|
521
|
|
Equity
and other investments
|
|
|
171
|
|
|
80
|
|
Capitalized
software
|
|
|
163
|
|
|
164
|
|
Leveraged
leases
|
|
|
109
|
|
|
106
|
|
Other
|
|
|
159
|
|
|
168
|
|
|
|
$
|
2,109
|
|
|
2,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
warranty liability
|
|
$
|
206
|
|
|
193
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
$
|
724
|
|
|
747
|
|
Postretirement
plans, excluding current portion
|
|
|
371
|
|
|
383
|
|
Retirement
plans
|
|
|
253
|
|
|
260
|
|
Minority
interest
|
|
|
176
|
|
|
180
|
|
Other
|
|
|
492
|
|
|
455
|
|
|
|
$
|
2,016
|
|
|
2,025
|
|
EMERSON ELECTRIC CO. AND
SUBSIDIARIES |
FORM
10-Q
|
6. |
Net
periodic pension expense is summarized as follows (dollars in
millions):
|
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
March
31,
|
|
March
31,
|
|
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
21
|
|
|
16
|
|
|
41
|
|
|
32
|
|
Interest
cost
|
|
|
49 |
|
|
49
|
|
|
93
|
|
|
98
|
|
Expected
return on plan assets
|
|
|
(57 |
) |
|
(64
|
)
|
|
(114
|
)
|
|
(127
|
)
|
Net
amortization
|
|
|
31 |
|
|
25
|
|
|
60
|
|
|
50
|
|
|
|
$
|
44
|
|
|
26
|
|
|
80
|
|
|
53
|
|
Net
periodic pension expense for the three months and six months ended March 31,
2006, included a pretax charge of $9 million related to statutorily mandated
Mexican termination benefits.
Net
postretirement plan expense is summarized as follows (dollars in
millions):
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
March
31,
|
|
March
31,
|
|
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
2
|
|
|
2
|
|
|
4
|
|
|
3
|
|
Interest
cost
|
|
|
7 |
|
|
7
|
|
|
13
|
|
|
14
|
|
Net
amortization
|
|
|
10 |
|
|
6
|
|
|
17
|
|
|
13
|
|
|
|
$
|
19
|
|
|
15
|
|
|
34
|
|
|
30
|
|
Net
postretirement plan expense for the three months and six months ended March
31,
2006, included a pretax charge of $5 million related to a division’s retiree
medical plan design.
7. |
Other
deductions, net are summarized as follows (dollars in
millions):
|
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
March
31,
|
|
March
31,
|
|
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
Other
deductions, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rationalization
of operations
|
|
$
|
22
|
|
|
24
|
|
|
34
|
|
|
40
|
|
Amortization
of intangibles
|
|
|
10 |
|
|
16
|
|
|
19
|
|
|
30
|
|
Other
|
|
|
28 |
|
|
27
|
|
|
54
|
|
|
58
|
|
Gains
|
|
|
(6 |
) |
|
(24
|
)
|
|
(30
|
)
|
|
(66
|
)
|
|
|
$
|
54
|
|
|
43
|
|
|
77
|
|
|
62
|
|
For
the
six months ended March 31, 2007 and 2006, 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 six months
ended March 31, 2007, the Company sold its remaining 4.5 million shares of
MKS
Instruments, Inc. (MKS), a publicly-traded company; the Company recorded pretax
gains on these sales of $13 million and $19 million during the first and second
quarters of fiscal 2007, respectively, compared to a pretax gain of $6 million
recorded in the second quarter of fiscal 2006.
EMERSON ELECTRIC CO. AND
SUBSIDIARIES |
FORM
10-Q
|
8. |
The
change in the liability for rationalization of operations during
the six
months ended March 31, 2007, follows (dollars in
millions):
|
|
|
|
|
Expense
|
|
Paid
/ Utilized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and benefits
|
|
$
|
31
|
|
|
20
|
|
|
22
|
|
|
29
|
|
Lease/contract
terminations
|
|
|
12 |
|
|
1
|
|
|
4
|
|
|
9
|
|
Fixed
asset writedowns
|
|
|
- |
|
|
1
|
|
|
1
|
|
|
-
|
|
Vacant
facility and other shutdown costs
|
|
|
1 |
|
|
4
|
|
|
4
|
|
|
1
|
|
Start-up
and moving costs
|
|
|
1 |
|
|
14
|
|
|
14
|
|
|
1
|
|
|
|
$
|
45
|
|
|
40
|
|
|
45
|
|
|
40
|
|
Rationalization
of operations by business segment is summarized as follows (dollars in
millions):
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
March
31,
|
|
March
31,
|
|
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Process
Management
|
|
$
|
1
|
|
|
4
|
|
|
3
|
|
|
6
|
|
Industrial
Automation
|
|
|
3 |
|
|
3
|
|
|
5
|
|
|
6
|
|
Network
Power
|
|
|
3 |
|
|
5
|
|
|
6
|
|
|
9
|
|
Climate
Technologies
|
|
|
8 |
|
|
4
|
|
|
9
|
|
|
7
|
|
Appliance
and Tools
|
|
|
7 |
|
|
8
|
|
|
11
|
|
|
12
|
|
|
|
$
|
22
|
|
|
24
|
|
|
34
|
|
|
40
|
|
During
the first six months of 2007, rationalization actions included the following.
Process Management included start-up costs related to capacity expansion in
China to serve the Asian market, as well as severance and start-up and moving
costs related to the movement of certain operations in Western Europe to Eastern
Europe and Asia to improve profitability. 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 and
serve Asian markets. Network Power included severance related to the closure
of
certain power conversion facilities acquired with Artesyn, as well as severance
and start-up and moving costs related to the shifting of certain power systems
production from the United States and Europe to Mexico to remain competitive
on
a global basis. Climate Technologies included start-up costs related to capacity
expansion in Mexico and Eastern Europe to improve profitability and to serve
these markets, and start-up and moving costs related to the consolidation of
certain production facilities in the United States to obtain operational
efficiencies. Appliance and Tools included severance and start-up and moving
costs related to the shifting of certain production from Canada to Mexico and
severance related to the closure of certain motor production in Europe to remain
competitive on a global basis.
Including
the $40 million of rationalization costs incurred during the six months ended
March 31, 2007, the Company expects rationalization expense for the entire
2007
fiscal year to total approximately $85 million to $95 million, including the
costs to complete actions initiated before the end of the second quarter and
actions anticipated to be approved and initiated during the remainder of the
year.
Rationalization
actions during the first six months 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 and to serve these markets.
Network Power included mainly severance, start-up and vacant facility costs
related to the consolidation of certain power systems operations in North
America and the consolidation of administrative operations in Europe to obtain
operational synergies. Climate Technologies included severance related to the
movement of temperature sensors and controls production from Western Europe
to
China in order to improve profitability and to serve the Asian market. Appliance
and Tools included primarily severance and 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 March 31,
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Process
Management
|
|
$
|
1,143
|
|
|
1,345
|
|
|
190
|
|
|
239
|
|
Industrial
Automation
|
|
|
931
|
|
|
1,057
|
|
|
131
|
|
|
151
|
|
Network
Power
|
|
|
1,004
|
|
|
1,191
|
|
|
119
|
|
|
146
|
|
Climate
Technologies
|
|
|
852
|
|
|
945
|
|
|
125
|
|
|
141
|
|
Appliance
and Tools
|
|
|
1,072
|
|
|
1,133
|
|
|
151
|
|
|
137
|
|
|
|
|
5,002
|
|
|
5,671
|
|
|
716
|
|
|
814
|
|
Differences
in accounting methods
|
|
|
|
|
|
|
|
|
42
|
|
|
52
|
|
Corporate
and other
|
|
|
|
|
|
|
|
|
(83
|
)
|
|
(72
|
)
|
Eliminations/Interest |
|
|
(150
|
)
|
|
(158
|
)
|
|
(50
|
)
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales/Earnings before income taxes
|
|
$
|
4,852
|
|
|
5,513
|
|
|
625
|
|
|
736
|
|
Intersegment
sales of the Appliance and Tools segment for the three months ended March 31,
2007 and 2006, respectively, were $139 million and $132 million.
|
|
Sales
|
|
Earnings
|
|
Six
months ended March 31,
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Process
Management
|
|
$
|
2,240
|
|
|
2,563
|
|
|
366
|
|
|
456
|
|
Industrial
Automation
|
|
|
1,791
|
|
|
2,051
|
|
|
274
|
|
|
317
|
|
Network
Power
|
|
|
1,943
|
|
|
2,390
|
|
|
227
|
|
|
263
|
|
Climate
Technologies
|
|
|
1,600
|
|
|
1,633
|
|
|
227
|
|
|
231
|
|
Appliance
and Tools
|
|
|
2,112
|
|
|
2,221
|
|
|
271
|
|
|
270
|
|
|
|
|
9,686
|
|
|
10,858
|
|
|
1,365
|
|
|
1,537
|
|
Differences
in accounting methods
|
|
|
|
|
|
|
|
|
82
|
|
|
100
|
|
Corporate
and other
|
|
|
|
|
|
|
|
|
(152
|
)
|
|
(145
|
)
|
Eliminations/Interest |
|
|
(286
|
)
|
|
(294
|
)
|
|
(100
|
)
|
|
(116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales/Earnings before income taxes |
|
$
|
9,400
|
|
|
10,564
|
|
|
1,195
|
|
|
1,376
|
|
Intersegment
sales of the Appliance and Tools segment for the six months ended March 31,
2007
and 2006, respectively, were $252 million and $249 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 is 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
Company’s results for the second quarter and first six months of fiscal 2007
were strong, with sales increasing for all five business segments over the
prior
year periods. The Network Power, Process Management and Industrial Automation
businesses had strong performances and drove gains in a favorable economic
environment as gross fixed investment expanded during the first six months
of
fiscal 2007. Strong growth in Europe and Asia, acquisitions and favorable
foreign currency translation contributed to the second quarter and first six
months’ results. Earnings for four of the five business segments increased for
the three and six months ended March 31, 2007 compared to the prior year
periods. Profit margins remained at high levels, primarily due to leverage
on
increased sales volume and benefits from previous rationalization actions.
Emerson's financial position remains strong and the Company continues to
generate substantial cash flow.
THREE
MONTHS ENDED MARCH 31, 2007, COMPARED WITH THREE MONTHS ENDED MARCH 31,
2006
RESULTS
OF OPERATIONS
Three
months ended March 31,
|
|
2006
|
|
2007
|
|
Change
|
|
(dollars
in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
4,852
|
|
|
5,513
|
|
|
14
|
%
|
Gross
profit
|
|
$
|
1,734
|
|
|
1,952
|
|
|
13
|
%
|
Percent
of sales
|
|
|
35.7
|
%
|
|
35.4
|
%
|
|
|
|
SG&A
|
|
$
|
1,005
|
|
|
1,115
|
|
|
|
|
Percent
of sales
|
|
|
20.7
|
%
|
|
20.2
|
%
|
|
|
|
Other
deductions, net
|
|
$
|
54
|
|
|
43
|
|
|
|
|
Interest
expense, net
|
|
$
|
50
|
|
|
58
|
|
|
|
|
Earnings
before income taxes
|
|
$
|
625
|
|
|
736
|
|
|
18
|
%
|
Net
earnings
|
|
$
|
434
|
|
|
494
|
|
|
14
|
%
|
Percent
of sales
|
|
|
8.9
|
%
|
|
9.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share
|
|
$
|
0.52
|
|
|
0.61
|
|
|
17
|
%
|
Net
sales
for the quarter ended March 31, 2007 were $5,513 million, an increase of $661
million, or 14 percent, over net sales of $4,852 million for the quarter ended
March 31, 2006, with both U.S. and international sales contributing to this
growth. The consolidated results reflect increases in all of the business
segments, with a more than 7 percent ($353 million) increase in underlying
sales
(which exclude acquisitions, divestitures and foreign currency translation),
a 4
percent ($199 million) contribution from acquisitions, net of divestitures,
and
a more than 2 percent ($109 million) favorable impact from foreign currency
translation. The underlying sales increase for the second quarter reflects
12
percent growth in total international sales and 3 percent growth in the United
States. The international sales growth was led by increases in Europe (11
percent) and Asia (14 percent). The Company estimates that the underlying sales
growth primarily reflects an approximate 3 percent gain from volume, an
estimated 2 percent impact from penetration gains and an approximate 2 percent
increase from higher sales prices.
Cost
of
sales for the second quarters of fiscal 2007 and 2006 were $3,561 million and
$3,118 million, respectively. Cost of sales as a percent of net sales was 64.6
percent in the second quarter of 2007, compared with 64.3 percent in the second
quarter of 2006. The increase in cost of sales as a percent of net sales was
primarily the result of acquisitions. Gross profit was $1,952 million and $1,734
million for the second quarters ended March 31, 2007 and 2006, respectively,
resulting in gross profit margins of 35.4 percent and 35.7 percent. The increase
in the gross profit during the second quarter primarily reflects higher sales
volume and prices, as well as acquisitions. Higher sales prices were
substantially offset by higher material costs and wages.
Selling,
general and administrative (SG&A) expenses for the second quarter of 2007
were $1,115 million, or 20.2 percent of net sales, compared with $1,005 million,
or 20.7 percent of net sales, for the second quarter of 2006. The increase
of
$110 million was largely due to the increase in variable costs on higher sales
and acquisitions. The decrease in SG&A as a percent of sales was primarily
the result of leveraging fixed costs on higher sales and
acquisitions.
EMERSON ELECTRIC CO. AND
SUBSIDIARIES |
FORM
10-Q
|
Other
deductions, net were $43 million for the second quarter of 2007, an $11 million
decrease from the $54 million for the same period in the prior year.
For
the
three months ended March 31, 2007 and 2006, the Company recorded pretax gains
of
approximately $19 million and $6 million, respectively, related to the sale
of
shares of MKS. See
notes
7 and 8 for further details regarding other deductions, net and rationalization
costs.
Earnings
before income taxes for the second quarter of 2007 increased $111 million,
or 18
percent, to $736 million, compared to $625 million for the second quarter of
2006. The earnings results primarily reflect increases of $49 million in the
Process Management, $27 million in the Network Power and $20 million in the
Industrial Automation business segments.
Income
taxes were $242 million and $191 million for the three months ended March 31,
2007 and 2006, respectively. The effective tax rate was 33 percent in the second
quarter of 2007 compared to 31 percent in the prior year period. The effective
tax rate for the entire fiscal year 2007 is expected to be approximately 32
percent.
Net
earnings were $494 million and earnings per share were $0.61 for the three
months ended March 31, 2007, increases of 14 percent and 17 percent,
respectively, compared to $434 million and $0.52 for the three months ended
March 31, 2006. The 17 percent increase in earnings per share also reflects
the
purchase of treasury shares.
BUSINESS
SEGMENTS
Process
Management
Three
months ended March 31,
|
|
2006
|
|
2007
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,143
|
|
|
1,345
|
|
|
18
|
%
|
Earnings
|
|
$
|
190
|
|
|
239
|
|
|
26
|
%
|
Margin
|
|
|
16.6
|
%
|
|
17.7
|
%
|
|
|
|
During
the second quarter of fiscal 2007, sales in the Process Management segment
increased 18 percent to $1,345 million, driven primarily by higher volume and
acquisitions. Nearly all of the businesses in this segment reported higher
sales, with the measurement, systems and valves businesses leading the overall
sales increase. Sales and earnings (defined as earnings before interest and
taxes for the business segments discussion) were notably strong for these
businesses due to continued demand in the energy markets, particularly power,
and oil and gas. Underlying sales increased approximately 11 percent, reflecting
8 percent from volume, and approximately 3 percent combined positive impact
from
penetration gains and slight increase in sales prices. The Bristol and Damcos
acquisitions contributed 4 percent ($47 million) and foreign currency
translation added 3 percent ($33 million). The underlying sales increase
reflects growth in the United States (13 percent), Middle East (71 percent),
Europe (6 percent) and Asia (7 percent). Second quarter earnings increased
26
percent to $239 million from $190 million in the prior year period, reflecting
higher sales volume, as well as acquisitions. The margin improvement is
primarily due to leverage on the higher sales.
Industrial
Automation
Three
months ended March 31,
|
|
2006
|
|
2007
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
931
|
|
|
1,057
|
|
|
13
|
%
|
Earnings
|
|
$
|
131
|
|
|
151
|
|
|
15
|
%
|
Margin
|
|
|
14.1
|
%
|
|
14.3
|
%
|
|
|
|
Sales
grew 13 percent to $1,057 million in the Industrial Automation segment for
the
three months ended March 31, 2007, reflecting the favorable economic environment
for capital goods. All of the businesses in the segment reported higher
sales. Robust activity in the oil, gas, mining and metals markets drove growth
in the power generating alternator, the fluid power and control and the
electrical distribution businesses. Second quarter underlying sales grew 10
percent, reflecting global industrial demand, and included the benefit of an
estimated 3 percent positive impact from price and penetration gains. Foreign
currency translation had a 4 percent ($35 million) favorable impact, while
divestitures had a 1 percent ($5 million) unfavorable impact. The underlying
sales increase reflects growth in nearly all of the major geographic regions,
including 15 percent growth internationally and 4 percent growth in the United
States. The international sales growth was led by a 15 percent increase in
Europe, particularly in the power generating alternator business. Earnings
increased 15 percent over the prior year period to $151 million, reflecting
the
higher sales volume and related leverage. Higher sales prices were offset by
higher material and wage costs, as well as negative product mix.
EMERSON ELECTRIC CO. AND
SUBSIDIARIES |
FORM
10-Q
|
Network
Power
Three
months ended March 31,
|
|
2006
|
|
2007
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,004
|
|
|
1,191
|
|
|
19
|
%
|
Earnings
|
|
$
|
119
|
|
|
146
|
|
|
22
|
%
|
Margin
|
|
|
11.9
|
%
|
|
12.3
|
%
|
|
|
|
Network
Power sales increased 19 percent to $1,191 million during the second quarter
of
2007 compared to the prior year period, driven by the Artesyn and Knürr
acquisitions and reflecting continued demand in the power systems, precision
cooling and control systems businesses. The sales increase reflects an
underlying sales growth of 6 percent, an 11 percent ($119 million) contribution
from acquisitions, net of divestitures, and a 2 percent ($17 million) favorable
impact from foreign currency translation. The underlying sales growth of 6
percent reflects higher volume of 3 percent, and 3 percent collectively from
penetration gains and slight increase in sales prices. Geographically, the
underlying sales increase reflects growth in the United States (4 percent)
and
Asia (15 percent), while sales in Europe declined 3 percent. 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 $146 million increased
$27 million, or 22 percent, from the prior year period primarily due to
acquisitions along with the underlying sales growth. The earnings improvement
also reflects savings from prior cost reduction efforts as well as favorable
product mix, partially offset by higher material and wage costs.
Climate
Technologies
Three
months ended March 31,
|
|
2006
|
|
2007
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
852
|
|
|
945
|
|
|
11
|
%
|
Earnings
|
|
$
|
125
|
|
|
141
|
|
|
14
|
%
|
Margin
|
|
|
14.6
|
%
|
|
15.0
|
%
|
|
|
|
Sales
in
the Climate Technologies segment increased 11 percent to $945 million for the
quarter ended March 31, 2007. The increase was driven by more than 6 percent
growth in underlying sales, a 3 percent ($27 million) contribution from
acquisitions and a more than 1 percent ($12 million) favorable impact from
foreign currency translation. Sales price increases and penetration gains
accounted for substantially all of the underlying sales increase, which was
driven primarily by international sales growth of 23 percent, partially offset
by a decline in the United States of nearly 3 percent. The decline in the United
States reflects slowing residential construction rates, as well as customer
purchases of legacy products in the prior year period in anticipation of the
efficiency standard change in the United States that became effective on January
23, 2006. The international sales increase was led by growth in Europe (28
percent) and Asia (19 percent). The increase in Europe includes penetration
in
the heat pump market. Earnings increased 14 percent during the quarter to $141
million primarily due to savings from prior period cost reduction efforts,
lower
rationalization costs compared to the prior year period and positive product
mix. The margin improvement was diminished as higher material and wage costs
offset sales price increases.
EMERSON ELECTRIC CO.
AND
SUBSIDIARIES |
FORM
10-Q
|
Appliance
and Tools
Three
months ended March 31,
|
|
2006
|
|
2007
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,072
|
|
|
1,133
|
|
|
6
|
%
|
Earnings
|
|
$
|
151
|
|
|
137
|
|
|
(10
|
%)
|
Margin
|
|
|
14.1
|
%
|
|
12.0
|
%
|
|
|
|
The
Appliance and Tools segment sales increased 6 percent to $1,133 million in
the
second quarter of 2007. The sales increase represents more than 3 percent growth
in underlying sales, a 1 percent ($12 million) favorable impact from foreign
currency translation and a 1 percent ($11 million) contribution from
acquisitions. The underlying sales increase of more than 3 percent reflects
an
approximate 6 percent positive impact from higher sales prices, an estimated
3
percent decrease in volume and an approximate 1 percent impact from penetration
gains. The second quarter results were mixed across the businesses. The tools
businesses experienced solid underlying growth, while the appliance controls
business declined. Growth in the tools businesses was driven by demand in the
non-residential construction markets. Increases in the hermetic, commercial
and
European appliance motors and storage businesses were partially offset by a
decline in the North American appliance motors business. The underlying growth
in motors and storage businesses was primarily due to sales price increases
while volume levels declined. Total international sales grew approximately
11
percent, while underlying sales in the United States grew approximately 2
percent. Earnings decreased from $151 million in the prior year period to $137
million for the second quarter. The decreases in both earnings and margin
primarily reflect deleverage on the lower volume. Higher sales prices were
offset by higher raw material and wage costs, as well as store reset and new
product launch costs in the storage and disposer businesses.
SIX
MONTHS ENDED MARCH 31, 2007, COMPARED WITH SIX MONTHS ENDED MARCH 31,
2006
RESULTS
OF OPERATIONS
Six
months ended March 31,
|
|
2006
|
|
2007
|
|
Change
|
|
(dollars
in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
9,400
|
|
|
10,564
|
|
|
12
|
%
|
Gross
profit
|
|
$
|
3,327
|
|
|
3,747
|
|
|
13
|
%
|
Percent
of sales
|
|
|
35.4
|
%
|
|
35.5
|
%
|
|
|
|
SG&A
|
|
$
|
1,955
|
|
|
2,193
|
|
|
|
|
Percent
of sales
|
|
|
20.8
|
%
|
|
20.8
|
%
|
|
|
|
Other
deductions, net
|
|
$
|
77
|
|
|
62
|
|
|
|
|
Interest
expense, net
|
|
$
|
100
|
|
|
116
|
|
|
|
|
Earnings
before income taxes
|
|
$
|
1,195
|
|
|
1,376
|
|
|
15
|
%
|
Net
earnings
|
|
$
|
833
|
|
|
939
|
|
|
13
|
%
|
Percent
of sales
|
|
|
8.9
|
%
|
|
8.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share
|
|
$
|
1.00
|
|
|
1.16
|
|
|
16
|
%
|
Net
sales
for the six months ended March 31, 2007 increased $1,164 million, or 12 percent,
to $10,564 million, over net sales of $9,400 million for the six months ended
March 31, 2006, with international sales leading the overall growth. The
consolidated results reflect increases in all of the business segments, with
a
nearly 6 percent ($541 million) increase in underlying sales, a more than 4
percent ($417 million) contribution from acquisitions, net of divestitures,
and
a 2 percent ($206 million) favorable impact from foreign currency translation.
The underlying sales increase of nearly 6 percent for the first six months
was driven
by
an increase of 12 percent in total international sales and a 1 percent increase
in the United States. The international sales increase primarily reflects growth
in Europe (10 percent) and Asia (14 percent). The Company estimates that the
underlying sales growth primarily reflects an approximate 2 percent gain from
volume, an approximate 2 percent impact from penetration gains and an
approximate 2 percent impact from higher sales prices.
EMERSON ELECTRIC CO.
AND
SUBSIDIARIES |
FORM
10-Q
|
Cost
of
sales for the first six months of fiscal 2007 and 2006 were $6,817 million
and
$6,073 million, respectively. Cost of sales as a percent of net sales was 64.5
percent in the first half of 2007, compared with 64.6 percent in the prior
year
period. Gross profit was $3,747 million and $3,327 million for the six months
ended March 31, 2007 and 2006, respectively, resulting in gross profit margins
of 35.5 percent and 35.4 percent. The increase in the gross profit during the
first half of 2007 primarily reflects higher sales volume and prices and
acquisitions, as well as benefits realized from productivity improvements.
Higher sales prices were offset by higher material prices and wage costs.
Selling,
general and administrative expenses for the six months ended March 31, 2007
were
$2,193 million, or 20.8 percent of net sales, compared with $1,955 million,
or
20.8 percent of net sales, for the six months ended March 31, 2006. The increase
of $238 million was primarily due to the increase in variable costs on higher
sales and acquisitions.
Other
deductions, net were $62 million for the first half of fiscal 2007, a $15
million decrease from the $77 million for the same period in the prior year.
The
first six months of 2007 include a gain of approximately $24 million for a
payment received under the U.S. Continued Dumping and Subsidy Offset Act,
compared with an $18 million payment received in the prior year period. The
first six months of 2007 also include a gain of approximately $32 million
related to the sale of shares of MKS, compared with a gain of approximately
$6
million in the prior year period. For the six months ended March 31, 2007,
ongoing costs for the rationalization of operations were $40 million, compared
to $34 million in the prior year period. Amortization of intangibles increased
$11 million compared to the prior year period due to acquisitions. See notes
7
and 8 for further details regarding other deductions, net and rationalization
costs.
Earnings
before income taxes for the first six months of 2007 increased $181 million,
or
15 percent, to $1,376 million, compared to $1,195 million for the six months
ended March 31, 2006. The earnings results primarily reflect increases of $90
million in Process Management, $43 million in Industrial Automation and $36
million in Network Power.
Income
taxes were $437 million and $362 million for the six months ended March 31,
2007
and 2006, respectively. The effective tax rate was 32 percent for the first
half
of 2007 compared to 30 percent in the prior year period. The effective tax
rate
for the entire fiscal year 2007 is expected to be approximately 32 percent.
Net
earnings were $939 million and earnings per share were $1.16 for the six months
ended March 31, 2007, increases of 13 percent and 16 percent, respectively,
compared to $833 million and $1.00 for the six months ended March 31, 2006.
The
16 percent increase in earnings per share also reflects the purchase of treasury
shares.
BUSINESS
SEGMENTS
Process
Management
Six
months ended March 31,
|
|
2006
|
|
2007
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
2,240
|
|
|
2,563
|
|
|
14
|
%
|
Earnings
|
|
$
|
366
|
|
|
456
|
|
|
25
|
%
|
Margin
|
|
|
16.3
|
%
|
|
17.8
|
%
|
|
|
|
During
the first six months of fiscal 2007, Process Management sales increased 14
percent, on higher volume and acquisitions, to $2,563 million, and earnings
increased 25 percent. Nearly all of the businesses reported sales increases
compared to the prior year period. Sales and earnings were particularly strong
for the measurement, systems and valves businesses due to worldwide growth
in
oil and gas projects and expansion in China. Underlying sales increased 8
percent, reflecting 6 percent from volume, and approximately 2 percent
collectively from penetration gains and slightly higher sales prices. The
Bristol and Damcos acquisitions contributed 3 percent ($68 million) and foreign
currency translation had a 3 percent ($66 million) favorable impact. The
underlying sales increase reflects growth in nearly all of the major geographic
regions, including the United States (8 percent), Middle East (71 percent),
Asia
(6 percent) and Europe (5 percent), compared with the prior year period.
Earnings for the first six months of fiscal 2007 increased 25 percent to $456
million from $366 million in the prior year period. Higher sales volume and
leverage drove the increase, and together are estimated to have contributed
nearly 2 percentage points to the margin improvement. Earnings also reflect
savings from prior cost reduction efforts, which were more than offset by higher
wage and other costs.
EMERSON ELECTRIC
CO. AND
SUBSIDIARIES |
FORM
10-Q
|
Industrial
Automation
Six
months ended March 31,
|
|
2006
|
|
2007
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,791
|
|
|
2,051
|
|
|
15
|
%
|
Earnings
|
|
$
|
274
|
|
|
317
|
|
|
16
|
%
|
Margin
|
|
|
15.3
|
%
|
|
15.5
|
%
|
|
|
|
Sales
in
the Industrial Automation segment increased 15 percent to $2,051 million for
the
six months ended March
31,
2007. Sales grew in all of the businesses and in nearly all of the major
geographic regions, reflecting the favorable economic environment for capital
goods. Robust activity in the oil, gas, mining and metals markets drove growth
in the power generating alternator, electrical distribution and electronic
drives businesses. Underlying sales grew more than 10 percent and foreign
currency translation had a 4 percent ($62 million) favorable impact. The first
six months’ growth reflects both increased global industrial demand, and an
approximate 3 percent combined positive impact from higher sales prices and
slight penetration gains. The increase in underlying sales reflects 15 percent
growth internationally, primarily reflecting increases in Europe (15 percent)
and Asia (20 percent), and 5 percent growth in the United States. Earnings
increased 16 percent over the prior year six month period to $317 million,
reflecting leverage from higher sales volume and benefits from prior cost
reduction efforts. The earnings increase was aided by a payment of approximately
$24 million received by the power transmission business from dumping duties
related to the U.S. Continued Dumping and Subsidy Offset Act in the current
six
month period, compared with a payment of $18 million received in the prior
year
period. Sales price increases were offset by higher material and wage costs.
Network
Power
Six
months ended March 31,
|
|
2006
|
|
2007
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,943
|
|
|
2,390
|
|
|
23
|
%
|
Earnings
|
|
$
|
227
|
|
|
263
|
|
|
16
|
%
|
Margin
|
|
|
11.7
|
%
|
|
11.0
|
%
|
|
|
|
The
Network Power segment sales increased 23 percent to $2,390 million for the
first
six months of 2007 compared to the prior year period, driven by the Artesyn
and
Knürr acquisitions and reflecting continued demand in the power systems,
embedded power and precision cooling businesses. Underlying sales grew 7
percent, while acquisitions, net of divestitures, contributed 14 percent ($282
million) and foreign currency translation had a 2 percent ($34 million)
favorable impact. The underlying sales increase of 7 percent reflects an
approximate 4 percent gain from higher volume and an estimated 3 percent impact
from penetration gains, which were partially offset by a slight decline in
sales
prices. Geographically, underlying sales reflect an 18 percent increase in
Asia
and a 5 percent increase in the United States. The U.S. growth reflects strong
demand for data room and non-residential computer equipment. The Company’s
market penetration in China and other Asian markets continued. Earnings for
the
six months ended March 31, 2007 of $263 million increased $36 million, or 16
percent, from the prior year period reflecting acquisitions and leverage on
higher sales volume. The margin was primarily reduced by the Artesyn
acquisition, while benefits from prior cost reduction efforts were offset by
higher material and wage costs.
EMERSON ELECTRIC
CO. AND
SUBSIDIARIES |
FORM
10-Q
|
Climate
Technologies
Six
months ended March 31,
|
|
2006
|
|
2007
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,600
|
|
|
1,633
|
|
|
2
|
%
|
Earnings
|
|
$
|
227
|
|
|
231
|
|
|
2
|
%
|
Margin
|
|
|
14.2
|
%
|
|
14.2
|
%
|
|
|
|
Sales
in
the Climate Technologies segment increased 2 percent to $1,633 million for
the
six months ended March
31,
2007. Underlying sales decreased 2 percent, while acquisitions contributed
3
percent ($40 million) and foreign currency translation had a 1 percent ($20
million) favorable impact. Lower sales volume of 7 percent was partially offset
by an approximate 5 percent positive impact from sales price increases and
penetration gains. The underlying sales decrease reflects an 18 percent increase
in international sales, including 30 percent growth in Europe, while underlying
sales in the United States declined 13 percent. The decrease in U.S. sales
for
the first six months of fiscal 2007 is partially attributable to difficult
comparisons to a very strong prior year period. The first six months of fiscal
2006 included approximately $115 million of purchases of legacy products in
anticipation of the efficiency standard change in the United States that became
effective on January 23, 2006. Earnings of $231 million for the first six months
of fiscal 2007 increased 2 percent when compared to the prior year period,
reflecting savings from prior cost reduction efforts which were partially offset
by deleverage on lower sales volume. The profit margin was flat as higher
material costs offset higher sales prices.
Appliance
and Tools
Six
months ended March 31,
|
|
2006
|
|
2007
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
2,112
|
|
|
2,221
|
|
|
5
|
%
|
Earnings
|
|
$
|
271
|
|
|
270
|
|
|
-
|
|
Margin
|
|
|
12.8
|
%
|
|
12.1
|
%
|
|
|
|
The
Appliance and Tools segment sales increased 5 percent to $2,221 million for
the
first six months of 2007. This increase reflects approximately 3 percent growth
in underlying sales, a 1 percent ($24 million) favorable impact from foreign
currency translation and a 1 percent ($22 million) contribution from
acquisitions. The results for the first six months were mixed across the
businesses. The tools and European appliance motors businesses showed strong
growth, while the storage businesses had solid growth. These increases were
partially offset by softness in the North American appliance motors and controls
businesses. The growth in the tools and storage businesses was driven by the
U.S. market, reflecting higher demand at major retailers. The underlying sales
increase of 3 percent reflects an approximate 5 percent positive impact from
higher sales prices, partially offset by a 3 percent loss of volume, and an
estimated 1 percent impact from penetration gains. Total international
underlying sales grew 11 percent, while underlying sales in the United States
grew approximately 1 percent during the first half of 2007. Earnings were
essentially flat when compared to the prior year period. Overall, increases
in
sales prices were offset by higher material costs (particularly copper, steel
and plastics) and deleverage on lower sales volume, diluting the profit
margin.
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:
|
|
September
30,
|
|
March
31,
|
|
|
|
2006
|
|
2007
|
|
Working
capital (in millions)
|
|
$
|
1,956
|
|
|
2,203
|
|
Current
ratio
|
|
|
1.4
to 1 |
|
|
1.4
to 1
|
|
Total
debt to total capital
|
|
|
33.1 |
% |
|
36.1
|
%
|
Net
debt to net capital
|
|
|
28.1 |
% |
|
30.1
|
%
|
The
ratio
of total debt to total capital increased to 36.1 percent as of March 31, 2007,
or 5.3 percentage points above the 30.8 percent ratio for the prior year second
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
11.5
times for the six months ended March 31, 2007, compared to 12.0 times for the
same period in the prior year primarily due to higher average
borrowings.
Cash
and
equivalents increased by $284 million during the six months ended March 31,
2007. 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 $875 million was up $7 million compared to $868 million in the prior year
period. Operating cash flow, the net increase in short-term borrowings of $398
million and the $248 million of proceeds from long-term debt were used primarily
to fund purchases of treasury stock of $478 million, pay dividends of $421
million, fund capital expenditures of $276 million and fund purchases of
businesses of $172 million. For the six months ended March 31, 2007, free cash
flow of $599 million (operating cash flow of $875 million less capital
expenditures of $276 million) was down 9 percent from free cash flow of $654
million (operating cash flow of $868 million less capital expenditures of $214
million) for the same period in the prior year, primarily due to higher capital
expenditures in the six months ended March 31, 2007, as compared to the prior
year period.
The
Company is in a strong financial position, with total assets of $20 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.
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 an approximate 4 percent favorable impact from foreign currency
translation, acquisitions and divestitures. Reported sales growth is expected
to
be in the range of 9 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 $95 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.
EMERSON ELECTRIC
CO. AND
SUBSIDIARIES |
FORM
10-Q
|
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 March 31, 2007, 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 March
31,
2007, that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial
reporting.
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)
|
|
January
2007
|
|
|
1,400
|
|
$
|
44.11
|
|
|
1,400
|
|
|
25,896
|
|
February
2007
|
|
|
1,210
|
|
$
|
44.89
|
|
|
1,210
|
|
|
24,686
|
|
March
2007
|
|
|
1,900
|
|
$
|
42.90
|
|
|
1,900
|
|
|
22,786
|
|
Total
|
|
|
4,510
|
|
$
|
43.81
|
|
|
4,510
|
|
|
22,786
|
|
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 22.8 million as of March 31, 2007.
EMERSON
ELECTRIC CO. AND
SUBSIDIARIES |
FORM
10-Q
|
Item
4. Submission of Matters to a Vote of Security
Holders.
At
the
Annual Meeting of Stockholders on February 6, 2007, matters described in the
Notice of Annual Meeting of Stockholders dated December 15, 2006, were voted
upon.
1. |
The
directors listed below were elected for terms ending in 2010, with
voting
for each as follows:
|
DIRECTOR
|
|
FOR
|
|
WITHHELD
|
|
C.
Fernandez G.
|
|
|
282,649,464
|
|
|
65,014,914
|
|
W.
J. Galvin
|
|
|
332,016,240
|
|
|
15,648,138
|
|
R.
L. Ridgway
|
|
|
337,444,516
|
|
|
10,219,862
|
|
R.
L. Stephenson
|
|
|
345,183,079
|
|
|
2,481,299
|
|
2. |
The
proposal to ratify the appointment of KPMG LLP as the Company’s
independent registered public accounting firm was approved by a
vote of
341,547,003 in favor to 5,549,258 against, with 567,916 abstaining
and 201
broker non-votes.
|
Item
6. Exhibits.
(a) |
Exhibits
(Listed by numbers corresponding to the Exhibit Table of Item 601
in
Regulation S-K).
|
|
10.1 |
Summary
of Compensation Arrangements with Non-Management
Directors.
|
|
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:
May 3, 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)
|
INDEX
TO EXHIBITS
Exhibits
are listed by numbers corresponding to the Exhibit Table of Item 601 in
Regulation S-K.
Exhibit
No.
|
|
Exhibit
|
10.1
|
|
Summary
of Compensation Arrangements with Non-Management
Directors.
|
|
|
|
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.
|