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 June 30, 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
|
|
43-0259330
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
|
|
|
8000
W. Florissant Ave.
P.O.
Box 4100
St.
Louis, Missouri
|
|
63136
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
Registrant's
telephone number, including area code: (314)
553-2000
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (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 July 31, 2007: 792,023,659 shares.
FORM
10-Q
PART
I. FINANCIAL INFORMATION
Item
1. Financial Statements.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF EARNINGS
THREE
MONTHS AND NINE MONTHS ENDED JUNE 30, 2006 AND 2007
(Dollars
in millions, except per share amounts; unaudited)
|
|
Three
Months Ended
June
30,
|
|
Nine
Months Ended
June
30,
|
|
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
5,217
|
|
|
5,874
|
|
|
14,617
|
|
|
16,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
3,361
|
|
|
3,769
|
|
|
9,434
|
|
|
10,586
|
|
Selling,
general and administrative expenses
|
|
|
1,037
|
|
|
1,160
|
|
|
2,992
|
|
|
3,353
|
|
Other
deductions, net
|
|
|
54
|
|
|
59
|
|
|
131
|
|
|
121
|
|
Interest
expense (net of interest income of $5, $7, $14 and $21,
respectively)
|
|
|
51
|
|
|
62
|
|
|
151
|
|
|
178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
before income taxes
|
|
|
714
|
|
|
824
|
|
|
1,909
|
|
|
2,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
228
|
|
|
250
|
|
|
590
|
|
|
687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
486
|
|
|
574
|
|
|
1,319
|
|
|
1,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$
|
0.59
|
|
|
0.72
|
|
|
1.61
|
|
|
1.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share
|
|
$
|
0.59
|
|
|
0.72
|
|
|
1.59
|
|
|
1.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends per common share
|
|
$
|
0.2225
|
|
|
0.2625
|
|
|
0.6675
|
|
|
0.7875
|
|
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,
2006
|
|
June 30,
2007
|
|
ASSETS
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash
and equivalents
|
|
$
|
810
|
|
|
1,331
|
|
Receivables,
less allowances of $74 and $77, respectively
|
|
|
3,716
|
|
|
4,083
|
|
Inventories
|
|
|
2,222
|
|
|
2,309
|
|
Other
current assets
|
|
|
582
|
|
|
648
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
7,330
|
|
|
8,371
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
3,220
|
|
|
3,279
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
|
|
|
|
|
Goodwill
|
|
|
6,013
|
|
|
6,289
|
|
Other
|
|
|
2,109
|
|
|
2,136
|
|
|
|
|
|
|
|
|
|
Total
other assets
|
|
|
8,122
|
|
|
8,425
|
|
|
|
$
|
18,672
|
|
|
20,075
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Short-term
borrowings and current maturities of long-term debt
|
|
$
|
898
|
|
|
954
|
|
Accounts
payable
|
|
|
2,305
|
|
|
2,247
|
|
Accrued
expenses
|
|
|
1,933
|
|
|
2,198
|
|
Income
taxes
|
|
|
238
|
|
|
283
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
5,374
|
|
|
5,682
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
3,128
|
|
|
3,623
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
2,016
|
|
|
2,067
|
|
|
|
|
|
|
|
|
|
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 792,680,273 shares, respectively
|
|
|
238
|
|
|
477
|
|
Additional
paid-in capital
|
|
|
161
|
|
|
21
|
|
Retained
earnings
|
|
|
11,314
|
|
|
12,121
|
|
Accumulated
other comprehensive income
|
|
|
306
|
|
|
518
|
|
Cost
of common stock in treasury, 148,660,214
shares
and 160,673,739 shares, respectively
|
|
|
(3,865
|
)
|
|
(4,434
|
)
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
8,154
|
|
|
8,703
|
|
|
|
$
|
18,672
|
|
|
20,075
|
|
See
accompanying Notes to Consolidated Financial Statements.
FORM
10-Q
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
NINE
MONTHS ENDED JUNE 30, 2006 AND 2007
(Dollars
in millions; unaudited)
|
|
Nine Months Ended
June
30,
|
|
|
|
2006
|
|
2007
|
|
Operating
activities
|
|
|
|
|
|
Net
earnings
|
|
$
|
1,319
|
|
|
1,513
|
|
Adjustments
to reconcile net earnings to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
454
|
|
|
491
|
|
Changes
in operating working capital
|
|
|
(373
|
)
|
|
(281
|
)
|
Pension
funding
|
|
|
(100
|
)
|
|
(100
|
)
|
Other
|
|
|
188
|
|
|
151
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
1,488
|
|
|
1,774
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(354
|
)
|
|
(420
|
)
|
Purchases
of businesses, net of cash and equivalents acquired
|
|
|
(708
|
)
|
|
(187
|
)
|
Other
|
|
|
28
|
|
|
72
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(1,034
|
)
|
|
(535
|
)
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
Net
increase in short-term borrowings
|
|
|
172
|
|
|
9
|
|
Proceeds
from long-term debt
|
|
|
5
|
|
|
496
|
|
Principal
payments on long-term debt
|
|
|
(260
|
)
|
|
(3
|
)
|
Dividends
paid
|
|
|
(550
|
)
|
|
(629
|
)
|
Purchases
of treasury stock
|
|
|
(411
|
)
|
|
(628
|
)
|
Other
|
|
|
38
|
|
|
7
|
|
|
|
|
|
|
|
|
|
Net
cash used in financing activities
|
|
|
(1,006
|
)
|
|
(748
|
)
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and equivalents
|
|
|
14
|
|
|
30
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and equivalents
|
|
|
(538
|
)
|
|
521
|
|
|
|
|
|
|
|
|
|
Beginning
cash and equivalents
|
|
|
1,233
|
|
|
810
|
|
|
|
|
|
|
|
|
|
Ending
cash and equivalents
|
|
$
|
695
|
|
|
1,331
|
|
|
|
|
|
|
|
|
|
Changes
in operating working capital
|
|
|
|
|
|
|
|
Receivables
|
|
$
|
(225
|
)
|
|
(252
|
)
|
Inventories
|
|
|
(269
|
)
|
|
(21
|
)
|
Other
current assets
|
|
|
26
|
|
|
(48
|
)
|
Accounts
payable
|
|
|
60
|
|
|
(122
|
)
|
Accrued
expenses
|
|
|
30
|
|
|
116
|
|
Income
taxes
|
|
|
5
|
|
|
46
|
|
|
|
$
|
(373
|
)
|
|
(281
|
)
|
See
accompanying Notes to Consolidated Financial Statements.
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
June
30,
|
|
Nine
Months Ended
June
30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
817.7
|
|
|
791.7
|
|
|
819.4
|
|
|
795.4
|
|
Dilutive
shares
|
|
|
8.1
|
|
|
10.4
|
|
|
7.9
|
|
|
9.8
|
|
Diluted
|
|
|
825.8
|
|
|
802.1
|
|
|
827.3
|
|
|
805.2
|
|
|
4.
|
Comprehensive
income is summarized as follows (dollars in
millions):
|
|
|
Three
Months Ended
June
30,
|
|
Nine
Months Ended
June
30,
|
|
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
486
|
|
|
574
|
|
|
1,319
|
|
|
1,513
|
|
Changes
in foreign currency translation, cash
flow hedges and other
|
|
|
128
|
|
|
115
|
|
|
223
|
|
|
212
|
|
|
|
$
|
614
|
|
|
689
|
|
|
1,542
|
|
|
1,725
|
|
EMERSON ELECTRIC CO. AND SUBSIDIARIES |
FORM
10-Q
|
|
5. |
Other
Financial Information (dollars in millions):
|
|
|
September 30,
2006
|
|
June 30,
2007
|
|
Inventories
|
|
|
|
|
|
Finished
products
|
|
$
|
887
|
|
|
933
|
|
Raw
materials and work in process
|
|
|
1,335
|
|
|
1,376
|
|
|
|
$
|
2,222
|
|
|
2,309
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
|
|
|
|
|
Property,
plant and equipment, at cost
|
|
$
|
7,889
|
|
|
8,279
|
|
Less
accumulated depreciation
|
|
|
4,669
|
|
|
5,000
|
|
|
|
$ |
3,220
|
|
|
3,279
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
Process
Management
|
|
$
|
1,778
|
|
|
1,947
|
|
Industrial
Automation
|
|
|
1,016
|
|
|
1,062
|
|
Network
Power
|
|
|
2,162
|
|
|
2,193
|
|
Climate
Technologies
|
|
|
408
|
|
|
418
|
|
Appliance
and Tools
|
|
|
649
|
|
|
669
|
|
|
|
$
|
6,013
|
|
|
6,289
|
|
|
|
|
|
|
|
|
|
Changes
in
the goodwill balances since September 30, 2006, are primarily due to
additions from acquisitions, particularly in the Process Management
segment ($140 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 for
fiscal year 2007 acquisitions. |
Other
assets, other
|
|
|
|
|
|
Pension
plans
|
|
$
|
1,037
|
|
|
1,091
|
|
Intellectual
property and customer relationships
|
|
|
470
|
|
|
520
|
|
Capitalized
software
|
|
|
163
|
|
|
166
|
|
Equity
and other investments
|
|
|
171
|
|
|
101
|
|
Leveraged
leases
|
|
|
109
|
|
|
106
|
|
Other
|
|
|
159
|
|
|
152
|
|
|
|
$
|
2,109
|
|
|
2,136
|
|
|
|
|
|
|
|
|
|
Product
warranty liability
|
|
$
|
206
|
|
|
201
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
$
|
724
|
|
|
753
|
|
Postretirement
plans, excluding current portion
|
|
|
371
|
|
|
387
|
|
Retirement
plans
|
|
|
253
|
|
|
259
|
|
Minority
interest
|
|
|
176
|
|
|
183
|
|
Other
|
|
|
492
|
|
|
485
|
|
|
|
$
|
2,016
|
|
|
2,067
|
|
EMERSON ELECTRIC CO. AND SUBSIDIARIES
|
|
FORM
10-Q
|
|
6. |
Net
periodic pension expense is summarized as follows (dollars in
millions):
|
|
|
Three
Months Ended
June
30,
|
|
Nine
Months Ended
June
30,
|
|
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
20
|
|
|
15
|
|
|
61
|
|
|
47
|
|
Interest
cost
|
|
|
43
|
|
|
49
|
|
|
136
|
|
|
147
|
|
Expected
return on plan assets
|
|
|
(57
|
)
|
|
(62
|
)
|
|
(171
|
)
|
|
(189
|
)
|
Net
amortization
|
|
|
30
|
|
|
24
|
|
|
90
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
|
|
Net
periodic pension expense for the nine months ended June 30, 2006, included
a
pretax charge of $9 million that occurred during the second quarter of fiscal
2006 related to statutorily mandated Mexican termination benefits. The decrease
in expense also reflects the higher discount rate based on the market interest
rates.
Net
postretirement plan expense is summarized as follows (dollars in
millions):
|
|
Three
Months Ended
June
30,
|
|
Nine
Months Ended
June
30,
|
|
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
3
|
|
|
1
|
|
|
7
|
|
|
4
|
|
Interest
cost
|
|
|
7
|
|
|
7
|
|
|
20
|
|
|
21
|
|
Net
amortization
|
|
|
8
|
|
|
7
|
|
|
25
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
Net
postretirement plan expense for the nine months ended June 30, 2006, included
a
pretax charge of $5
million that occurred during the second quarter of fiscal 2006 related to a
division’s retiree medical plan design and a pretax charge of $3 million that
occurred during the third quarter of fiscal 2006 related to two divisions’
retiree medical plans design.
|
7. |
Other
deductions, net are summarized as follows (dollars in
millions):
|
|
|
Three
Months Ended
June
30,
|
|
Nine
Months Ended
June
30,
|
|
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Other
deductions, net
|
|
|
|
|
|
|
|
|
|
Rationalization
of operations
|
|
$
|
19
|
|
|
|
|
|
53
|
|
|
|
|
Amortization
of intangibles
|
|
|
13
|
|
|
16
|
|
|
32
|
|
|
46
|
|
Other
|
|
|
34
|
|
|
26
|
|
|
88
|
|
|
84
|
|
Gains
|
|
|
(12
|
)
|
|
(3
|
)
|
|
(42
|
)
|
|
(69
|
)
|
|
|
$
|
54
|
|
|
59
|
|
|
131
|
|
|
121
|
|
For
the
nine months ended June 30, 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 nine months
ended June 30, 2007, the Company sold its remaining shares of MKS Instruments,
Inc. (MKS), a publicly-traded company; the Company recorded pretax gains on
these sales of $32 million during the first nine months of fiscal 2007, compared
to pretax gains of $18 million recorded during the same period in fiscal
2006.
EMERSON ELECTRIC CO. AND SUBSIDIARIES |
|
FORM 10-Q
|
|
8. |
The
change in the liability for rationalization of operations during
the nine
months ended June 30, 2007, follows (dollars in
millions):
|
|
|
September 30,
2006
|
|
Expense
|
|
Paid / Utilized
|
|
June 30,
2007
|
|
Severance
and benefits
|
|
$
|
31
|
|
|
28
|
|
|
32
|
|
|
27
|
|
Lease/contract
terminations
|
|
|
12
|
|
|
1
|
|
|
6
|
|
|
7
|
|
Fixed
asset writedowns
|
|
|
-
|
|
|
1
|
|
|
1
|
|
|
-
|
|
Vacant
facility and other shutdown
costs
|
|
|
|
|
|
8
|
|
|
8
|
|
|
1
|
|
Start-up
and moving costs
|
|
|
|
|
|
22
|
|
|
22
|
|
|
1
|
|
|
|
$
|
45
|
|
|
60
|
|
|
69
|
|
|
36
|
|
Rationalization
of operations by business segment is summarized as follows (dollars in
millions):
|
|
Three
Months Ended
June
30,
|
|
Nine
Months Ended
June
30,
|
|
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Process
Management
|
|
$
|
3
|
|
|
2
|
|
|
6
|
|
|
8
|
|
Industrial
Automation
|
|
|
4
|
|
|
5
|
|
|
9
|
|
|
11
|
|
Network
Power
|
|
|
3
|
|
|
5
|
|
|
9
|
|
|
14
|
|
Climate
Technologies
|
|
|
2
|
|
|
2
|
|
|
11
|
|
|
9
|
|
Appliance
and Tools
|
|
|
7
|
|
|
6
|
|
|
18
|
|
|
18
|
|
|
|
$
|
19
|
|
|
20
|
|
|
53
|
|
|
60
|
|
During
the first nine months of 2007, rationalization actions included the elimination
of approximately 1,800 positions. 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 and North America to obtain operational efficiencies and serve Asian and
North American 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 consolidation of certain North American
production, and severance related to the closure of certain motor production
in
Europe to remain competitive on a global basis.
Including
the $60 million of rationalization costs incurred during the nine months ended
June 30, 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 third quarter and
actions anticipated to be approved and initiated during the remainder of the
year.
Rationalization
actions during the first nine months of 2006 included the elimination of
approximately 1,100 positions. 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, and start-up and moving
costs related to a new compressor plant in Eastern Europe in order to improve
profitability. 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 June 30,
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Process
Management
|
|
$
|
1,233
|
|
|
1,471
|
|
|
221
|
|
|
269
|
|
Industrial
Automation
|
|
|
968
|
|
|
1,095
|
|
|
142
|
|
|
161
|
|
Network
Power
|
|
|
1,155
|
|
|
1,322
|
|
|
139
|
|
|
178
|
|
Climate
Technologies
|
|
|
923
|
|
|
1,043
|
|
|
155
|
|
|
174
|
|
Appliance
and Tools
|
|
|
1,099
|
|
|
1,107
|
|
|
141
|
|
|
146
|
|
|
|
|
5,378
|
|
|
6,038
|
|
|
798
|
|
|
928
|
|
Differences
in accounting methods
|
|
|
|
|
|
|
|
|
46
|
|
|
56
|
|
Corporate
and other
|
|
|
|
|
|
|
|
|
(79
|
)
|
|
(98
|
)
|
Eliminations/Interest
|
|
|
(161
|
)
|
|
(164
|
)
|
|
(51
|
)
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales/Earnings before income taxes
|
|
$
|
5,217
|
|
|
5,874
|
|
|
714
|
|
|
824
|
|
Intersegment
sales of the Appliance and Tools segment for the three months ended June 30,
2007 and 2006, respectively, were $140 million and $142 million. The increase
in
Corporate and other for the three and nine months ended June 30, 2007, compared
to the prior year periods, reflects higher incentive share expense due to an
increase in the stock price and awards of long-term incentive shares in the
current year.
|
|
Sales
|
|
Earnings
|
|
Nine
months ended June 30,
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Process
Management
|
|
$
|
3,473
|
|
|
4,034
|
|
|
587
|
|
|
725
|
|
Industrial
Automation
|
|
|
2,759
|
|
|
3,146
|
|
|
416
|
|
|
478
|
|
Network
Power
|
|
|
3,098
|
|
|
3,712
|
|
|
366
|
|
|
441
|
|
Climate
Technologies
|
|
|
2,523
|
|
|
2,676
|
|
|
382
|
|
|
405
|
|
Appliance
and Tools
|
|
|
3,211
|
|
|
3,328
|
|
|
412
|
|
|
416
|
|
|
|
|
15,064
|
|
|
16,896
|
|
|
2,163
|
|
|
2,465
|
|
Differences
in accounting methods
|
|
|
|
|
|
|
|
|
128
|
|
|
156
|
|
Corporate
and other
|
|
|
|
|
|
|
|
|
(231
|
)
|
|
(243
|
)
|
Eliminations/Interest
|
|
|
(447
|
)
|
|
(458
|
)
|
|
(151
|
)
|
|
(178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales/Earnings before income taxes
|
|
$
|
14,617
|
|
|
16,438
|
|
|
1,909
|
|
|
2,200
|
|
Intersegment
sales of the Appliance and Tools segment for the nine months ended June 30,
2007
and 2006, respectively, were $392 million and $391 million.
|
10.
|
During
the third quarter of fiscal 2007, the Company entered into an agreement
to
acquire Stratos International, Inc. (Stratos), a designer and manufacturer
of radio-frequency and microwave interconnect products. The transaction
closed on July 12, 2007, for consideration of approximately $86 million
in
cash (net of cash acquired of $31 million). Stratos has annual revenue
of
approximately $93 million and will be included in the Network Power
segment.
|
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 third quarter and the first nine months of fiscal
2007 were
strong, with sales and earnings increasing for all five business segments over
the prior year periods. The Network Power, Process Management and Industrial
Automation businesses drove gains in a favorable economic environment as gross
fixed investment expanded in the first nine months of fiscal 2007. Strong growth
in Asia and Europe, acquisitions and favorable foreign currency translation
contributed to the third quarter and first nine months’ results. Profit margins
remained strong, primarily due to leverage on higher sales volume and benefits
derived from previous rationalization actions. Emerson's financial position
remains strong and the Company continues to generate substantial cash
flow.
THREE
MONTHS ENDED JUNE 30, 2007, COMPARED WITH THREE MONTHS ENDED JUNE 30,
2006
RESULTS
OF OPERATIONS
Three
months ended June 30,
|
|
2006
|
|
2007
|
|
Change
|
|
(dollars
in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
5,217
|
|
|
5,874
|
|
|
13
|
%
|
Gross
profit
|
|
$
|
1,856
|
|
|
2,105
|
|
|
13
|
%
|
Percent
of sales
|
|
|
35.6
|
%
|
|
35.8
|
%
|
|
|
|
SG&A
|
|
$
|
1,037
|
|
|
1,160
|
|
|
|
|
Percent
of sales
|
|
|
19.9
|
%
|
|
19.7
|
%
|
|
|
|
Other
deductions, net
|
|
$
|
54
|
|
|
59
|
|
|
|
|
Interest
expense, net
|
|
$
|
51
|
|
|
62
|
|
|
|
|
Earnings
before income taxes
|
|
$
|
714
|
|
|
824
|
|
|
16
|
%
|
Net
earnings
|
|
$
|
486
|
|
|
574
|
|
|
18
|
%
|
Percent
of sales
|
|
|
9.3
|
%
|
|
9.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share
|
|
$
|
0.59
|
|
|
0.72
|
|
|
22
|
%
|
Net
sales
were $5,874 million for the quarter ended June 30, 2007, an increase of $657
million, or 13 percent, over net sales of $5,217 million for the quarter ended
June 30, 2006, with growth in both the U.S. and international markets. The
consolidated results reflect increases in all of the business segments, with
an
approximate 9 percent ($436 million) increase in underlying sales (which exclude
acquisitions, divestitures and foreign currency translation), a 3 percent ($130
million) favorable impact from foreign currency translation and a 1 percent
($91
million) contribution from acquisitions, net of divestitures. The underlying
sales increase for the third quarter reflects 14 percent growth in total
international sales and 4 percent growth in the United States. The international
sales growth was led by increases in Asia (21 percent), Europe
(8
percent)
and the
Middle East (59 percent). The Company estimates that the underlying growth
of
approximately 9 percent primarily reflects an approximate 5 percent gain from
volume (excluding penetration and price), an approximate 2 percent impact from
penetration gains and an approximate 2 percent increase from higher sales
prices.
Costs
of
sales for the third quarters of fiscal 2007 and 2006 were $3,769 million and
$3,361 million, respectively. Cost of sales as a percent of net sales was 64.2
percent in the third quarter of 2007, compared with 64.4 percent in the third
quarter of 2006. Gross profit was $2,105 million and $1,856 million for the
third quarters ended June 30, 2007 and 2006, respectively, resulting in gross
profit margins of 35.8 percent and 35.6 percent. The increase in the gross
profit for the third quarter of fiscal 2007 reflects higher sales volume and
benefits from cost reductions, as well as acquisitions. In addition, higher
sales prices were offset by higher material costs, wages and negative product
mix.
Selling,
general and administrative (SG&A) expenses were $1,160 million, or 19.7
percent of net sales, for the third quarter of 2007, compared with $1,037
million, or 19.9 percent of net sales, for the third quarter of 2006. The
increase of $123 million was primarily due to the increase in variable costs
on
higher sales and acquisitions. The reduction 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 $59 million for the third quarter of 2007, a $5 million
increase from the $54 million for the same period in the prior year. See notes
7
and 8 for further details regarding other deductions, net and rationalization
costs.
Earnings
before income taxes for the third quarter of 2007 increased $110 million, or
16
percent, to $824 million, compared
to $714 million for the third quarter of 2006. The
earnings results primarily reflect increases of $48 million in the Process
Management, $39 million in the Network Power and $19 million in the Industrial
Automation business segments.
Income
taxes were $250
million and
$228
million for the three months ended June 30, 2007 and 2006, respectively,
resulting in effective tax rates of 30 percent and 32 percent, respectively.
The
effective tax rate for the entire fiscal year 2007 is expected to be between
31
percent and 32 percent.
Net
earnings were $574 million and earnings per share were $0.72 for the three
months ended June 30, 2007, increases of 18 percent and 22 percent,
respectively, compared to net earnings and earnings per share of $486 million
and $0.59, respectively, for the three months ended June 30, 2006. The
22
percent increase in earnings per share also reflects the purchase of treasury
shares.
BUSINESS
SEGMENTS
Process
Management
Three
months ended June 30,
|
|
2006
|
|
2007
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,233
|
|
|
1,471
|
|
|
19
|
%
|
Earnings
|
|
$
|
221
|
|
|
269
|
|
|
22
|
%
|
Margin
|
|
|
17.9
|
%
|
|
18.3
|
%
|
|
|
|
During
the third quarter of fiscal 2007, sales in the Process Management segment
increased 19 percent to $1,471 million, driven primarily by higher volume.
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 as the
global energy markets continue to spend capital at high levels. Underlying
sales
increased 14 percent, reflecting more than 10 percent growth from volume, and
an
approximate 4 percent combined positive impact from penetration gains and slight
increase in sales prices. Foreign currency translation had a favorable impact
of
3 percent ($37 million) and the Damcos acquisition contributed 2 percent ($26
million). The underlying sales increase reflects growth in all of the major
geographic regions compared with the prior year period, including the United
States (11 percent), Asia (20 percent), Europe (8 percent) and the Middle East
(77 percent). Third quarter earnings increased 22 percent to $269 million from
$221 million in the prior year period, primarily reflecting higher volume,
while
the margin improvement reflects leverage on the higher sales, partially offset
by an $11 million charge from an adverse commercial litigation
judgment.
Industrial
Automation
Three
months ended June 30,
|
|
2006
|
|
2007
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
968
|
|
|
|
|
|
13
|
%
|
Earnings
|
|
$
|
142
|
|
|
161
|
|
|
14
|
%
|
Margin
|
|
|
14.6
|
%
|
|
14.7
|
%
|
|
|
|
Sales
in
the Industrial Automation segment increased 13 percent to $1,095 million for
the
three months ended June
30,
2007. Nearly all of the businesses in the segment reported higher sales,
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, the electrical distribution and the electronic drives businesses.
Third quarter underlying sales
grew 9 percent and included the benefit of an estimated 3 percent positive
impact from price and penetration gains. Foreign currency translation had a
4
percent ($38 million) favorable impact. The underlying sales increase reflects
growth in nearly all of the major geographic regions, including 12 percent
growth internationally and 6 percent growth in the United States. The
international sales growth was led by an increase of 11 percent in Europe.
Earnings increased 14 percent over the prior year period to $161 million, due
to
higher sales volume and related leverage. Higher sales prices were offset by
higher material and wage costs, as well as unfavorable product mix.
EMERSON ELECTRIC CO. AND SUBSIDIARIES |
|
FORM
10-Q
|
Network
Power
Three
months ended June 30,
|
|
2006
|
|
2007
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,155
|
|
|
1,322
|
|
|
14
|
%
|
Earnings
|
|
$
|
139
|
|
|
178
|
|
|
28
|
%
|
Margin
|
|
|
12.0
|
%
|
|
13.4
|
%
|
|
|
|
Network
Power sales increased 14 percent to $1,322 million during the third quarter
of
2007 compared to the prior year period, reflecting continued demand in the
power
systems, embedded power and precision cooling businesses. The sales increase
reflects 11 percent growth in underlying sales, a more than 2 percent ($28
million) favorable impact from foreign currency translation and an approximate
1
percent ($26 million) contribution from acquisitions, net of divestitures.
The
underlying sales growth includes 4 percent from penetration gains.
Geographically, the underlying sales increase reflects growth primarily in
Asia
(25 percent) and the United States (8 percent), while sales in Europe declined
1
percent. Growth in the United States reflects strong demand in the computing
market and market penetration gains by the power systems and uninterruptible
power supply businesses. The Company’s market penetration in China and other
Asian markets continued. Earnings of $178 million increased $39 million, or
28
percent, from the prior year period, including the impact from underlying sales
growth and acquisitions. The margin increase was driven by savings from the
integration of Artesyn and leverage on higher sales volume, partially offset
by
higher material and wage costs.
Climate
Technologies
Three
months ended June 30,
|
|
2006
|
|
2007
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
923
|
|
|
1,043
|
|
|
13
|
%
|
Earnings
|
|
$
|
155
|
|
|
174
|
|
|
12
|
%
|
Margin
|
|
|
16.8
|
%
|
|
16.6
|
%
|
|
|
|
Sales
in
the Climate Technologies segment increased 13 percent to $1,043 million for
the
quarter ended June
30,
2007. The increase was driven by 8 percent growth in underlying sales, a 3
percent ($29 million) contribution from acquisitions and a 2 percent ($15
million) favorable impact from foreign currency translation. Higher sales volume
accounted for 4 percent of the underlying sales increase, and sales price
increases along with penetration gains contributed an additional 4 percent.
The
underlying sales growth was driven by international sales growth of 18 percent.
The international sales increase was led by growth in Europe (21 percent) and
Asia (14 percent). The increase in Europe includes penetration in the heat
pump
market, while the increase in Asia was driven by favorable market conditions.
Sales in the United States were up 3 percent, reflecting higher demand for
refrigeration and air-conditioning products. Earnings increased 12 percent
during the quarter to $174 million driven by higher volume and savings from
prior cost reduction efforts. Higher material costs, unfavorable product mix
and
dilution from acquisitions substantially offset the higher sales prices and
savings from prior cost reduction efforts, negatively impacting the profit
margin.
EMERSON ELECTRIC CO. AND SUBSIDIARIES |
|
FORM
10-Q
|
Appliance
and Tools
Three
months ended June 30,
|
|
2006
|
|
2007
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,099
|
|
|
1,107
|
|
|
1
|
%
|
Earnings
|
|
$
|
141
|
|
|
146
|
|
|
3
|
%
|
Margin
|
|
|
12.9
|
%
|
|
13.2
|
%
|
|
|
|
Sales
in
the Appliance and Tools segment increased 1 percent to $1,107 million during
the
third quarter of 2007. The sales increase reflects an approximate 1 percent
decline 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 decrease of 1 percent reflects an approximate
6 percent decrease in volume, an estimated 1 percent share loss and an
approximate 6 percent positive impact from higher sales prices. The third
quarter results were mixed across the businesses. The overall decline in
underlying sales was primarily due to the slowdown in consumer demand and
residential construction in the United States. The professional tools business
reported strong growth, driven by demand in Europe and in the U.S.
non-residential markets. Geographically, underlying sales declined 3 percent
in
the United States, while international sales grew 5 percent during the quarter.
Earnings increased from $141 million in the prior year period to $146 million
for the third quarter of 2007. The increases in both earnings and margin
primarily reflect cost containment, while increases in sales prices were offset
by higher material and wage costs, along with deleverage on the lower
volume.
NINE
MONTHS ENDED JUNE 30, 2007, COMPARED WITH NINE MONTHS ENDED JUNE 30,
2006
RESULTS
OF OPERATIONS
Nine
months ended June 30,
|
|
2006
|
|
2007
|
|
Change
|
|
(dollars
in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
14,617
|
|
|
16,438
|
|
|
12
|
%
|
Gross
profit
|
|
$
|
5,183
|
|
|
5,852
|
|
|
13
|
%
|
Percent
of sales
|
|
|
35.5
|
%
|
|
35.6
|
%
|
|
|
|
SG&A
|
|
$
|
2,992
|
|
|
3,353
|
|
|
|
|
Percent
of sales
|
|
|
20.5
|
%
|
|
20.4
|
%
|
|
|
|
Other
deductions, net
|
|
$
|
131
|
|
|
121
|
|
|
|
|
Interest
expense, net
|
|
$
|
151
|
|
|
178
|
|
|
|
|
Earnings
before income taxes
|
|
$
|
1,909
|
|
|
2,200
|
|
|
15
|
%
|
Net
earnings
|
|
$
|
1,319
|
|
|
1,513
|
|
|
15
|
%
|
Percent
of sales
|
|
|
9.0
|
%
|
|
9.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share
|
|
$
|
1.59
|
|
|
1.88
|
|
|
18
|
%
|
Net
sales
for the nine months ended June 30, 2007, increased $1,821 million, or 12
percent, to $16,438 million, over net sales of $14,617 million for the nine
months ended June 30, 2006, with international sales leading the overall growth.
The consolidated results reflect increases in all five business segments with
an
approximate 7 percent ($977 million) increase in underlying sales, a 3 percent
($508 million) contribution from acquisitions, net of divestitures, and a 2
percent ($336 million) favorable impact from foreign currency translation.
The
underlying sales increase of 7 percent for the first nine months was driven
by
a total international sales increase of 13 percent and a 2 percent increase
in
the United States. The international sales increase primarily reflects growth
in
Asia (16 percent), Europe (9 percent) and the Middle East (47 percent). The
Company estimates that the underlying growth of approximately 7 percent
primarily reflects an approximate 3 percent gain from volume, an approximate
2
percent impact from penetration gains and an approximate 2 percent impact from
higher sales prices.
Costs
of
sales for the first nine months of fiscal 2007 and 2006 were $10,586 million
and
$9,434 million, respectively. Cost of sales as a percent of net sales was 64.4
percent in the first nine months of 2007, compared with 64.5 percent in the
prior year period. Gross profit was $5,852 million and $5,183 million for the
nine months ended June 30, 2007 and 2006, respectively, resulting in gross
profit margins of 35.6 percent and 35.5 percent. The increase in the
gross
profit during the first nine months of 2007 primarily reflects higher sales
volume and acquisitions, as well as savings from prior cost reduction efforts.
In addition, higher sales prices were substantially offset by higher material
costs and wages.
EMERSON ELECTRIC CO. AND SUBSIDIARIES |
|
FORM
10-Q
|
Selling,
general and administrative expenses for the nine months ended June 30, 2007,
were $3,353 million, or 20.4 percent of net sales, compared with $2,992 million,
or 20.5 percent of net sales, for the nine months ended June 30, 2006. The
increase of $361 million was primarily due to higher sales volume and
acquisitions. The reduction in SG&A as a percent of sales was primarily the
result of leveraging fixed costs on higher sales.
Other
deductions, net were $121 million for the first nine months of fiscal 2007,
a
$10 million decrease from the $131 million for the same period in the prior
year. The first nine months of 2007 included an approximate $24 million gain
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 nine months of 2007 also included gains totaling $32 million related
to
the sale of shares in MKS, compared with gains of approximately $18 million
in
the prior year period. For the nine months ended June 30, 2007, ongoing costs
for the rationalization of operations were $60 million, compared to $53 million
in the prior year period. See notes 7 and 8 for further details regarding other
deductions, net and rationalization costs.
Earnings
before income taxes for the first nine months of 2007 increased $291 million,
or
15 percent, to $2,200 million, compared to $1,909 million for the nine months
ended June 30, 2006. The earnings results reflect increases in all five business
segments, including $138 million in Process Management, $75 million in Network
Power, and $62 million in Industrial Automation.
Income
taxes were $687 million and $590 million for the nine months ended June 30,
2007
and 2006, respectively, resulting in effective tax rates of 31 percent for
both
periods. The effective tax rate for the entire fiscal year 2007 is expected
to
be between 31 percent and 32 percent.
Net
earnings were
$1,513 million and earnings per share were $1.88 for the nine months ended
June
30, 2007, increases
of 15 percent and 18 percent compared
to net earnings and earnings per share of $1,319 million and $1.59,
respectively, for the nine months ended June 30, 2006. The 18 percent increase
in earnings per share also reflects the purchase of treasury shares.
BUSINESS
SEGMENTS
Process
Management
Nine
months ended June 30,
|
|
2006
|
|
2007
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
3,473
|
|
|
4,034
|
|
|
16
|
%
|
Earnings
|
|
$
|
587
|
|
|
725
|
|
|
24
|
%
|
Margin
|
|
|
16.9
|
%
|
|
18.0
|
%
|
|
|
|
During
the first nine months of fiscal 2007, Process Management sales increased 16
percent, on higher volume and acquisitions, to $4,034 million, and earnings
increased 24 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 and power projects and expansion in China. Underlying sales
increased 10 percent, reflecting 8 percent from volume, and approximately 2
percent collectively from penetration gains and slightly higher sales prices.
The Bristol and Damcos acquisitions contributed 3 percent ($94 million), while
foreign currency translation had a 3 percent ($103 million) favorable impact.
The underlying sales increase reflects growth in nearly all of the major
geographic regions, including the United States (9 percent), Middle East (73
percent), Asia (11 percent) and Europe (6 percent), compared with the prior
year
period. Earnings for the first nine months of fiscal 2007 increased 24 percent
to $725 million from $587 million in the prior year period, reflecting higher
sales volume and prices, as well as acquisitions. The margin increase reflects
leverage on the higher sales and cost containment, which were partially offset
by higher project costs, including higher wages and benefits, and an adverse
commercial litigation judgment.
EMERSON ELECTRIC CO. AND SUBSIDIARIES |
|
FORM
10-Q
|
Industrial
Automation
Nine
months ended June 30,
|
|
2006
|
|
2007
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
|
|
|
3,146
|
|
|
14
|
%
|
Earnings
|
|
$
|
416
|
|
|
478
|
|
|
15
|
%
|
Margin
|
|
|
15.1
|
%
|
|
15.2
|
%
|
|
|
|
Sales
in
the Industrial Automation segment increased 14 percent to $3,146 million for
the
nine months ended June 30, 2007. Sales grew in nearly all of the businesses
and
major geographic regions, reflecting the favorable economic environment for
capital goods. The first nine months’ results reflect growth in nearly all of
the businesses, with particular strength in the power generating alternator,
the
electronic drives and the electrical distribution businesses. Underlying sales
grew 10 percent and foreign currency translation had a 4 percent ($100 million)
favorable impact. The first nine months’ growth reflects both increased global
industrial demand, and an approximate 3 percent combined positive impact from
higher sales prices and slight penetration gains. Underlying
sales grew 5 percent in the United States and 14 percent internationally. The
increase in international sales primarily reflects growth in Europe (14 percent)
and Asia (19 percent). Earnings increased 15 percent over the prior year nine
month period to $478 million, reflecting leverage from higher sales volume
and
benefits from cost containment. The earnings increase was also aided by an
approximate $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 nine month period, compared with an $18 million payment received
in
the prior year period. Sales price increases were offset by higher material
and wage costs, as well as unfavorable product mix.
Network
Power
Nine
months ended June 30,
|
|
2006
|
|
2007
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
3,098
|
|
|
3,712
|
|
|
20
|
%
|
Earnings
|
|
$
|
366
|
|
|
441
|
|
|
20
|
%
|
Margin
|
|
|
11.8
|
%
|
|
11.9
|
%
|
|
|
|
The
Network Power segment sales increased 20 percent to $3,712 million for the
first
nine 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 8
percent, while acquisitions, net of divestitures, contributed approximately
10
percent ($308 million) and foreign currency translation had a 2 percent ($62
million) favorable impact. The underlying sales increase of 8 percent reflects
an approximate 5 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 a 20 percent increase
in Asia and a 6 percent increase in the United States, while sales in Europe
declined 1 percent. 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 nine months ended June
30,
2007, increased 20 percent, from $366 million in the prior year period to $441
million, primarily due to acquisitions and leverage on higher sales volume.
The
margin increase reflects leverage on higher sales volume and savings from prior
cost reduction efforts. These benefits were substantially offset by higher
material and wage costs, as well as dilution from acquisitions.
EMERSON ELECTRIC CO. AND SUBSIDIARIES |
|
FORM
10-Q
|
Climate
Technologies
Nine
months ended June 30,
|
|
2006
|
|
2007
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
2,523
|
|
|
2,676
|
|
|
6
|
%
|
Earnings
|
|
$
|
382
|
|
|
405
|
|
|
6
|
%
|
Margin
|
|
|
15.1
|
%
|
|
15.1
|
%
|
|
|
|
Sales
in
the Climate Technologies segment increased 6 percent to $2,676 million for
the
nine months ended June 30, 2007, compared to $2,523 million for the nine months
ended June 30, 2006. Underlying sales increased 2 percent, while acquisitions
contributed 3 percent ($70 million) and foreign currency translation had a
1
percent ($36 million) favorable impact. Lower sales volume of 3 percent was
more
than offset by an approximate 5 percent combined positive impact from sales
price increases and penetration gains. The underlying sales increase reflects
a
7 percent decrease in the United States and an 18 percent increase in
international sales, including 27 percent growth in Europe and 15 percent growth
in Asia. The decrease in U.S. sales for the first nine months of fiscal 2007
is
partially attributable to difficult comparisons to a very strong prior year
period. The air-conditioning compressor business was very strong in the first
nine months of fiscal 2006 primarily due to demand relating to the transition
in
the United States to higher efficiency standards that became effective January
23, 2006. Earnings increased 6 percent during the first nine months of 2007
to
$405 million due to higher sales prices and savings from prior cost reduction
efforts. The margin was flat as higher material and wage costs more than offset
the sales price increases.
Appliance
and Tools
Nine
months ended June 30,
|
|
2006
|
|
2007
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
3,211
|
|
|
3,328
|
|
|
4
|
%
|
Earnings
|
|
$
|
412
|
|
|
416
|
|
|
1
|
%
|
Margin
|
|
|
12.8
|
%
|
|
12.5
|
%
|
|
|
|
The
Appliance and Tools segment sales increased 4 percent to $3,328 million for
the
first nine months of 2007. This increase reflects approximately 2 percent growth
in underlying sales, a 1 percent ($35 million) favorable impact from foreign
currency translation and a 1 percent ($33 million) contribution from
acquisitions. The results for the first nine months were mixed across the
businesses. The tools and storage businesses showed moderate growth, while
growth in the motors businesses slightly improved. These increases were
partially offset by declines in the appliance controls businesses. The growth
in
the tools and storage businesses was driven by the professional tools and
disposer businesses, reflecting higher demand at major retailers. The underlying
sales increase reflects an estimated 4 percent decline in volume and an
approximate 6 percent combined positive impact from higher sales prices and
penetration gains. Underlying sales in the United States were flat, while
international sales grew 9 percent during the first nine months of 2007.
Earnings increased 1 percent to $416 million from the prior year period.
Overall, increases in sales prices and benefits from cost containment were
offset by higher material (copper and other commodities) and wage costs, as
well
as deleverage from the lower 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 third quarter as compared to the end of the prior fiscal year
follows:
|
|
|
|
|
|
Working
capital (in millions)
|
|
$
|
1,956
|
|
|
2,689
|
|
Current
ratio
|
|
|
1.4
to 1
|
|
|
1.5
to 1
|
|
|
|
|
33.1
|
%
|
|
34.5
|
%
|
Net
debt to net capital
|
|
|
28.1
|
%
|
|
26.8
|
%
|
The
ratio
of total debt to total capital has increased to 34.5 percent, or 0.8 percentage
points above the 33.7 percent ratio for the prior year third 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 12.0 times
for the nine months ended June 30, 2007, compared to 12.6 times for the same
period in the prior year, primarily due to an increase in interest expense
from
higher average borrowings partially offset by higher earnings.
Cash
and
equivalents increased by $521 million during the nine months ended June 30,
2007. During the first and third quarters of 2007, the Company issued $250
million of 5.125%, ten-year notes, and $250 million of 5.375%, ten-year notes,
respectively, under a shelf registration statement filed with the Securities
and
Exchange Commission. Cash flow provided by operating activities of $1,774
million was up $286 million, or 19 percent, compared to $1,488 million in the
prior year period, primarily reflecting higher net earnings. Operating cash
flow
of $1,774 million was used primarily to pay dividends of $629 million, fund
capital expenditures of $420 million, fund purchases of businesses of $187
million and fund treasury stock purchases of $628 million. For the nine months
ended June 30, 2007, free cash flow of $1,354 million (operating cash flow
of
$1,774 million less capital expenditures of $420 million) was up 19 percent
from
free cash flow of $1,134 million (operating cash flow of $1,488 million less
capital expenditures of $354 million) for the same period in the prior year,
primarily due to higher net earnings.
The
Company is in a strong financial position, with total assets of $20 billion
and
stockholders' equity of $9 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 6 percent to 7 percent, which
excludes an approximate 4 percent to 5 percent favorable impact from foreign
currency translation, acquisitions and divestitures. Reported sales growth
is
expected to be in the range of 10 percent to 12 percent. Based on this level
of
sales growth, the Company expects 2007 earnings per share of approximately
$2.58
to $2.63, which would represent growth of 15 percent to 17 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 targeted at approximately $2.8 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 statements to reflect later developments. These
risks and uncertainties 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 June 30, 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 June 30, 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)
|
|
|
|
|
|
|
|
|
|
|
|
April
2007
|
|
|
1,400
|
|
$
|
43.80
|
|
|
1,400
|
|
|
21,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
2007
|
|
|
865
|
|
$
|
46.56
|
|
|
865
|
|
|
20,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
2007
|
|
|
960
|
|
$
|
47.88
|
|
|
960
|
|
|
19,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,225
|
|
$
|
45.75
|
|
|
3,225
|
|
|
19,561
|
|
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 19.6 million as of June 30, 2007.
EMERSON ELECTRIC CO. AND SUBSIDIARIES |
|
FORM
10-Q
|
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.
|
|
10.1 |
Letter
Agreement effective as of April 4, 2007, by and between Emerson Electric
Co. and W. Wayne Withers, incorporated by reference to Emerson Electric
Co. Form 8-K filed April 10, 2007, Exhibit
10.1.
|
|
10.2 |
Consulting
Contract made and entered into as of April 4, 2007, by and between
Emerson
Electric Co. and W. Wayne Withers, incorporated by reference to Emerson
Electric Co. Form 8-K filed April 10, 2007, Exhibit
10.2.
|
|
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:
August 8, 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
|
|
|
|
|
|
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.
|