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, 2008
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, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
Accelerated Filer x
|
Accelerated
Filer o
|
Non-Accelerated
Filer o (Do not check if
a
smaller reporting company)
|
Smaller
Reporting Company 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
April
30, 2008: 780,767,964
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, 2007 AND 2008
(Dollars
in millions, except per share amounts; unaudited)
|
|
Three
Months Ended March 31,
|
|
Six
Months Ended March 31,
|
|
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
5,394
|
|
|
6,023
|
|
|
10,331
|
|
|
11,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
3,455
|
|
|
3,781
|
|
|
6,609
|
|
|
7,291
|
|
Selling,
general and administrative expenses
|
|
|
1,109
|
|
|
1,252
|
|
|
2,180
|
|
|
2,436
|
|
Other
deductions, net
|
|
|
39
|
|
|
67
|
|
|
57
|
|
|
70
|
|
Interest
expense (net of interest income of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$7,
$12, $14 and $26, respectively)
|
|
|
58
|
|
|
51
|
|
|
117
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes
|
|
|
733
|
|
|
872
|
|
|
1,368
|
|
|
1,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
240
|
|
|
274
|
|
|
433
|
|
|
528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations
|
|
|
493
|
|
|
598
|
|
|
935
|
|
|
1,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations, net of tax
|
|
|
1
|
|
|
(51
|
)
|
|
4
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
494
|
|
|
547
|
|
|
939
|
|
|
1,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations
|
|
$
|
0.62
|
|
|
0.76
|
|
|
1.17
|
|
|
1.42
|
|
Discontinued
operations
|
|
|
-
|
|
|
(0.06
|
)
|
|
-
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$
|
0.62
|
|
|
0.70
|
|
|
1.17
|
|
|
1.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations
|
|
$
|
0.61
|
|
|
0.75
|
|
|
1.16
|
|
|
1.41
|
|
Discontinued
operations
|
|
|
-
|
|
|
(0.06
|
)
|
|
-
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share
|
|
$
|
0.61
|
|
|
0.69
|
|
|
1.16
|
|
|
1.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends per common share
|
|
$
|
0.2625
|
|
|
0.3000
|
|
|
0.5250
|
|
|
0.6000
|
|
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,
2007
|
|
March
31,
2008
|
|
ASSETS
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash
and equivalents
|
|
$
|
1,008
|
|
|
1,767
|
|
Receivables,
less allowances of $86
and $90, respectively
|
|
|
4,260
|
|
|
4,377
|
|
Inventories
|
|
|
2,227
|
|
|
2,532
|
|
Other
current assets
|
|
|
570
|
|
|
762
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
8,065
|
|
|
9,438
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
3,431
|
|
|
3,413
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
|
|
|
|
|
Goodwill
|
|
|
6,412
|
|
|
6,658
|
|
Other
|
|
|
1,772
|
|
|
1,941
|
|
Total
other assets
|
|
|
8,184
|
|
|
8,599
|
|
|
|
$
|
19,680
|
|
|
21,450
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Short-term
borrowings and current
|
|
|
|
|
|
|
|
maturities
of long-term debt
|
|
$
|
404
|
|
|
1,609
|
|
Accounts
payable
|
|
|
2,501
|
|
|
2,403
|
|
Accrued
expenses
|
|
|
2,337
|
|
|
2,342
|
|
Income
taxes
|
|
|
304
|
|
|
234
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
5,546
|
|
|
6,588
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
3,372
|
|
|
3,338
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
1,990
|
|
|
2,044
|
|
|
|
|
|
|
|
|
|
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
788,434,076 shares and 782,377,732 shares, respectively
|
|
|
477
|
|
|
477
|
|
Additional
paid-in capital
|
|
|
31
|
|
|
188
|
|
Retained
earnings
|
|
|
12,536
|
|
|
13,169
|
|
Accumulated
other comprehensive income
|
|
|
382
|
|
|
705
|
|
Cost
of common stock in treasury, 164,919,936 shares
|
|
|
|
|
|
|
|
and
170,976,280 shares, respectively
|
|
|
(4,654
|
)
|
|
(5,059
|
)
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
8,772
|
|
|
9,480
|
|
|
|
$
|
19,680
|
|
|
21,450
|
|
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, 2007 AND 2008
(Dollars
in millions; unaudited)
|
|
Six
Months Ended March 31,
|
|
|
|
2007
|
|
2008
|
|
Operating
activities
|
|
|
|
|
|
Net
earnings
|
|
$
|
939
|
|
|
1,112
|
|
Adjustments
to reconcile net earnings to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
328
|
|
|
350
|
|
Changes
in operating working capital
|
|
|
(464
|
)
|
|
(319
|
)
|
Other
(including gains on sales of assets and impairments, see
Notes 6 and 10)
|
|
|
72
|
|
|
28
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
875
|
|
|
1,171
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(276
|
)
|
|
(306
|
)
|
Purchases
of businesses, net of cash and equivalents acquired
|
|
|
(172
|
)
|
|
(440
|
)
|
Other
(including sale of assets, see Notes 6 and 10)
|
|
|
86
|
|
|
168
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(362
|
)
|
|
(578
|
)
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
Net
increase in short-term borrowings
|
|
|
398
|
|
|
688
|
|
Proceeds
from long-term debt
|
|
|
248
|
|
|
399
|
|
Principal
payments on long-term debt
|
|
|
(3
|
)
|
|
(1
|
)
|
Dividends
paid
|
|
|
(421
|
)
|
|
(473
|
)
|
Purchases
of treasury stock
|
|
|
(478
|
)
|
|
(483
|
)
|
Other
|
|
|
6
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
(250
|
)
|
|
85
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and equivalents
|
|
|
21
|
|
|
81
|
|
|
|
|
|
|
|
|
|
Increase
in cash and equivalents
|
|
|
284
|
|
|
759
|
|
|
|
|
|
|
|
|
|
Beginning
cash and equivalents
|
|
|
810
|
|
|
1,008
|
|
|
|
|
|
|
|
|
|
Ending
cash and equivalents
|
|
$
|
1,094
|
|
|
1,767
|
|
|
|
|
|
|
|
|
|
Changes
in operating working capital
|
|
|
|
|
|
|
|
Receivables
|
|
$
|
(105
|
)
|
|
30
|
|
Inventories
|
|
|
(122
|
)
|
|
(203
|
)
|
Other
current assets
|
|
|
(21
|
)
|
|
56
|
|
Accounts
payable
|
|
|
(212
|
)
|
|
(120
|
)
|
Accrued
expenses
|
|
|
(51
|
)
|
|
(94
|
)
|
Income
taxes
|
|
|
47
|
|
|
12
|
|
|
|
$
|
(464
|
)
|
|
(319
|
)
|
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, 2007. The 2007
consolidated statements of earnings have been reclassified for
discontinued operations, see Note
10.
|
|
2. |
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
March
31,
|
|
Six
Months Ended
March
31,
|
|
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
Basic
|
|
|
795.3
|
|
|
783.4
|
|
|
797.3
|
|
|
784.9
|
|
Dilutive
shares
|
|
|
9.6
|
|
|
8.6
|
|
|
9.4
|
|
|
9.3
|
|
Diluted
|
|
|
804.9
|
|
|
792.0
|
|
|
806.7
|
|
|
794.2
|
|
|
3. |
Comprehensive
income is summarized as follows (dollars in
millions):
|
|
|
Three
Months Ended
March
31,
|
|
Six
Months Ended
March
31,
|
|
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
Net
earnings
|
|
$
|
494
|
|
|
547
|
|
|
939
|
|
|
1,112
|
|
Changes
in foreign currency translation,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
flow hedges and other
|
|
|
27
|
|
|
261
|
|
|
97
|
|
|
323
|
|
|
|
$
|
521
|
|
|
808
|
|
|
1,036
|
|
|
1,435
|
|
The
increases in comprehensive income for the three and six months ended March
31,
2008, over the prior year periods primarily reflect net earnings growth and
changes in foreign currency translation.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM 10-Q
|
|
4. |
Other
Financial Information (dollars in
millions):
|
|
|
September
30,
2007
|
|
March
31,
2008
|
|
Inventories
|
|
|
|
|
|
Finished
products
|
|
$
|
884
|
|
|
977
|
|
Raw
materials and work in process
|
|
|
1,343
|
|
|
1,555
|
|
|
|
$
|
2,227
|
|
|
2,532
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
|
|
|
|
|
Property,
plant and equipment, at cost
|
|
$
|
8,434
|
|
|
8,568
|
|
Less
accumulated depreciation
|
|
|
5,003
|
|
|
5,155
|
|
|
|
$
|
3,431
|
|
|
3,413
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
Process
Management
|
|
$
|
1,985
|
|
|
2,033
|
|
Industrial
Automation
|
|
|
1,070
|
|
|
1,100
|
|
Network
Power
|
|
|
2,259
|
|
|
2,501
|
|
Climate
Technologies
|
|
|
420
|
|
|
420
|
|
Appliance
and Tools
|
|
|
678
|
|
|
604
|
|
|
|
$
|
6,412
|
|
|
6,658
|
|
Changes
in the goodwill balances since September 30, 2007, are primarily due to
additions from acquisitions, particularly in the Network Power segment ($167
million), the classification of the European appliance motor and pump business,
previously in the Appliance and Tools segment, as held for sale (see Note 10),
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 2008 acquisitions.
Other
assets, other
|
|
|
|
|
|
Pension
plans
|
|
$
|
649
|
|
|
617
|
|
Intellectual
property and customer relationships
|
|
|
544
|
|
|
662
|
|
Capitalized
software
|
|
|
171
|
|
|
166
|
|
Other
|
|
|
408
|
|
|
496
|
|
|
|
$
|
1,772
|
|
|
1,941
|
|
|
|
|
|
|
|
|
|
Product
warranty liability
|
|
$
|
197
|
|
|
204
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
$
|
519
|
|
|
500
|
|
Postretirement
plans, excluding current portion
|
|
|
451
|
|
|
465
|
|
Retirement
plans
|
|
|
296
|
|
|
305
|
|
Minority
interest
|
|
|
191
|
|
|
181
|
|
Other
|
|
|
533
|
|
|
593
|
|
|
|
$
|
1,990
|
|
|
2,044
|
|
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM 10-Q
|
|
5. |
Net
periodic pension expense is summarized as follows (dollars in
millions):
|
|
|
Three
Months Ended
March
31,
|
|
Six
Months Ended
March
31,
|
|
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
Service
cost
|
|
$
|
16
|
|
|
18
|
|
|
32
|
|
|
36
|
|
Interest
cost
|
|
|
49
|
|
|
52
|
|
|
98
|
|
|
104
|
|
Expected
return on plan assets
|
|
|
(64
|
)
|
|
(69
|
)
|
|
(127
|
)
|
|
(137
|
)
|
Net
amortization
|
|
|
25
|
|
|
24
|
|
|
50
|
|
|
48
|
|
|
|
$
|
26
|
|
|
25
|
|
|
53
|
|
|
51
|
|
Net
postretirement plan expense is summarized as follows (dollars in
millions):
|
|
Three
Months Ended
March
31,
|
|
Six
Months Ended
March
31,
|
|
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
Service
cost
|
|
$
|
2
|
|
|
1
|
|
|
3
|
|
|
2
|
|
Interest
cost
|
|
|
7
|
|
|
7
|
|
|
14
|
|
|
14
|
|
Net
amortization
|
|
|
6
|
|
|
8
|
|
|
13
|
|
|
15
|
|
|
|
$
|
15
|
|
|
16
|
|
|
30
|
|
|
31
|
|
|
6. |
Other
deductions, net are summarized as follows (dollars in
millions):
|
|
|
Three
Months Ended March
31,
|
|
Six
Months Ended March
31,
|
|
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
Other
deductions, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rationalization
of operations
|
|
$
|
20
|
|
|
16
|
|
|
36
|
|
|
25
|
|
Amortization
of intangibles
|
|
|
16
|
|
|
22
|
|
|
30
|
|
|
39
|
|
Other
|
|
|
27
|
|
|
29
|
|
|
57
|
|
|
70
|
|
Gains
|
|
|
(24
|
)
|
|
-
|
|
|
(66
|
)
|
|
(64
|
)
|
|
|
$
|
39
|
|
|
67
|
|
|
57
|
|
|
70
|
|
Other
includes an approximate $15 million charge for in-process research and
development in connection with the acquisition of Motorola Inc.’s Embedded
Communications Computing business during December of fiscal 2008.
During
the six months ended March 31, 2008, the Company received $54 million and
recognized a gain of $39 million ($20 million after-tax) on the sale of an
equity investment in Industrial Motion Control Holdings, LLC (IMC), a
manufacturer of motion control components for automation equipment. The Company
also recorded a gain of $18 million related to the sale of a facility during
the
first quarter of fiscal 2008. For the six months ended March 31, 2008 and 2007,
the Company recorded gains of approximately $3 million and $24 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, and recorded a pretax gain of $32 million.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM 10-Q
|
|
7. |
The
change in the liability for rationalization of operations during
the six
months ended March 31, 2008, follows (dollars in
millions):
|
|
|
September
30,
2007
|
|
Expense
|
|
Paid
/ Utilized
|
|
March
31, 2008
|
|
Severance
and benefits
|
|
$
|
28
|
|
|
10
|
|
|
20
|
|
|
18
|
|
Lease/contract
terminations
|
|
|
8
|
|
|
1
|
|
|
1
|
|
|
8
|
|
Fixed
asset write-downs
|
|
|
-
|
|
|
1
|
|
|
1
|
|
|
-
|
|
Vacant
facility and other shutdown
costs
|
|
|
1
|
|
|
4
|
|
|
4
|
|
|
1
|
|
Start-up
and moving costs
|
|
|
-
|
|
|
12
|
|
|
12
|
|
|
-
|
|
|
|
$
|
37
|
|
|
28
|
|
|
38
|
|
|
27
|
|
Expense
includes $3 million related to the European appliance motor and pump
business
classified as discontinued operations.
Rationalization
of operations by business segment is summarized as follows (dollars in
millions):
|
|
Three
Months Ended
March
31,
|
|
Six
Months Ended
March
31,
|
|
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
Process
Management
|
|
$
|
4
|
|
|
3
|
|
|
6
|
|
|
4
|
|
Industrial
Automation
|
|
|
3
|
|
|
3
|
|
|
6
|
|
|
6
|
|
Network
Power
|
|
|
5
|
|
|
5
|
|
|
9
|
|
|
8
|
|
Climate
Technologies
|
|
|
4
|
|
|
4
|
|
|
7
|
|
|
5
|
|
Appliance
and Tools
|
|
|
4
|
|
|
1
|
|
|
8
|
|
|
2
|
|
|
|
$
|
20
|
|
|
16
|
|
|
36
|
|
|
25
|
|
Rationalization
actions during the first six months of fiscal 2007 and 2008 included the
following. 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, and severance
and
start-up and moving costs related to the shifting of certain power systems
production from the United States and Europe to Mexico, as well as consolidating
certain production in North America, 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 $28 million of rationalization costs incurred during the six months ended
March 31, 2008, the Company expects rationalization expense for the entire
2008
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.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM 10-Q
|
|
8. |
Summarized
information about the Company's operations by business segment follows
(dollars in millions):
|
|
|
Sales
|
|
Earnings
|
|
Three
months ended March 31,
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
Process
Management
|
|
$
|
1,345
|
|
|
1,597
|
|
|
239
|
|
|
286
|
|
Industrial
Automation
|
|
|
1,057
|
|
|
1,176
|
|
|
151
|
|
|
171
|
|
Network
Power
|
|
|
1,191
|
|
|
1,520
|
|
|
146
|
|
|
187
|
|
Climate
Technologies
|
|
|
945
|
|
|
956
|
|
|
141
|
|
|
142
|
|
Appliance
and Tools
|
|
|
1,014
|
|
|
956
|
|
|
134
|
|
|
139
|
|
|
|
|
5,552
|
|
|
6,205
|
|
|
811
|
|
|
925
|
|
Differences
in accounting methods
|
|
|
|
|
|
|
|
|
52
|
|
|
57
|
|
Corporate
and other
|
|
|
|
|
|
|
|
|
(72
|
)
|
|
(59
|
)
|
Eliminations/Interest
|
|
|
(158
|
)
|
|
(182
|
)
|
|
(58
|
)
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,394
|
|
|
6,023
|
|
|
733
|
|
|
872
|
|
Intersegment
sales of the Appliance and Tools segment for the three months ended March 31,
2008 and 2007, respectively, were $155 million and $139 million. Corporate
and
other includes commodity hedging-related gains of $30 million in the second
quarter of 2008 which were substantially offset by hedging losses recorded
in
the first quarter of 2008 due to volatility in the commodity markets.
|
|
Sales
|
|
Earnings
|
|
Six
months ended March 31,
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
Process
Management
|
|
$
|
2,563
|
|
|
3,033
|
|
|
456
|
|
|
544
|
|
Industrial
Automation
|
|
|
2,051
|
|
|
2,301
|
|
|
317
|
|
|
342
|
|
Network
Power
|
|
|
2,390
|
|
|
2,926
|
|
|
263
|
|
|
367
|
|
Climate
Technologies
|
|
|
1,633
|
|
|
1,722
|
|
|
231
|
|
|
244
|
|
Appliance
and Tools
|
|
|
1,988
|
|
|
1,888
|
|
|
263
|
|
|
271
|
|
|
|
|
10,625
|
|
|
11,870
|
|
|
1,530
|
|
|
1,768
|
|
Differences
in accounting methods
|
|
|
|
|
|
|
|
|
100
|
|
|
110
|
|
Corporate
and other
|
|
|
|
|
|
|
|
|
(145
|
)
|
|
(132
|
)
|
Eliminations/Interest
|
|
|
(294
|
)
|
|
(327
|
)
|
|
(117
|
)
|
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,331
|
|
|
11,543
|
|
|
1,368
|
|
|
1,645
|
|
Intersegment
sales of the Appliance and Tools segment for the six months ended March 31,
2008
and 2007, respectively, were $277 million and $252 million.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM 10-Q
|
|
9. |
Effective
October 1, 2007, the Company adopted the recognition and disclosure
provisions of Financial Accounting Standards Board Interpretation
No. 48,
“Accounting for Uncertainty in Income Taxes - an Interpretation of
FASB
Statement 109” (FIN 48). FIN 48 addresses the accounting for uncertain tax
positions that a company has taken or expects to take on a tax return.
As
of October 1, 2007, the Company had total unrecognized tax benefits
of
$149 million before recoverability of cross-jurisdictional tax credits
(U.S., state and non-U.S.) and temporary differences, and including
amounts related to acquisitions that would reduce goodwill. If none
of
these liabilities are ultimately paid, the tax provision and tax
rate
would be favorably impacted by $90 million. As a result of adoption,
the
Company recorded a charge of $6 million to beginning retained earnings.
The amount of unrecognized tax benefits is not materially different
as of
March 31, 2008, and is not expected to significantly increase or
decrease
within the next 12 months.
|
The
Company accrues interest and penalties related to income taxes in income tax
expense. As of October 1, 2007, total accrued interest and penalties was $24
million.
The
major
jurisdiction for which the Company files income tax returns is the United
States. U.S. federal examinations by the Internal Revenue Service are
substantially complete through 2005. The status of non- U.S. and state tax
examinations varies by the numerous legal entities and jurisdictions in which
the Company operates.
|
10. |
In
connection with a longer-term strategy to divest selective slower-growth
businesses, the Company is actively pursuing the sale of its European
appliance motor and pump business and expects to complete the sale
within
the next twelve months. The forecast for this business is lower than
originally planned due to a slow economic environment for this consumer
market, increasing competition from Asia, higher commodity costs,
and loss
of a customer. As a result, the carrying value of this business exceeded
its estimated realizable value, and a goodwill impairment charge
of $52
million was recorded in the second quarter of 2008. Sales for the
second
quarter and first six months of fiscal 2008 were $111 million and
$228
million, respectively, and net loss, including the charge, was $(51)
million and $(48) million, respectively. Sales for the second quarter
and
first six months of fiscal 2007 were $119 million and $233 million,
respectively, and net earnings were $1 million and $4 million,
respectively. This business was previously included in the Appliance
and
Tools segment. As of March 31, 2008, this business had current assets
of
$0.2 billion, noncurrent assets of $0.1 billion and total liabilities
of
$0.1 billion. The results for the second quarter and first six months
of
fiscal 2008 and 2007 were classified as discontinued operations.
|
During
the first quarter of fiscal 2008, the Company received $100 million from the
sale of the Brooks Instrument (Brooks) flow meters and flow controls unit,
which
resulted in a pretax gain of $63 million ($42 million after-tax). Sales for
the
first quarter of 2008 were $21 million and net earnings were $1 million. The
net
gain and results of operations for the first quarter of fiscal 2008 were
classified as discontinued operations; prior year results of operations were
inconsequential.
On
December 31, 2007, the Company acquired Motorola Inc.’s Embedded Communications
Computing (ECC) business for approximately $350 million in cash. ECC is a
leading provider of embedded computing products to equipment manufacturers
in
telecommunications, medical imaging, defense and aerospace, and industrial
automation and will be included in the Network Power segment. ECC had calendar
2007 revenue of approximately $560 million.
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 2008
were strong, with earnings increasing for all five business segments and sales
increasing for four of the five business segments over the prior year periods.
The Network Power, Process Management and Industrial Automation businesses
had
strong performances and drove gains as international gross fixed investment
expanded during the first six months of fiscal 2008. Strong growth in Asia,
Latin America and Middle East/Africa, favorable foreign currency translation
and
acquisitions contributed to the second quarter and first six months’ results.
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, 2008, COMPARED WITH THREE MONTHS ENDED MARCH 31,
2007
RESULTS
OF OPERATIONS
Three
months ended March 31,
|
|
2007
|
|
2008
|
|
Change
|
|
(dollars
in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
5,394
|
|
|
6,023
|
|
|
12
|
%
|
Gross
profit
|
|
$
|
1,939
|
|
|
2,242
|
|
|
16
|
%
|
Percent
of sales
|
|
|
35.9
|
%
|
|
37.2
|
%
|
|
|
|
SG&A
|
|
$
|
1,109
|
|
|
1,252
|
|
|
|
|
Percent
of sales
|
|
|
20.5
|
%
|
|
20.8
|
%
|
|
|
|
Other
deductions, net
|
|
$
|
39
|
|
|
67
|
|
|
|
|
Interest
expense, net
|
|
$
|
58
|
|
|
51
|
|
|
|
|
Earnings
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
before
income taxes
|
|
$
|
733
|
|
|
872
|
|
|
19
|
%
|
Earnings
from continuing operations
|
|
$
|
493
|
|
|
598
|
|
|
21
|
%
|
Net
earnings
|
|
$
|
494
|
|
|
547
|
|
|
11
|
%
|
Percent
of sales
|
|
|
9.2
|
%
|
|
9.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS
- Continuing operations
|
|
$
|
0.61
|
|
|
0.75
|
|
|
23
|
%
|
EPS
- Net earnings
|
|
$
|
0.61
|
|
|
0.69
|
|
|
13
|
%
|
Net
sales
for the quarter ended March 31, 2008 were $6,023 million, an increase of $629
million, or 12 percent, over net sales of $5,394 million for the quarter ended
March 31, 2007, with international sales aiding the overall growth. The
consolidated results reflect increases in four of the five business segments,
with a 6 percent ($306 million) increase in underlying sales (which exclude
acquisitions, divestitures and foreign currency translation), a 4 percent ($211
million) favorable impact from foreign currency translation and a 2 percent
($112 million) favorable impact from acquisitions, net of divestitures. The
underlying sales increase for the second quarter reflects 10 percent growth
in
total international sales, while growth in the United States increased 1
percent. The international sales growth was led by increases in Asia (18
percent), Latin America (18 percent), Middle East/Africa (19 percent) and Europe
(2 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 1 percent increase from higher
sales prices.
Costs
of
sales for the second quarters of fiscal 2008 and 2007 were $3,781 million and
$3,455 million, respectively. Cost of sales as a percent of net sales was 62.8
percent in the second quarter of 2008, compared with 64.1 percent in the second
quarter of 2007. Gross profit was $2,242 million and $1,939 million for the
second quarters ended March 31, 2008 and 2007, respectively, resulting in gross
profit margins of 37.2 percent and 35.9 percent. The increase in the gross
profit margin during the second quarter primarily reflects leverage on the
higher sales volume, savings from cost reduction efforts and commodity hedging
gains. Higher sales prices were offset by higher material costs and wages.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM 10-Q
|
Selling,
general and administrative (SG&A) expenses for the second quarter of 2008
were $1,252 million, or 20.8 percent of net sales, compared with $1,109 million,
or 20.5 percent of net sales, for the second quarter of 2007. The increase
of
$143 million was largely due to the increase in variable costs on higher sales
and acquisitions. The increase in SG&A as a percent of sales was primarily
the result of acquisition costs.
Other
deductions, net were $67 million for the second quarter of 2008, a $28 million
increase from the $39 million for the same period in the prior year.
For
the
three months ended March 31, 2007, the Company recorded pretax gains of $24
million, including $19 million related to the sale of shares of MKS.
See
notes
6 and 7 for further details regarding other deductions, net and rationalization
costs.
Earnings
from continuing operations before income taxes for the second quarter of 2008
increased $139 million, or 19 percent, to $872 million, compared to $733 million
for the second quarter of 2007. The earnings results primarily reflect increases
of $47 million in the Process Management, $41 million in the Network Power
and
$20 million in the Industrial Automation business segments.
Income
taxes were $274 million and $240 million for the three months ended March 31,
2008 and 2007, respectively. The effective tax rate was 31 percent in the second
quarter of 2008 compared with 33 percent in the prior year period. The effective
tax rate for the entire fiscal year 2008 is expected to be approximately 32
percent.
Earnings
from continuing operations were $598 million and earnings per share from
continuing operations were $0.75 for the three months ended March 31, 2008,
increases of 21 percent and 23 percent, respectively, compared with $493 million
and $0.61 for the three months ended March 31, 2007.
Net
earnings were $547 million and earnings per share were $0.69 for the three
months ended March 31, 2008, increases of 11 percent and 13 percent,
respectively, compared with $494 million and $0.61 for the three months ended
March 31, 2007. Earnings for the second quarter of fiscal 2008 included a loss
from discontinued operations of $51 million, or $0.06 per share, related to
the
write-down of the European appliance motor and pump business. The 13 percent
increase in earnings per share also reflects the purchase of treasury
shares.
BUSINESS
SEGMENTS
Process
Management
Three
months ended March 31,
|
|
2007
|
|
2008
|
|
Change
|
|
|
|
|
|
|
|
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,345
|
|
|
1,597
|
|
|
19
|
%
|
Earnings
|
|
$
|
239
|
|
|
286
|
|
|
20
|
%
|
Margin
|
|
|
17.7
|
%
|
|
17.9
|
%
|
|
|
|
Process
Management sales were $1,597 million in the second quarter of fiscal 2008,
an
increase of 19 percent over the prior year period. All of the businesses in
this
segment reported higher sales, with sales particularly strong for the systems,
measurement and valves businesses, reflecting continued worldwide demand in
the
energy and power markets. Underlying sales increased approximately 16 percent,
reflecting 11 percent from volume, approximately 4 percent from penetration
gains and less than 1 percent from higher sales prices. Favorable foreign
currency translation added 5 percent ($63 million) and the Brooks divestiture,
net of an acquisition, had an unfavorable impact of 2 percent ($17 million).
The
underlying sales increase reflects growth in the United States (13 percent),
Asia (20 percent), Europe (12 percent), Latin America (33 percent) and Middle
East/Africa (15 percent). Second quarter earnings (defined as earnings before
interest and taxes for the business segments discussion) increased 20 percent
to
$286 million from $239 million in the prior year period, reflecting higher
sales
volume. The margin increase reflects leverage on the higher volume which was
partially offset by negative product mix. The increase in sales prices was
more
than offset by higher wage costs.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM 10-Q
|
Industrial
Automation
Three
months ended March 31,
|
|
2007
|
|
2008
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,057
|
|
|
1,176
|
|
|
11
|
%
|
Earnings
|
|
$
|
151
|
|
|
171
|
|
|
13
|
%
|
Margin
|
|
|
14.3
|
%
|
|
14.5
|
%
|
|
|
|
Sales
grew 11 percent to $1,176 million in the Industrial Automation segment for
the
three months ended March 31, 2008, reflecting sales growth in all of the
businesses and in nearly all of the major geographic regions. Second quarter
results were driven by particular strength in the power generating alternator,
fluid automation, electronic drives and industrial equipment businesses. Second
quarter underlying sales grew 5 percent, reflecting global industrial demand,
and included the benefit of an estimated 1 percent positive impact from price.
Foreign currency translation had a 6 percent ($66 million) favorable impact.
The
underlying sales increase reflects growth in nearly all of the major geographic
regions, including 4 percent in the United States and 5 percent internationally.
The international sales growth was led by a 16 percent increase in Asia,
particularly in the fluid automation business. Earnings increased 13 percent
over the prior year period to $171 million, reflecting the higher sales volume
and related leverage and foreign currency translation, partially offset by
negative product mix. Higher sales prices were partially offset by higher
material and wage costs.
Network
Power
Three
months ended March 31,
|
|
2007
|
|
2008
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,191
|
|
|
1,520
|
|
|
27
|
%
|
Earnings
|
|
$
|
146
|
|
|
187
|
|
|
28
|
%
|
Margin
|
|
|
12.3
|
%
|
|
12.3
|
%
|
|
|
|
Network
Power sales increased 27 percent to $1,520 million during the second quarter
of
2008 compared to the prior year period, reflecting continued strength in the
telecommunications, precision cooling and power systems businesses and
acquisitions. The sales increase reflects an underlying sales growth of 11
percent, a 12 percent ($149 million) increase from the Embedded Communications
Computing (ECC) and Stratos acquisitions and a 4 percent ($44 million) favorable
impact from foreign currency translation. The underlying sales growth of 11
percent reflects higher volume of 7 percent and a net 4 percent from penetration
gains and a slight decrease in sales prices. Geographically, the underlying
sales increase reflects growth in the United States (10 percent), Asia (22
percent) and Latin America (12 percent), while sales in Europe decreased 1
percent. The growth in the United States reflects substantial customer
investment in data room construction and non-residential computer equipment
as
well as the telecommunications power market. Weakness in Europe reflects slower
demand, some embedded power products share loss and customers shifting
production to Asia. The Company’s market penetration gains in China and other
Asian markets continued. Earnings of $187 million increased $41 million, or
28
percent, from the prior year period. The margin was flat as the higher sales
volume and savings from cost reduction actions were offset by higher wage costs,
lower sales prices, and a more than 1 percentage point dilutive impact from
acquisitions.
Climate
Technologies
Three
months ended March 31,
|
|
2007
|
|
2008
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
945
|
|
|
956
|
|
|
1
|
%
|
Earnings
|
|
$
|
141
|
|
|
142
|
|
|
-
|
|
Margin
|
|
|
15.0
|
%
|
|
14.9
|
%
|
|
|
|
Sales
in
the Climate Technologies segment increased 1 percent to $956 million for the
quarter ended March 31, 2008. The increase was driven by a 3 percent ($26
million) favorable impact from foreign currency translation, while underlying
sales decreased 2 percent. The underlying sales decrease of 2 percent included
a
5 percent decline in volume,
an estimated 2 percent positive impact from higher sales prices and an
approximate 1 percent benefit from penetration gains. The underlying sales
decline was led by a slight decrease in the compressor business, partially
offset by a strong increase in the water-heater controls business, primarily
reflecting further penetration in the U.S. water-heater market. Sales in the
United States decreased 3 percent reflecting the downturn in the U.S.
residential market. International sales increased 1 percent reflecting growth
in
Asia (10 percent), partially offset by a decline in Europe (14 percent). Europe
primarily reflects the result of lower heat pump compressor sales. Earnings
of
$142 million were consistent with the prior year period. The profit margin
declined slightly as sales price increases were offset by higher material and
wage costs.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM 10-Q
|
Appliance
and Tools
Three
months ended March 31,
|
|
2007
|
|
2008
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,014
|
|
|
956
|
|
|
(6
|
%)
|
Earnings
|
|
$
|
134
|
|
|
139
|
|
|
5
|
%
|
Margin
|
|
|
13.2
|
%
|
|
14.6
|
%
|
|
|
|
The
Appliance and Tools segment sales decreased 6 percent to $956 million in the
second quarter of 2008. The sales decrease represents a 6 percent decline in
underlying sales, a 1 percent ($15 million) unfavorable contribution from
divestitures and a 1 percent ($12 million) favorable impact from foreign
currency translation. All of the businesses were down for the second quarter,
except for the professional tools and hermetic motors businesses. The growth
in
the professional tools business was driven by demand in the U.S. non-residential
markets and in Europe, including new technology products. The declines in the
storage and appliance-related businesses primarily reflect the continued
downturn in the U.S. residential market. The underlying sales decrease of 6
percent reflects an estimated 9 percent decline in volume and a 3 percent
positive impact from price. Total international underlying sales increased
approximately 9 percent during the quarter, while underlying sales in the U.S.
decreased 8 percent. Earnings increased to $139 million for the second quarter.
Earnings reflect savings from restructuring actions in 2007 across the segment
and hedging gains, partially offset by the lower volume. Higher sale prices
were
substantially offset by higher material and wage costs. The 2007 sale of the
hand tools product line also favorably impacted the margin.
SIX
MONTHS ENDED MARCH 31, 2008, COMPARED WITH SIX MONTHS ENDED MARCH 31,
2007
RESULTS
OF OPERATIONS
Six
months ended March 31,
|
|
2007
|
|
2008
|
|
Change
|
|
(dollars
in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
10,331
|
|
|
11,543
|
|
|
12
|
%
|
Gross
profit
|
|
$
|
3,722
|
|
|
4,252
|
|
|
14
|
%
|
Percent
of sales
|
|
|
36.0
|
%
|
|
36.8
|
%
|
|
|
|
SG&A
|
|
$
|
2,180
|
|
|
2,436
|
|
|
|
|
Percent
of sales
|
|
|
21.1
|
%
|
|
21.1
|
%
|
|
|
|
Other
deductions, net
|
|
$
|
57
|
|
|
70
|
|
|
|
|
Interest
expense, net
|
|
$
|
117
|
|
|
101
|
|
|
|
|
Earnings
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
before
income taxes
|
|
$
|
1,368
|
|
|
1,645
|
|
|
20
|
%
|
Earnings
from continuing operations
|
|
$
|
935
|
|
|
1,117
|
|
|
19
|
%
|
Net
earnings
|
|
$
|
939
|
|
|
1,112
|
|
|
18
|
%
|
Percent
of sales
|
|
|
9.1
|
%
|
|
9.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS
- Continuing operations
|
|
$
|
1.16
|
|
|
1.41
|
|
|
22
|
%
|
EPS
- Net earnings
|
|
$
|
1.16
|
|
|
1.40
|
|
|
21
|
%
|
Net
sales
for the six months ended March 31, 2008 increased $1,212 million, or 12 percent,
to $11,543 million, over net sales of $10,331 million for the six months ended
March 31, 2007, with international sales leading the overall growth.
The Network Power, Process Management and Industrial Automation businesses
drove
the sales growth, while the Appliance and Tools businesses continued to be
impacted by the U.S. consumer slowdown. The consolidated results reflect a
7
percent ($680 million) increase in underlying sales, a 4 percent ($413 million)
favorable impact from foreign currency translation and a 1 percent ($119
million) positive impact from acquisitions, net of divestitures. The underlying
sales increase of 7 percent for the first six months was driven by an increase
of 10 percent in total international sales and a 3 percent increase in the
United States. The international sales increase primarily reflects growth in
Asia (17 percent), Latin America (14 percent), Europe (2 percent) and Middle
East/Africa (22 percent). The Company estimates that the underlying sales growth
primarily reflects an estimated greater than 3 percent gain from volume, an
estimated nearly 3 percent impact from penetration gains and an approximate
1
percent impact from higher sales prices.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM 10-Q
|
Costs
of
sales for the first six months of fiscal 2008 and 2007 were $7,291 million
and
$6,609 million, respectively. Cost of sales as a percent of net sales was 63.2
percent in the first half of 2008, compared with 64.0 percent in the prior
year
period. Gross profit was $4,252 million and $3,722 million for the six months
ended March 31, 2008 and 2007, respectively, resulting in gross profit margins
of 36.8 percent and 36.0 percent. The increase in the gross profit margin during
the first half of 2008 primarily reflects leverage on higher sales volume and
benefits realized from productivity improvements, which were partially offset
by
negative product mix. Higher sales prices were offset by higher raw material
and
wage costs. The increase in the gross profit amount primarily reflects higher
sales volume and foreign currency translation.
Selling,
general and administrative expenses for the six months ended March 31, 2008
were
$2,436 million, or 21.1 percent of net sales, compared with $2,180 million,
or
21.1 percent of net sales, for the six months ended March 31, 2007. The increase
of $256 million was largely due to the increase in variable costs on higher
sales.
Other
deductions, net were $70 million for the first half of fiscal 2008, a $13
million increase from the $57 million for the same period in the prior year.
In
the first half of fiscal 2008, the Company recognized gains of $39 million
($20
million after-tax) on the sale of an equity investment in IMC and $18 million
on
the sale of a facility. In addition, the first six months of 2008 included
a
gain of approximately $3 million for a payment received under the U.S. Continued
Dumping and Subsidy Offset Act, compared with a $24 million payment received
in
the prior year period. The first six months of 2007 included a gain of
approximately $32 million related to the sale of shares of MKS. A $15 million
charge was recorded in the first half of fiscal 2008 for in-process research
and
development in connection with the acquisition of Motorola Inc.’s Embedded
Communications Computing business in December 2007. For the six months ended
March 31, 2008, amortization of intangibles increased $9 million compared with
the prior year period due to acquisitions, offset by an $11 million decrease
in
rationalization costs. See notes 6 and 7 for further details regarding other
deductions, net and rationalization costs.
Earnings
from continuing operations before income taxes for the first six months of
2008
increased $277 million, or 20 percent, to $1,645 million, compared with $1,368
million for the six months ended March 31, 2007. The earnings results
predominantly reflect increases of $104 million in Network Power and $88 million
in Process Management business segments.
Income
taxes were $528 million and $433 million for the six months ended March 31,
2008
and 2007, respectively. The effective tax rate was 32 percent for both the
first
half of fiscal 2008 and 2007. The effective tax rate for the entire fiscal
year
2008 is expected to be approximately 32 percent.
Earnings
from continuing operations were $1,117 million and earnings per share from
continuing operations were $1.41 for the six months ended March 31, 2008,
increases of 19 percent and 22 percent, respectively, compared with $935 million
and $1.16 for the six months ended March 31, 2007.
Net
earnings were $1,112 million and earnings per share were $1.40 for the six
months ended March 31, 2008, increases of 18 percent and 21 percent,
respectively, compared with $939 million and $1.16 for the six months ended
March 31, 2007. Earnings for the first six months of fiscal 2008 included a
loss
from discontinued operations of $5 million, or $0.01 per share, which included
a
gain of $42 million, or $0.05 per share, related to the divestiture of the
Brooks unit, offset by a loss of $52 million, or $0.06 per share, related to
the
write-down of the European appliance motor and pump business. The 21 percent
increase in earnings per share also reflects the purchase of treasury shares.
EMERSON
ELECTRIC CO. AND
SUBSIDIARIES
|
FORM
10-Q
|
BUSINESS
SEGMENTS
Process
Management
Six
months ended March 31,
|
|
2007
|
|
2008
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
2,563
|
|
|
3,033
|
|
|
18
|
%
|
Earnings
|
|
$
|
456
|
|
|
544
|
|
|
19
|
%
|
Margin
|
|
|
17.8
|
%
|
|
17.9
|
%
|
|
|
|
During
the first six months of fiscal 2008, Process Management sales increased 18
percent, on higher volume and acquisitions, to $3,033 million, and earnings
increased 19 percent. Nearly all of the businesses reported sales increases
compared to the prior year period. Sales and earnings were particularly strong
for the systems, measurement, and valves businesses due to worldwide growth
in
energy and power markets. Underlying sales increased 14 percent, reflecting
10
percent from volume, approximately 3 percent from penetration gains and an
estimated 1 percent from higher sales prices. Foreign currency translation
had a
5 percent ($116 million) favorable impact, while the Brooks divestiture, net
of
acquisitions, had a 1 percent ($6 million) unfavorable impact. The underlying
sales increase reflects growth in all of the major geographic regions, including
the United States (13 percent), Asia (20 percent), Europe (8 percent) and Latin
America (21 percent), as well as Middle East/Africa (20 percent), compared
with
the prior year period. Earnings for the first six months of fiscal 2008
increased 19 percent to $544 million from $456 million in the prior year period,
reflecting higher sales volume. The margin increase reflects leverage on the
higher volume, which was partially offset by unfavorable product mix. The
increase in sales prices was more than offset by higher wage costs.
Industrial
Automation
Six
months ended March 31,
|
|
2007
|
|
2008
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
2,051
|
|
|
2,301
|
|
|
12
|
%
|
Earnings
|
|
$
|
317
|
|
|
342
|
|
|
8
|
%
|
Margin
|
|
|
15.5
|
%
|
|
14.9
|
%
|
|
|
|
Sales
in
the Industrial Automation segment increased 12 percent to $2,301 million
for the
six months ended March
31,
2008. Sales grew in all of the businesses and in nearly all of the major
geographic regions, reflecting the strength in the power generating alternator,
electronic drives and fluid automation businesses. Underlying sales grew
5
percent and foreign currency translation had a 7 percent ($134 million)
favorable impact. The underlying growth reflects 4 percent from volume,
primarily due to increased global capital goods investment, as well as an
estimated 1 percent positive impact from price. The increase in underlying
sales
reflects 6 percent growth internationally, primarily reflecting increases
in
Europe (5 percent) and Asia (16 percent), and sales growth in the United
States
was 5 percent. Earnings increased 8 percent over the prior year six month
period
to $342 million, reflecting leverage from higher sales volume and benefits
from
prior cost reduction efforts. The margin decrease reflects a lower payment
received by the power transmission business from dumping duties related to
the
U.S. Continued Dumping and Subsidy Offset Act. A $24 million payment was
received in the first quarter of fiscal 2007 while only a $3 million payment
was
received in the first quarter of fiscal 2008. The Company does not expect
to
receive any significant payments in the future. This decrease was partially
offset by higher sales volume and leverage, as well as foreign currency
translation. Higher sales prices were substantially offset by higher material
and wage costs.
EMERSON
ELECTRIC CO. AND
SUBSIDIARIES
|
FORM
10-Q
|
Network
Power
Six
months ended March 31,
|
|
2007
|
|
2008
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
2,390
|
|
|
2,926
|
|
|
22
|
%
|
Earnings
|
|
$
|
263
|
|
|
367
|
|
|
39
|
%
|
Margin
|
|
|
11.0
|
%
|
|
12.5
|
%
|
|
|
|
The
Network Power segment sales increased 22 percent to $2,926 million for the
first
six months of 2008 compared with the prior year period, reflecting continued
strength in the power systems and precision cooling businesses. Underlying
sales
grew 11 percent, the ECC and Stratos acquisitions contributed 7 percent ($167
million) and foreign currency translation had a 4 percent ($86 million)
favorable impact. The underlying sales increase of 11 percent reflects a 7
percent gain from higher volume and an estimated 5 percent impact from
penetration gains, which were partially offset by an approximate less than
1
percent decline in sales prices. Geographically, underlying sales reflect an
18
percent increase in Asia and a 12 percent increase in the United States, while
Europe was flat. The U.S. growth reflects strong demand for data room
construction and non-residential computer equipment as well as in the
telecommunications power market. The Company’s market penetration gains in China
and other Asian markets continued. Earnings for the six months ended March
31,
2008 of $367 million increased $104 million, or 39 percent, from the prior
year
period primarily due to the higher sales volume and savings from cost reduction
actions, partially offset by higher wage costs. The margin increase reflects
the
cost savings and leverage on the higher volume.
Climate
Technologies
Six
months ended March 31,
|
|
2007
|
|
2008
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,633
|
|
|
1,722
|
|
|
5
|
%
|
Earnings
|
|
$
|
231
|
|
|
244
|
|
|
6
|
%
|
Margin
|
|
|
14.2
|
%
|
|
14.2
|
%
|
|
|
|
Sales
in
the Climate Technologies segment increased 5 percent to $1,722 million for
the
six months ended March
31,
2008. Underlying sales increased 2 percent, while foreign currency translation
had a 3 percent ($51 million) favorable impact. Lower sales volume of 2 percent
was offset by an approximate 2 percent positive impact from sales price
increases and an approximate 2 percent from penetration gains. The underlying
sales increase was led by the water-heater controls business which primarily
reflects further penetration in the U.S. water-heater market. The compressors
business grew slightly, primarily in the U.S. and Asian air-conditioning
markets. The underlying sales increase reflects a 3 percent increase in the
United States and 13 percent growth in Asia, while sales in Europe declined
15
percent. Earnings of $244 million for the first six months of fiscal 2008
increased 6 percent when compared to the prior year period, reflecting savings
from prior cost reduction efforts, which were partially offset by negative
product mix. The profit margin was flat as higher material and wage costs offset
higher sales prices.
Appliance
and Tools
Six
months ended March 31,
|
|
2007
|
|
2008
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,988
|
|
|
1,888
|
|
|
(5
|
%)
|
Earnings
|
|
$
|
263
|
|
|
271
|
|
|
3
|
%
|
Margin
|
|
|
13.2
|
%
|
|
14.4
|
%
|
|
|
|
The
Appliance and Tools segment sales decreased 5 percent to $1,888 million for
the
first six months of 2008. This decrease reflects a 5 percent decline in
underlying sales, a 2 percent ($37 million) unfavorable impact from divestitures
and a 2 percent ($26 million) favorable impact from foreign currency
translation. The results for the first six months show declines across most
of
the businesses. Strong growth in the professional tools business and moderate
growth in the hermetic motors businesses was more than offset by declines in
the
storage, appliance components,
and appliance and commercial motors businesses. The strong growth in the
professional tools business was driven by the U.S. non-residential and European
markets. The declines in the storage and appliance-related businesses primarily
reflect the continued downturn in the U.S. residential market. The underlying
sales decrease of 5 percent reflects an approximate 3 percent positive impact
from higher sales prices, offset by an estimated 8 percent decline in volume.
Total international underlying sales increased 11 percent and sales in the
United States decreased approximately 7 percent during the first half of 2008.
Earnings increased 3 percent to $271 million for the current six month period.
Earnings reflect savings from prior period restructuring actions and hedging
gains, partially offset by deleverage on the lower sales volume. The increase
in
sales prices was substantially offset by higher material and wage
costs.
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,
|
|
|
|
2007
|
|
2008
|
|
Working
capital (in millions)
|
|
$
|
2,519
|
|
|
2,850
|
|
Current
ratio
|
|
|
1.5
to 1
|
|
|
1.4
to 1
|
|
Total
debt to total capital
|
|
|
30.1
|
%
|
|
34.3
|
%
|
Net
debt to net capital
|
|
|
23.6
|
%
|
|
24.7
|
%
|
The
ratio
of total debt to total capital was 34.3 percent as of March 31, 2008, or 1.8
percentage points below the 36.1 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
13.9
times for the six months ended March 31, 2008, compared with 11.5 times for
the
same period in the prior year, primarily due to higher earnings during the
first
six months of fiscal 2008.
Cash
and
equivalents increased by $759 million during the six months ended March 31,
2008. During the second quarter of 2008, the Company issued $400 million of
5.250% notes due October 2018, under a shelf registration statement filed with
the Securities and Exchange Commission. Cash flow provided by operating
activities of $1,171 million was up $296 million compared with $875 million
in
the prior year period. Operating cash flow, the net increase in short-term
borrowings of $688 million and the $399 million of proceeds from long-term
debt
were used primarily to fund purchases of treasury stock of $483 million, pay
dividends of $473 million, fund purchases of businesses of $440 million and
fund
capital expenditures of $306 million. For the six months ended March 31, 2008,
free cash flow of $865 million (operating cash flow of $1,171 million less
capital expenditures of $306 million) was up 45 percent from free cash flow
of
$599 million (operating cash flow of $875 million less capital expenditures
of
$276 million) for the same period in the prior year, primarily due to higher
earnings in the six months ended March 31, 2008, as compared to the prior year
period.
The
Company is in a strong financial position, with total assets of $21 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.
New
Accounting Pronouncements
Effective
October 1, 2007, the Company adopted the recognition and disclosure provisions
of Financial Accounting Standards Board Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes - an Interpretation of FASB Statement 109” (FIN 48).
FIN 48 addresses the accounting for uncertain tax positions that a company
has
taken or expects to take on a tax return. See note 9 for further discussion
on
the impact of FIN 48 on the financial statements.
In
December 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141(R), “Business Combinations” (FAS 141(R)).
FAS 141(R) requires assets acquired and liabilities assumed to be measured
at
fair value as of the acquisition date, acquisition related costs incurred prior
to the acquisition to be expensed
and contractual contingencies to be recognized at fair value as of the
acquisition date. The Company is in the process of analyzing the impact of
FAS
141(R), which is effective for fiscal years beginning after December 15,
2008.
EMERSON
ELECTRIC CO. AND
SUBSIDIARIES
|
FORM
10-Q
|
In
December 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 160, “Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51” (FAS 160). FAS
160 requires an entity to separately disclose non-controlling interests as
a
separate component of equity in the balance sheet and clearly identify on the
face of the income statement net income related to non-controlling interests.
The Company is in the process of analyzing the impact of FAS 160, which is
effective for fiscal years beginning after December 15, 2008.
In
March
2008, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 161, “Disclosures about Derivative Instruments and
Hedging Activities” (FAS 161). FAS 161 requires additional derivative
disclosures, including objectives and strategies for using derivatives, fair
value amounts of and gains and losses on derivative instruments, and
credit-risk-related contingent features in derivative agreements. The Company
is
in the process of analyzing the impact of FAS 161, which is effective for
financial statements issued for fiscal years and interim periods beginning
after
November 15, 2008. The Company does not expect the adoption of FAS 161 to have
a
material impact on the financial statements.
OUTLOOK
Based
on
the Company’s performance in the first half of fiscal 2008 and continued order
strength, underlying sales growth for fiscal 2008 is expected to be in the
range
of 5 percent to 7 percent, which excludes approximately 6 percent favorable
impact from foreign currency translation, acquisitions and divestitures.
Reported sales are expected to be approximately $25 billion, an increase of
11
percent to 13 percent over fiscal 2007 sales of $22.1 billion, excluding
discontinued operations. Based on this level of sales, the Company expects
to
generate 2008 earnings per share from continuing operations of $3.00 to $3.10
compared with $2.65 per share in fiscal 2007. Rationalization of operations
expense is estimated to be approximately $85 million to $95 million for fiscal
2008. Operating cash flow is estimated at approximately $3.2 billion and capital
expenditures are estimated to be $0.8 billion for 2008.
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,
2007, which are hereby incorporated by reference.
Item
4. Controls and Procedures
Emerson
maintains a system of disclosure controls and procedures which are designed
to
ensure that information required to be disclosed by the Company in the reports
filed or submitted under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms and is accumulated and communicated to management,
including the Company’s certifying officers, as appropriate to allow timely
decisions regarding required disclosure. Based on an evaluation performed,
the
Company's certifying officers have concluded that the disclosure controls and
procedures were effective as of March 31, 2008, 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,
2008, that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
EMERSON
ELECTRIC CO. AND
SUBSIDIARIES
|
FORM
10-Q
|
PART
II. OTHER INFORMATION
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
(c) Issuer
Purchases of Equity Securities.
Period
|
|
(a)
Total Number of
Shares
Purchased
(000s)
|
|
(b)
Average Price
Paid
per Share
|
|
(c)
Total Number of
Shares
Purchased as
Part
of Publicly
Announced
Plans
or Programs (000s)
|
|
(d)
Maximum
Number
of Shares
that
May Yet Be
Purchased
Under the
Plans
or Programs (000s)
|
|
January
2008
|
|
|
1,860
|
|
$
|
51.26
|
|
|
1,860
|
|
|
9,482
|
|
February
2008
|
|
|
1,760
|
|
$
|
51.85
|
|
|
1,760
|
|
|
7,722
|
|
March
2008
|
|
|
2,100
|
|
$
|
50.17
|
|
|
2,100
|
|
|
5,622
|
|
Total
|
|
|
5,720
|
|
$
|
51.04
|
|
|
5,720
|
|
|
5,622
|
|
The
Company’s Board of Directors authorized the repurchase of up to 80 million
shares under the November 2001 program, as adjusted for the Company’s December
2006 two-for-one stock split. The maximum number of shares that may yet be
purchased under this program was 5.6 million as of March 31, 2008. The above
table does not reflect the new program approved by the Board of Directors on
May
6, 2008, for the repurchase of up to 80 million additional shares.
Item
4. Submission of Matters to a Vote of Security Holders.
At
the
Annual Meeting of Stockholders on February 5, 2008, matters described in the
Notice of Annual Meeting of Stockholders dated December 14, 2007, were voted
upon.
1. The
directors listed below were elected for terms ending in 2011, with voting for
each as follows:
DIRECTOR
|
|
FOR
|
|
WITHHELD
|
|
D.
N. Farr
|
|
|
682,970,402
|
|
|
16,891,799
|
|
R.
B. Horton
|
|
|
684,577,743
|
|
|
15,284,458
|
|
C.
A. Peters
|
|
|
684,198,481
|
|
|
15,663,720
|
|
J.
W. Prueher
|
|
|
686,359,933
|
|
|
13,502,268
|
|
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 685,311,564 in
favor
to 12,407,405 against, with 2,143,232 abstaining.
There
were no broker non-votes on the matters that were voted upon.
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).
3.1
|
|
Bylaws
of Emerson Electric Co., as amended through February 5,
2008.
|
|
|
|
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
|
|
First
Amendment to the Emerson Electric Co. Savings Investment Restoration
Plan.
|
|
|
|
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 7, 2008 |
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)
|
Exhibits
are listed by numbers corresponding to the Exhibit Table of Item 601 in
Regulation S-K.
Exhibit
No.
|
|
Exhibit
|
|
|
|
3.1
|
|
Bylaws
of Emerson Electric Co., as amended through February 5,
2008.
|
|
|
|
10.1
|
|
First
Amendment to the Emerson Electric Co. Savings Investment Restoration
Plan.
|
|
|
|
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.
|