Unassociated Document
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, 2009
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the
transition period from ____________________ to __________________
Commission
file number 1-278
EMERSON
ELECTRIC CO.
(Exact
name of registrant as specified in its charter)
Missouri
(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
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files). Yes x No
¨
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 ¨
|
Non-Accelerated
Filer ¨
(Do not check if a smaller reporting company)
|
Smaller Reporting Company
¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ 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, 2009: 751,589,725
shares.
PART
I. FINANCIAL INFORMATION
Item
1. Financial Statements
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF EARNINGS
THREE AND
NINE MONTHS ENDED JUNE 30, 2008 AND 2009
(Dollars
in millions, except per share amounts; unaudited)
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
6,568
|
|
|
|
5,091
|
|
|
|
18,111
|
|
|
|
15,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
4,155
|
|
|
|
3,253
|
|
|
|
11,446
|
|
|
|
9,922
|
|
Selling,
general and administrative expenses
|
|
|
1,321
|
|
|
|
1,089
|
|
|
|
3,757
|
|
|
|
3,401
|
|
Other
deductions, net
|
|
|
100
|
|
|
|
141
|
|
|
|
170
|
|
|
|
353
|
|
Interest
expense (net of interest income of $15, $3, $41 and $19,
respectively)
|
|
|
46
|
|
|
|
64
|
|
|
|
147
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations before income taxes
|
|
|
946
|
|
|
|
544
|
|
|
|
2,591
|
|
|
|
1,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
299
|
|
|
|
157
|
|
|
|
827
|
|
|
|
542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations
|
|
|
647
|
|
|
|
387
|
|
|
|
1,764
|
|
|
|
1,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations, net of tax
|
|
|
(35
|
)
|
|
|
-
|
|
|
|
(40
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
612
|
|
|
|
387
|
|
|
|
1,724
|
|
|
|
1,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations
|
|
$
|
0.83
|
|
|
|
0.52
|
|
|
|
2.25
|
|
|
|
1.61
|
|
Discontinued
operations
|
|
|
(0.04
|
)
|
|
|
-
|
|
|
|
(0.05
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$
|
0.79
|
|
|
|
0.52
|
|
|
|
2.20
|
|
|
|
1.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations
|
|
$
|
0.82
|
|
|
|
0.51
|
|
|
|
2.23
|
|
|
|
1.60
|
|
Discontinued
operations
|
|
|
(0.04
|
)
|
|
|
-
|
|
|
|
(0.05
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share
|
|
$
|
0.78
|
|
|
|
0.51
|
|
|
|
2.18
|
|
|
|
1.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends per common share
|
|
$
|
0.30
|
|
|
|
0.33
|
|
|
|
0.90
|
|
|
|
0.99
|
|
See
accompanying Notes to Consolidated Financial Statements.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Amounts
in millions, except per share; unaudited)
|
|
September 30,
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and equivalents
|
|
$
|
1,777
|
|
|
|
1,382
|
|
Receivables,
less allowances of $90 and $92, respectively
|
|
|
4,618
|
|
|
|
3,720
|
|
Inventories
|
|
|
2,348
|
|
|
|
2,062
|
|
Other
current assets
|
|
|
588
|
|
|
|
554
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
9,331
|
|
|
|
7,718
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
3,507
|
|
|
|
3,475
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
6,562
|
|
|
|
6,976
|
|
Other
|
|
|
1,640
|
|
|
|
2,155
|
|
|
|
|
|
|
|
|
|
|
Total
other assets
|
|
|
8,202
|
|
|
|
9,131
|
|
|
|
$
|
21,040
|
|
|
|
20,324
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Short-term
borrowings and current maturities of long-term debt
|
|
$
|
1,221
|
|
|
|
837
|
|
Accounts
payable
|
|
|
2,699
|
|
|
|
1,824
|
|
Accrued
expenses
|
|
|
2,480
|
|
|
|
2,308
|
|
Income
taxes
|
|
|
173
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
6,573
|
|
|
|
4,993
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
3,297
|
|
|
|
4,464
|
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
2,057
|
|
|
|
2,207
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
|
|
|
|
|
Preferred
stock of $2.50 par value per share
|
|
|
|
|
|
|
|
|
Authorized
5.4 shares; issued – none
|
|
|
-
|
|
|
|
-
|
|
Common
stock of $0.50 par value per share
|
|
|
|
|
|
|
|
|
Authorized
1,200.0 shares; issued 953.4 shares; outstanding
|
|
|
|
|
|
|
|
|
771.2
shares and 751.5 shares, respectively
|
|
|
477
|
|
|
|
477
|
|
Additional
paid-in capital
|
|
|
146
|
|
|
|
152
|
|
Retained
earnings
|
|
|
14,002
|
|
|
|
14,471
|
|
Accumulated
other comprehensive income
|
|
|
141
|
|
|
|
(133
|
)
|
Cost
of common stock in treasury, 182.2 shares and
|
|
|
|
|
|
|
|
|
201.9
shares, respectively
|
|
|
(5,653
|
)
|
|
|
(6,307
|
)
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
9,113
|
|
|
|
8,660
|
|
|
|
$
|
21,040
|
|
|
|
20,324
|
|
See
accompanying Notes to Consolidated Financial Statements.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
NINE
MONTHS ENDED JUNE 30, 2008 AND 2009
(Dollars
in millions; unaudited)
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2009
|
|
Operating
activities
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
1,724
|
|
|
|
1,218
|
|
Adjustments
to reconcile net earnings to net cash
|
|
|
|
|
|
|
|
|
provided
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
530
|
|
|
|
542
|
|
Changes
in operating working capital
|
|
|
(346
|
)
|
|
|
69
|
|
Pension
funding
|
|
|
(99
|
)
|
|
|
(263
|
)
|
Pension
deferred tax benefit
|
|
|
47
|
|
|
|
130
|
|
Other
|
|
|
142
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
1,998
|
|
|
|
1,734
|
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(461
|
)
|
|
|
(388
|
)
|
Purchases
of businesses, net of cash and equivalents acquired
|
|
|
(412
|
)
|
|
|
(735
|
)
|
Other
|
|
|
142
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(731
|
)
|
|
|
(1,105
|
)
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
Net
increase in short-term borrowings
|
|
|
774
|
|
|
|
40
|
|
Proceeds
from long-term debt
|
|
|
400
|
|
|
|
1,254
|
|
Principal
payments on long-term debt
|
|
|
(10
|
)
|
|
|
(680
|
)
|
Dividends
paid
|
|
|
(708
|
)
|
|
|
(749
|
)
|
Purchases
of treasury stock
|
|
|
(727
|
)
|
|
|
(718
|
)
|
Other
|
|
|
(45
|
)
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash used in financing activities
|
|
|
(316
|
)
|
|
|
(947
|
)
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and equivalents
|
|
|
98
|
|
|
|
(77
|
)
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and equivalents
|
|
|
1,049
|
|
|
|
(395
|
)
|
|
|
|
|
|
|
|
|
|
Beginning
cash and equivalents
|
|
|
1,008
|
|
|
|
1,777
|
|
|
|
|
|
|
|
|
|
|
Ending
cash and equivalents
|
|
$
|
2,057
|
|
|
|
1,382
|
|
|
|
|
|
|
|
|
|
|
Changes
in operating working capital
|
|
|
|
|
|
|
|
|
Receivables
|
|
$
|
(197
|
)
|
|
|
839
|
|
Inventories
|
|
|
(205
|
)
|
|
|
328
|
|
Other
current assets
|
|
|
(1
|
)
|
|
|
16
|
|
Accounts
payable
|
|
|
25
|
|
|
|
(800
|
)
|
Accrued
expenses
|
|
|
28
|
|
|
|
(148
|
)
|
Income
taxes
|
|
|
4
|
|
|
|
(166
|
)
|
|
|
$
|
(346
|
)
|
|
|
69
|
|
See
accompanying Notes to Consolidated Financial Statements.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
Notes
to Consolidated Financial Statements
|
1.
|
In
the opinion of management, the accompanying unaudited consolidated
financial statements 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,
2008. Certain prior year amounts have been reclassified to
conform to the current year presentation. The Company has
evaluated subsequent events through August 5,
2009.
|
|
2.
|
Reconciliations
of weighted average common shares for basic and diluted earnings per
common share follow (shares in
millions):
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
shares outstanding
|
|
|
778.6 |
|
|
|
749.6 |
|
|
|
782.8 |
|
|
|
755.0 |
|
Dilutive
shares
|
|
|
9.2 |
|
|
|
5.1 |
|
|
|
9.3 |
|
|
|
4.8 |
|
Diluted
shares outstanding
|
|
|
787.8 |
|
|
|
754.7 |
|
|
|
792.1 |
|
|
|
759.8 |
|
|
3.
|
Comprehensive
income (loss), net of applicable income taxes, is summarized as follows
(dollars in millions):
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
612 |
|
|
|
387 |
|
|
|
1,724 |
|
|
|
1,218 |
|
Foreign
currency translation
|
|
|
124 |
|
|
|
237 |
|
|
|
442 |
|
|
|
(280
|
) |
Cash
flow hedges and other
|
|
|
(6 |
) |
|
|
60 |
|
|
|
(1 |
) |
|
|
6 |
|
|
|
$ |
730 |
|
|
|
684 |
|
|
|
2,165 |
|
|
|
944 |
|
The
change in foreign currency translation during the third quarter of 2009 is
primarily due to the weakening of the U.S. dollar and the change during the nine
month period ended June 30, 2009 is due to the stronger U.S.
dollar.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
|
4.
|
Net
periodic pension expense is summarized as follows (dollars in
millions):
|
|
|
Three Months Ended
June 30,
|
|
|
Nine Months Ended
June 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
18
|
|
|
|
16
|
|
|
|
54
|
|
|
|
51
|
|
Interest
cost
|
|
|
52
|
|
|
|
51
|
|
|
|
156
|
|
|
|
163
|
|
Expected
return on plan assets
|
|
|
(68
|
)
|
|
|
(67
|
)
|
|
|
(205
|
)
|
|
|
(210
|
)
|
Net
amortization
|
|
|
24
|
|
|
|
20
|
|
|
|
72
|
|
|
|
61
|
|
|
|
$
|
26
|
|
|
|
20
|
|
|
|
77
|
|
|
|
65
|
|
Net
postretirement plan expense is summarized as follows (dollars in
millions):
|
|
Three Months Ended
June 30,
|
|
|
Nine Months Ended
June 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
2
|
|
|
|
1
|
|
|
|
4
|
|
|
|
3
|
|
Interest
cost
|
|
|
6
|
|
|
|
8
|
|
|
|
20
|
|
|
|
22
|
|
Net
amortization
|
|
|
7
|
|
|
|
1
|
|
|
|
22
|
|
|
|
5
|
|
|
|
$
|
15
|
|
|
|
10
|
|
|
|
46
|
|
|
|
30
|
|
|
5.
|
Other
deductions, net are summarized as follows (dollars in
millions):
|
|
|
Three Months Ended
June 30,
|
|
|
Nine Months Ended
June 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
Other deductions, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Rationalization
of operations
|
|
$
|
24
|
|
|
|
83
|
|
|
|
49
|
|
|
|
190
|
|
Amortization
of intangibles
|
|
|
20
|
|
|
|
31
|
|
|
|
59
|
|
|
|
78
|
|
Other
|
|
|
56
|
|
|
|
33
|
|
|
|
126
|
|
|
|
120
|
|
Gains
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
(64
|
)
|
|
|
(35
|
)
|
|
|
$
|
100
|
|
|
|
141
|
|
|
|
170
|
|
|
|
353
|
|
Other
deductions, net increased for the three and nine months ended June 30, 2009,
primarily due to higher rationalization costs (see Note 6 for further details)
and higher amortization expense on acquired intangible assets.
During
the nine months ended June 30, 2009, the Company received $41 million from the
sale of an asset and recognized a pretax gain of $25 million. During
the nine months ended June 30, 2008, the Company received $54 million and
recognized a pretax gain of $39 million on the sale of its equity investment in
Industrial Motion Control Holdings and also recorded a pretax gain of $18
million related to the sale of a facility.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
|
6.
|
The
change in the liability for rationalization of operations during the nine
months ended June 30, 2009, follows (dollars in
millions):
|
|
|
September 30,
|
|
|
|
|
|
|
|
|
June
30,
|
|
|
|
2008
|
|
|
Expense
|
|
|
Paid / Utilized
|
|
|
2009
|
|
Severance
and benefits
|
|
$ |
33 |
|
|
|
149 |
|
|
|
99 |
|
|
|
83 |
|
Lease/contract
terminations
|
|
|
5 |
|
|
|
4 |
|
|
|
4 |
|
|
|
5 |
|
Fixed
asset write-downs
|
|
|
- |
|
|
|
7 |
|
|
|
7 |
|
|
|
- |
|
Vacant
facility and other shutdown costs
|
|
|
1 |
|
|
|
10 |
|
|
|
9 |
|
|
|
2 |
|
Start-up
and moving costs
|
|
|
1 |
|
|
|
20 |
|
|
|
19 |
|
|
|
2 |
|
|
|
$ |
40 |
|
|
|
190 |
|
|
|
138 |
|
|
|
92 |
|
|
Rationalization
of operations expense summarized by business segment follows (dollars in
millions):
|
|
|
Three Months Ended
June 30,
|
|
|
Nine Months Ended
June 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Process
Management
|
|
$
|
4
|
|
|
|
18
|
|
|
|
8
|
|
|
|
26
|
|
Industrial
Automation
|
|
|
5
|
|
|
|
13
|
|
|
|
11
|
|
|
|
25
|
|
Network
Power
|
|
|
8
|
|
|
|
32
|
|
|
|
16
|
|
|
|
82
|
|
Climate
Technologies
|
|
|
5
|
|
|
|
14
|
|
|
|
10
|
|
|
|
36
|
|
Appliance
and Tools
|
|
|
2
|
|
|
|
6
|
|
|
|
4
|
|
|
|
21
|
|
|
|
$
|
24
|
|
|
|
83
|
|
|
|
49
|
|
|
|
190
|
|
Rationalization
of operations expense reflects costs associated with the Company’s efforts to
continuously improve operational efficiency and expand globally, in order to
remain competitive on a worldwide basis. These expenses result from
numerous individual actions implemented across the Company’s various operating
divisions on an ongoing basis. Rationalization of operations includes
costs for moving facilities, starting up plants after relocation or business
expansion, exiting product lines, curtailing/downsizing operations because of
changing economic conditions and other costs resulting from asset redeployment
decisions.
Given the
difficult environment, the Company expects to incur full year costs of
approximately $280 million to $300 million for actions to rationalize its
businesses to the level appropriate for current economic conditions, and to
improve the cost structure in preparation for the ultimate
recovery. This total includes the $190 million for the nine months
shown above, as well as 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. During the nine months ended June 30,
2009, the Company’s divisions have taken action in numerous locations worldwide
to reduce force count by 20,000 positions, with approximately one-half of those
from restructuring actions and the remainder through layoffs and
attrition. Additionally, the Company took action to exit and
consolidate approximately 20 production, distribution or office
facilities.
Noteworthy
rationalization actions during the first nine months of 2009 included Process
Management incurring severance and benefits related to worldwide workforce
reductions; Industrial Automation incurring severance, benefits, start-up and
moving costs related to consolidation of certain production facilities within
North America, and severance costs related to workforce reductions; Network
Power incurring severance, benefits, start-up and moving costs related to the
consolidation of certain power systems production into lower cost areas in North
America and Europe, severance, start-up and moving costs related to shifting
certain production and engineering capabilities from Europe to Asia, and
integration costs related to the Embedded Computing acquisition; Climate
Technologies incurring severance related to the consolidation of production
facilities in Europe and the downsizing of operations in North America and Asia;
and Appliance and Tools incurring severance related to salaried workforce
reductions and consolidation and downsizing of certain production facilities in
North America.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
|
7.
|
Other
Financial Information (dollars in
millions):
|
|
|
September 30,
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
|
|
|
|
Finished
products
|
|
$ |
884 |
|
|
|
799 |
|
Raw
materials and work in process
|
|
|
1,464 |
|
|
|
1,263 |
|
|
|
$ |
2,348 |
|
|
|
2,062 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment,
net
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, at cost
|
|
$ |
8,691 |
|
|
|
8,783 |
|
Less
accumulated depreciation
|
|
|
5,184 |
|
|
|
5,308 |
|
|
|
$ |
3,507 |
|
|
|
3,475 |
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
Process
Management
|
|
$ |
2,043 |
|
|
|
2,227 |
|
Industrial
Automation
|
|
|
1,107 |
|
|
|
1,307 |
|
Network
Power
|
|
|
2,432 |
|
|
|
2,387 |
|
Climate
Technologies
|
|
|
412 |
|
|
|
473 |
|
Appliance
and Tools
|
|
|
568 |
|
|
|
582 |
|
|
|
$ |
6,562 |
|
|
|
6,976 |
|
Inventories
of companies acquired in fiscal 2009 totaled approximately $84
million. Changes in the goodwill balances since September 30, 2008,
are primarily due to additions from acquisitions, particularly in the Process
Management ($223 million) and Industrial Automation ($219 million) segments, as
well as foreign currency translation. Because valuations of certain
assets are in-process, purchase price allocations for acquisitions are subject
to refinement.
Other assets, other
|
|
|
|
|
|
|
Intellectual
property and customer relationships
|
|
$ |
627 |
|
|
|
943 |
|
Pension
plans
|
|
|
436 |
|
|
|
659 |
|
Capitalized
software
|
|
|
192 |
|
|
|
205 |
|
Other
|
|
|
385 |
|
|
|
348 |
|
|
|
$ |
1,640 |
|
|
|
2,155 |
|
Intellectual
property and customer relationships of companies acquired in fiscal 2009 totaled
$370 million, primarily in the Process Management and Industrial Automation
segments. The increase in the pension plans asset primarily reflects
contributions net of pension expense for the period.
Product warranty liability
|
|
$ |
204 |
|
|
|
182 |
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
$ |
533 |
|
|
|
713 |
|
Postretirement
plans, excluding current portion
|
|
|
417 |
|
|
|
436 |
|
Retirement
plans
|
|
|
325 |
|
|
|
326 |
|
Minority
interest
|
|
|
188 |
|
|
|
150 |
|
Other
|
|
|
594 |
|
|
|
582 |
|
|
|
$ |
2,057 |
|
|
|
2,207 |
|
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 June
30,
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Process
Management
|
|
$ |
1,731 |
|
|
|
1,505 |
|
|
|
346 |
|
|
|
222 |
|
Industrial
Automation
|
|
|
1,271 |
|
|
|
813 |
|
|
|
186 |
|
|
|
41 |
|
Network
Power
|
|
|
1,672 |
|
|
|
1,306 |
|
|
|
212 |
|
|
|
135 |
|
Climate
Technologies
|
|
|
1,087 |
|
|
|
859 |
|
|
|
169 |
|
|
|
131 |
|
Appliance
and Tools
|
|
|
998 |
|
|
|
771 |
|
|
|
138 |
|
|
|
108 |
|
|
|
|
6,759 |
|
|
|
5,254 |
|
|
|
1,051 |
|
|
|
637 |
|
Differences
in accounting methods
|
|
|
|
|
|
|
|
|
|
|
62 |
|
|
|
48 |
|
Corporate
and other
|
|
|
|
|
|
|
|
|
|
|
(121 |
) |
|
|
(77
|
) |
Eliminations/Interest
|
|
|
(191 |
) |
|
|
(163
|
) |
|
|
(46 |
) |
|
|
(64
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,568 |
|
|
|
5,091 |
|
|
|
946 |
|
|
|
544 |
|
Intersegment
sales of the Appliance and Tools segment for the three months ended June 30,
2009 and 2008, respectively, were $146 million and $162 million. The
change in Corporate and other for 2009 reflects lower stock compensation expense
of $12 million, lower commodity mark-to-market losses of $10 million and higher
one-time gains in fiscal 2009 of $6 million.
|
|
Sales
|
|
|
Earnings
|
|
Nine months ended June
30,
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Process
Management
|
|
$ |
4,764 |
|
|
|
4,588 |
|
|
|
890 |
|
|
|
782 |
|
Industrial
Automation
|
|
|
3,572 |
|
|
|
2,876 |
|
|
|
528 |
|
|
|
291 |
|
Network
Power
|
|
|
4,598 |
|
|
|
4,021 |
|
|
|
579 |
|
|
|
389 |
|
Climate
Technologies
|
|
|
2,809 |
|
|
|
2,284 |
|
|
|
413 |
|
|
|
250 |
|
Appliance
and Tools
|
|
|
2,886 |
|
|
|
2,269 |
|
|
|
409 |
|
|
|
248 |
|
|
|
|
18,629 |
|
|
|
16,038 |
|
|
|
2,819 |
|
|
|
1,960 |
|
Differences
in accounting methods
|
|
|
|
|
|
|
|
|
|
|
172 |
|
|
|
145 |
|
Corporate
and other
|
|
|
|
|
|
|
|
|
|
|
(253 |
) |
|
|
(188
|
) |
Eliminations/Interest
|
|
|
(518 |
) |
|
|
(445
|
) |
|
|
(147 |
) |
|
|
(157
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
18,111 |
|
|
|
15,593 |
|
|
|
2,591 |
|
|
|
1,760 |
|
Intersegment
sales of the Appliance and Tools segment for the nine months ended June 30, 2009
and 2008, respectively, were $380 million and $439 million. Compared
to the prior year, Corporate and other for fiscal 2009 primarily reflects lower
stock compensation expense of $66 million.
|
9.
|
Following
is a discussion regarding the Company’s use of financial
instruments.
|
|
The
Company’s derivative instruments are accounted for under FAS 133,
“Accounting for Derivative Instruments and Hedging Activities,” and,
accordingly, are recognized at fair value. In the normal course
of business, the Company is exposed to changes in interest rates, foreign
currency exchange rates and commodity prices due to its worldwide presence
and diverse business profile. As part of the Company’s hedging
strategy, derivative instruments are selectively used to manage these
risks and minimize their impact. Forward exchange and option
derivatives are utilized to hedge foreign currency exposures impacting
sales or cost of sales transactions, firm commitments and the fair value
of assets and liabilities, while swap and option contracts are used to
minimize the effect of commodity price fluctuations on cost of
sales. Emerson’s foreign currency hedges primarily relate to
transactions denominated in euros and Mexican pesos, and to a lesser
extent Canadian dollars and Swedish kroner. The notional value
of foreign currency hedge positions totaled approximately $1,942 million
as of June 30, 2009. Primary commodity exposures are price
fluctuations on forecasted purchases of copper and aluminum, and related
products, of which the Company had approximately 51 million pounds hedged
as of June 30, 2009. The Company does not hold derivatives for
trading or speculative purposes. Effective January 1, 2009, the
Company adopted the disclosure provisions of FAS No. 161, “Disclosures
about Derivative Instruments and Hedging Activities,” which expanded
disclosures regarding derivatives use, including hedging objectives and
strategies, fair values, gains and losses and credit-risk-related
contingent features.
|
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
The
majority of the Company’s derivatives are designated as hedges and qualify for
deferral accounting under FAS 133. Cash flow hedges of forecasted
transactions minimize the exposure arising from variability in expected future
cash flows attributable to a particular risk. The effective portion
of gains or losses for cash flow hedges is deferred in accumulated other
comprehensive income (a component of stockholders’ equity) until it is
recognized in earnings together with the underlying hedged item. A
fully effective hedge will result in no net earnings impact while the derivative
is outstanding. Gains and losses arising from the ineffective portion
of any hedge are recognized in the income statement immediately. The
duration of hedge positions is generally two years or less and amounts currently
hedged beyond eighteen months are not significant. Hedging gains and
losses deferred as of June 30, 2009 are generally expected to be recognized over
the next twelve months as the underlying forecasted transactions
occur. However, the amounts ultimately recognized may differ,
favorably or unfavorably, from those shown because until the positions are
settled they remain subject to ongoing market price
fluctuations. Derivatives receiving deferral accounting under FAS 133
are highly effective and hedge ineffectiveness was immaterial during both the
three and nine month periods ended June 30, 2009, including gains or losses on
any derivatives that were discontinued because the forecasted transaction was no
longer expected to occur. No amounts were excluded from the
assessment of hedge effectiveness. The Company also uses derivatives
to hedge economic exposures which do not receive deferral accounting under FAS
133. The underlying exposures for these hedges relate primarily to
purchases of commodity-based components used in the Company’s manufacturing
processes, and the revaluation of certain foreign-currency-denominated assets
and liabilities. Gains and losses on derivatives that do not receive
deferral accounting are recognized in the income statement
immediately.
Shown
below for the three and nine month periods ended June 30, 2009 are amounts
reclassified from accumulated other comprehensive income into earnings, amounts
recognized in other comprehensive income and amounts recognized in earnings for
derivatives not receiving deferral accounting (dollars in
millions):
|
Gain (Loss) Reclassified into
Earnings
|
|
Location
|
|
Gain (Loss) Recognized in
Other Comprehensive Income
|
|
Derivatives Receiving
Deferral Accounting
|
Three Months
Ended 6/30/09
|
|
|
Nine Months
Ended 6/30/09
|
|
|
|
Three Months
Ended 6/30/09
|
|
|
Nine Months
Ended 6/30/09
|
|
Cash
Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency
|
|
$ |
(6 |
) |
|
|
(21
|
) |
Sales
|
|
$ |
13 |
|
|
|
(21
|
) |
Foreign
currency
|
|
|
(6
|
) |
|
|
(26
|
) |
Cost
of sales
|
|
|
21 |
|
|
|
(38
|
) |
Commodity
|
|
|
(28
|
) |
|
|
(85
|
) |
Cost
of sales
|
|
|
20 |
|
|
|
(66
|
) |
|
|
$ |
(40 |
) |
|
|
(132
|
) |
|
|
$ |
54 |
|
|
|
(125
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
Not Receiving
Deferral
Accounting
|
Gain
(Loss) Recognized in
Earnings
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency
|
|
$ |
(38 |
) |
|
|
(62
|
) |
Other
income (deductions)
|
|
Commodity
|
|
|
1 |
|
|
|
(9
|
) |
Cost
of sales
|
|
|
|
$ |
(37 |
) |
|
|
(71
|
) |
|
|
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
Fair Value
Measurements
Effective
October 1, 2008, the Company adopted the recognition and disclosure
provisions of FAS No. 157, “Fair Value
Measurements.” FAS 157 defines fair value, establishes a formal
hierarchy and framework for measuring fair value, and expands disclosures about
fair value measurements and the reliability of valuation
inputs. Under FAS 157, a fair value measurement assumes that the
transaction to sell an asset or transfer a liability occurs in the principal
market for that asset or liability or, in the absence of a principal market, the
most advantageous market available. Within the hierarchy, Level 1
instruments are measured using observable market prices for the identical item
in active markets and have the most reliable valuations; Level 2 instruments
have fair value determined through market-observable inputs for similar items in
active markets, including forward and spot prices, interest rates and
volatilities for currencies or commodities; and Level 3 instruments are valued
using inputs not observable in an active market, such as company-developed
future cash flow estimates, which are considered the least
reliable. Valuations for all of Emerson’s derivatives fall within
Level 2. Due to the high credit quality of Emerson and its
counterparties, the impact on the fair value of the Company’s derivative assets
and liabilities due to the adoption of FAS 157 was
inconsequential. FAS 157 is effective for nonfinancial assets
and liabilities, including goodwill and certain other intangible and long-lived
assets, beginning in fiscal 2010.
The
Company has in place bilateral collateral agreements with posting thresholds
indexed to credit ratings that limit Emerson’s and its counterparties’ exposure
in the event of default, and under which the Company has posted no collateral as
of June 30, 2009. If credit ratings on the Company’s debt fall below
pre-established levels, derivatives counterparties can require immediate full
collateralization on instruments in net liability
positions. Similarly, Emerson could demand full collateralization
should any of the Company’s counterparties’ credit rating fall below certain
thresholds. The maximum incremental collateral the Company could be
required to post under these contingent features as of June 30, 2009 is $40
million. For derivatives in asset positions, no credit loss is anticipated
as the counterparties to these agreements are companies with high credit
ratings. A summary of the fair values of derivative contracts
outstanding as of June 30, 2009 follows (dollars in millions). The
Company has master netting arrangements in place with its counterparties that
allow the offsetting of derivative-related amounts receivable and payable when
settlement occurs in the same period. Accordingly, counterparty
balances are netted in the consolidated balance sheet, with the net values of
all derivative contracts currently recognized in accrued expenses.
|
|
Assets
|
|
|
Liabilities
|
|
Derivatives
Receiving Deferral Accounting
|
|
|
|
|
|
|
Foreign
currency
|
|
$ |
17 |
|
|
|
46 |
|
Commodity
|
|
$ |
18 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
Derivatives
Not Receiving Deferral Accounting
|
|
|
|
|
|
|
|
|
Foreign
currency
|
|
$ |
14 |
|
|
|
4 |
|
Commodity
|
|
$ |
2 |
|
|
|
3 |
|
The fair
value of the Company's long-term debt (including current maturities) is
estimated using prices from market sources and financial institutions for debt
with similar maturities and characteristics, as well as other valuation
techniques. As of June 30, 2009, the fair value of long-term debt was
$4,739 million, which exceeded the carrying value by $173 million.
10.
|
In
April 2009, the Company acquired Roxar ASA, a leading global supplier of
measurement solutions and software for reservoir production optimization,
enhanced oil and gas recovery and flow assurance, for approximately $190
million in cash and $222 million in assumed debt. Roxar has
annual revenues of approximately $200 million and is reported in the
Process Management business
segment.
|
In
February 2009, the Company acquired Trident Powercraft Private, Limited (Trident
Power), a manufacturer and supplier of alternators, generators and other
products, for approximately $125 million in cash. Trident has annual
revenues of approximately $40 million and is reported in the Industrial
Automation business segment.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
In
December 2008, the Company acquired System Plast S.p.A, a manufacturer of
engineered modular belts and custom conveyer components for the bottling,
baking, food processing and packaging industries, for approximately $200 million
in cash. System Plast has annual revenues of approximately $100
million and is reported in the Industrial Automation business
segment.
Items
2 and 3. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
The third
quarter and first nine months of fiscal 2009 were very challenging as
significant declines in gross fixed investment, particularly capital goods and
nonresidential construction, as well as housing and consumer spending, adversely
impacted sales and earnings for most of the Company’s
businesses. These declines began in the third quarter of fiscal 2008
and have continued into 2009. The Company anticipates continued
weakness stemming from these factors for at least the remainder of this year and
into the next. The Company’s diverse international presence helped
mitigate the adverse economic conditions as underlying sales grew fiscal year to
date in Asia and Canada while declining in the United States and
Europe. Third quarter sales declined in all regions, although less
severely in Asia. Unfavorable foreign currency translation also
negatively impacted results for the quarter and nine months ended June 30, 2009
due to the strength of the U.S. dollar. Overall, sales and earnings
for the third quarter and nine months decreased versus prior year for all
segments on reductions in customer inventories and resulting lower spending
levels as business and consumer confidence levels remained
low. Despite the economic downturn, Emerson's financial position
remains strong and the Company continues to generate substantial operating cash
flow.
THREE
MONTHS ENDED JUNE 30, 2009, COMPARED WITH THREE MONTHS ENDED JUNE 30,
2008
RESULTS
OF OPERATIONS
Three months ended June 30,
|
|
2008
|
|
|
2009
|
|
|
Change
|
|
(dollars
in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
6,568
|
|
|
|
5,091
|
|
|
|
(22
|
)%
|
Gross
profit
|
|
$
|
2,413
|
|
|
|
1,838
|
|
|
|
(24
|
)%
|
Percent
of sales
|
|
|
36.7
|
%
|
|
|
36.1
|
%
|
|
|
|
|
SG&A
|
|
$
|
1,321
|
|
|
|
1,089
|
|
|
|
|
|
Percent
of sales
|
|
|
20.1
|
%
|
|
|
21.4
|
%
|
|
|
|
|
Other
deductions, net
|
|
$
|
100
|
|
|
|
141
|
|
|
|
|
|
Interest
expense, net
|
|
$
|
46
|
|
|
|
64
|
|
|
|
|
|
Earnings
from continuing operations before income taxes
|
|
$
|
946
|
|
|
|
544
|
|
|
|
(43
|
)%
|
Percent
of sales
|
|
|
14.4 |
% |
|
|
10.7 |
% |
|
|
|
|
Earnings
from continuing operations
|
|
$
|
647
|
|
|
|
387
|
|
|
|
(40
|
)%
|
Net
earnings
|
|
$
|
612
|
|
|
|
387
|
|
|
|
(37
|
)%
|
Percent
of sales
|
|
|
9.3
|
%
|
|
|
7.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS
– Continuing operations
|
|
$
|
0.82
|
|
|
|
0.51
|
|
|
|
(38
|
)%
|
EPS
– Net earnings
|
|
$
|
0.78
|
|
|
|
0.51
|
|
|
|
(35
|
)%
|
Net sales
for the quarter ended June 30, 2009 were $5,091 million, a decrease of $1,477
million, or 22 percent, compared with net sales of $6,568 million for the
quarter ended June 30, 2008. The consolidated results reflect a 19
percent ($1,179 million) decrease in underlying sales (which exclude
acquisitions, divestitures and foreign currency translation), a 4 percent ($304
million) unfavorable impact from foreign currency translation and a 1 percent
($6 million) positive impact from acquisitions. Underlying sales
reflect a 19 percent loss from volume. Underlying sales for the third
quarter decreased 23 percent in the United States and 15 percent
internationally. The international sales decrease included declines
across all major geographic regions, including Europe (25 percent), Asia (5
percent), Latin America (15 percent), Middle East/Africa (13 percent) and Canada
(13 percent). All segments incurred significant declines and continue
to be impacted by the broad slowdown in the consumer and capital goods
businesses.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
Costs of
sales for the third quarters of fiscal 2009 and 2008 were $3,253 million and
$4,155 million, respectively. Cost of sales as a percent of net sales
was 63.9 percent in the third quarter of 2009, compared with 63.3 percent in the
third quarter of 2008. Gross profit was $1,838 million and $2,413
million for the third quarters ended June 30, 2009 and 2008, respectively,
resulting in gross profit margins of 36.1 percent and 36.7
percent. The decrease in gross profit margin during the third quarter
of 2009 primarily reflects deleverage on the lower sales volume with inventory
liquidation and unfavorable product mix, partially offset by material cost
containment and savings from cost reduction actions. Foreign currency
translation negatively impacted the gross profit amount.
Selling,
general and administrative (SG&A) expenses for the third quarter of 2009
were $1,089 million, or 21.4 percent of net sales, compared with $1,321 million,
or 20.1 percent of net sales, for the third quarter of 2008. The
decrease of $232 million was largely due to lower sales volume, foreign currency
translation and cost reduction actions. The increase in SG&A as a
percent of sales was primarily the result of deleverage on lower sales volume,
partially offset by cost reductions and lower incentive stock compensation
expense.
Other
deductions, net were $141 million for the third quarter of 2009, a $41 million
increase from the same period in the prior year, primarily due to a $59 million
increase in rationalization expense. See Notes 5 and 6 for further
details regarding other deductions, net and rationalization costs.
Pretax
earnings from continuing operations of $544 million for the third quarter of
2009 decreased $402 million, or 43 percent, compared with $946 million for the
prior year. This decrease was primarily due to lower sales, lower
gross profit and higher SG&A relative to sales, and an increase in other
deductions, net. Earnings results predominantly reflect decreases of
$145 million in Industrial Automation, $124 million in Process Management and
$77 million in Network Power. Third
quarter pretax margin decreased 3.7 percentage points versus the prior year to
10.7 percent of sales. Major drivers of the margin decline were deleverage from
operations running below capacity due to lower sales volume (approximately 3
points), negative $55 million due to under absorption from inventory reduction
(approximately 1 point), and unfavorable mix (approximately 1 point), which were
partially offset by savings from cost reductions (approximately 2 points) and
other favorable items (approximately 1 point). In addition, increased
rationalization expense (approximately 1 point) and interest and other items
(approximately 1 point) adversely impacted the pretax
margin.
Income
taxes were $157 million and $299 million for the three months ended June 30,
2009 and 2008, respectively, resulting in effective tax rates of 29 percent and
32 percent, respectively. The lower effective tax rate reflects a
credit from the repatriation of certain non-U.S. earnings and a benefit from a
prior net operating loss at a foreign subsidiary.
Earnings
and earnings per share from continuing operations were $387 million and $0.51
for the three months ended June 30, 2009, decreases of 40 percent and 38
percent, respectively, compared with $647 million and $0.82 for the quarter
ended June 30, 2008. Higher restructuring expenses in 2009 versus the
prior year negatively impacted earnings per share comparisons by $0.05 per
share.
As there
were no discontinued operations in the third quarter of fiscal 2009, net
earnings were also $387 million and earnings per share were also $0.51 for the
three months ended June 30, 2009, decreases of 37 percent and 35 percent,
respectively, compared with the $612 million and $0.78 for the three months
ended June 30, 2008. Net earnings for the third quarter of fiscal
2008 included a loss from discontinued operations of $35 million, or $0.04 per
share, related to the European appliance motor and pump business.
BUSINESS
SEGMENTS
Following
is a summary of operating results for the Company’s business segments for the
third quarter ended June 30, 2009, compared with the third quarter ended June
30, 2008. The Company defines segment earnings as earnings before
interest and taxes.
Process
Management
Three months ended June 30,
|
|
2008
|
|
|
2009
|
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,731
|
|
|
|
1,505
|
|
|
|
(13
|
)%
|
Earnings
|
|
$
|
346
|
|
|
|
222
|
|
|
|
(36
|
)%
|
Margin
|
|
|
20.0
|
%
|
|
|
14.8
|
%
|
|
|
|
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
Process
Management reported third quarter sales of $1,505 million, a decrease of 13
percent from the prior year. Nearly all of the businesses reported
lower sales and earnings, led by the measurement and flow business, primarily as
a result of weakness in the chemical, refining and marine
markets. The decline was slightly offset by growth in the power and
water business. Underlying sales decreased 9 percent, reflecting
a decline in volume, with a 7 percent ($121 million) unfavorable impact
from foreign currency translation and a 3 percent ($42 million) positive
contribution from the Roxar acquisition. The decrease in underlying
sales reflects declines in the United States (18 percent) and Latin America (19
percent) and moderate decreases in Europe (3 percent) and Middle East/Africa (5
percent), which were partially offset by an increase in Asia (3
percent). Earnings decreased 36 percent for the period, to $222
million from $346 million in the prior year, while margins decreased 5.2
percentage points primarily reflecting unfavorable product mix (approximately 2
points of margin) with measurement and flow declines greater than in the systems
business, deleverage on the lower sales volume and significant inventory
reductions (approximately 1 point of margin each) and higher restructuring costs
of $14 million, which were partially offset by savings from cost
reductions.
Industrial
Automation
Three months ended June 30,
|
|
2008
|
|
|
2009
|
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,271
|
|
|
|
813
|
|
|
|
(36
|
)%
|
Earnings
|
|
$
|
186
|
|
|
|
41
|
|
|
|
(78
|
)%
|
Margin
|
|
|
14.6
|
%
|
|
|
5.0
|
%
|
|
|
|
Sales
decreased 36 percent to $813 million in the Industrial Automation segment for
the third quarter. Sales results reflect significant declines across
the segment due to the severe slowdown in the capital goods
markets. All businesses declined, particularly power generating
alternators, as well as fluid automation, electronic drives and electrical
distribution. Underlying sales decreased 34 percent, foreign currency
translation had a 5 percent ($81 million) unfavorable impact while the System
Plast and Trident Power acquisitions added a 3 percent ($28 million) positive
contribution. Underlying sales decreased 32 percent internationally,
with all regions down, including a 37 percent decline in Europe and a 36 percent
decline in the United States. The underlying sales decrease reflects
an approximate 35 percent decline from volume, as well as an estimated 1 percent
positive impact from price. Earnings were $41 million compared with
$186 million in the prior year period, and margins decreased 9.6 percentage
points primarily reflecting deleverage on the lower sales volume (approximately
7 points of margin) with significant inventory reduction (approximately 1 point
of margin) and higher restructuring costs of $8 million, partially offset by
savings from cost reduction actions and higher sales prices.
Network
Power
Three months ended June 30,
|
|
2008
|
|
|
2009
|
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,672
|
|
|
|
1,306
|
|
|
|
(22
|
)%
|
Earnings
|
|
$
|
212
|
|
|
|
135
|
|
|
|
(36
|
)%
|
Margin
|
|
|
12.7
|
%
|
|
|
10.3
|
%
|
|
|
|
Sales in
the Network Power segment decreased 22 percent to $1,306 million for the third
quarter 2009 compared with the prior year, reflecting declines in the
uninterruptible power supply, precision cooling and embedded power businesses
due to the slowdown in customers’ capital spending, and a slight decline in the
China network power business. The sales decrease reflects an
underlying sales decline of 15 percent, a 4 percent ($59 million) unfavorable
impact from foreign currency translation, and a 3 percentage points ($80
million) unfavorable impact from the decline in sales for the Embedded Computing
acquisition. The underlying sales decrease reflects a volume decline
of 14 percent and a 1 percent negative impact from lower selling
prices. Geographically, underlying sales reflect decreases of 23
percent in the United States, 30 percent in Europe, and 8 percent in Latin
America, while sales in Asia were flat. Earnings of $135 million
decreased 36 percent compared to the prior year primarily due to lower sales
volume and higher restructuring costs of $24 million (including acquisition
integration costs). The margin decrease reflects deleverage from the
lower sales volume, with decreases in inventory, and a negative impact from
acquisitions which was partially offset by savings from cost reduction
actions.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
Climate
Technologies
Three months ended June 30,
|
|
2008
|
|
|
2009
|
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
1,087 |
|
|
|
859 |
|
|
|
(21 |
)% |
Earnings
|
|
$ |
169 |
|
|
|
131 |
|
|
|
(22 |
)% |
Margin
|
|
|
15.5 |
% |
|
|
15.2 |
% |
|
|
|
|
Climate
Technologies sales decreased 21 percent in the third quarter to $859 million,
reflecting broad declines across all of the businesses, with steep declines in
the temperature sensors, compressor and heater controls
businesses. The sales decrease reflects a 20 percent decline in
underlying sales, a 3 percent ($31 million) unfavorable impact from foreign
currency translation and a 2 percent ($16 million) favorable impact from
acquisitions. The underlying sales decrease includes an estimated 21
percent decline from lower volume and a 1 percent positive impact from higher
pricing. Sales declines in the compressor business reflect the
slowdown in the worldwide air-conditioning and refrigeration
markets. Sales in the United States decreased 16 percent and
international sales decreased 25 percent, including declines in Asia (23
percent) and Europe (30 percent). Earnings decreased 22 percent to
$131 million, primarily on lower sales volume. The decrease in margin
reflects deleverage on the lower sales volume and higher restructuring costs of
$9 million, partially offset by savings from cost reductions. Sales
price increases were slightly offset by an increase in wage costs.
Appliance
and Tools
Three months ended June 30,
|
|
2008
|
|
|
2009
|
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
998 |
|
|
|
771 |
|
|
|
(23 |
)% |
Earnings
|
|
$ |
138 |
|
|
|
108 |
|
|
|
(21 |
)% |
Margin
|
|
|
13.8 |
% |
|
|
14.0 |
% |
|
|
|
|
Appliance
and Tools segment sales decreased 23 percent to $771 million in the third
quarter of 2009, reflecting a 22 percent decline in underlying sales and a 1
percent ($12 million) unfavorable impact from foreign currency
translation. Declines in the storage, tools and appliance businesses
were due to the continued downturn in the U.S. residential and nonresidential
markets, while declines in the motors and appliance solutions businesses reflect
major customers reducing inventory and production levels due to the difficult
economic conditions. The underlying sales decrease of 22 percent
reflects an estimated 24 percent decline in volume and an approximate 2 percent
positive impact from price. Underlying international sales declined
approximately 24 percent during the quarter, while underlying sales in the
United States decreased 21 percent. Earnings were $108 million, a
decrease of 21 percent compared with the prior year period, primarily due to
lower sales volume. The margin increase reflects the benefit from the
$9 million impairment charge in the appliance control business in the prior
year, savings from cost reductions, sales prices increases and material cost
containment which were substantially offset by deleverage on the lower sales
volume.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
NINE MONTHS ENDED JUNE 30, 2009, COMPARED WITH NINE MONTHS ENDED JUNE 30, 2008
RESULTS OF OPERATIONS
Nine months ended June 30,
|
|
2008
|
|
|
2009
|
|
|
Change
|
|
(dollars
in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
18,111 |
|
|
|
15,593 |
|
|
|
(14 |
)% |
Gross
profit
|
|
$ |
6,665 |
|
|
|
5,671 |
|
|
|
(15 |
)% |
Percent
of sales
|
|
|
36.8 |
% |
|
|
36.4 |
% |
|
|
|
|
SG&A
|
|
$ |
3,757 |
|
|
|
3,401 |
|
|
|
|
|
Percent
of sales
|
|
|
20.7 |
% |
|
|
21.8 |
% |
|
|
|
|
Other
deductions, net
|
|
$ |
170 |
|
|
|
353 |
|
|
|
|
|
Interest
expense, net
|
|
$ |
147 |
|
|
|
157 |
|
|
|
|
|
Earnings
from continuing operations before income taxes
|
|
$ |
2,591 |
|
|
|
1,760 |
|
|
|
(32 |
)% |
Percent
of sales
|
|
|
14.3 |
% |
|
|
11.3 |
% |
|
|
|
|
Earnings
from continuing operations
|
|
$ |
1,764 |
|
|
|
1,218 |
|
|
|
(31 |
)% |
Net
earnings
|
|
$ |
1,724 |
|
|
|
1,218 |
|
|
|
(29 |
)% |
Percent
of sales
|
|
|
9.5 |
% |
|
|
7.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS
– Continuing operations
|
|
$ |
2.23 |
|
|
|
1.60 |
|
|
|
(28 |
)% |
EPS
– Net earnings
|
|
$ |
2.18 |
|
|
|
1.60 |
|
|
|
(27 |
)% |
Net sales
for the nine months ended June 30, 2009 were $15,593 million, a decrease of
$2,518 million, or 14 percent, compared with net sales of $18,111 million for
the nine months ended June 30, 2008. The consolidated results reflect
a 10 percent ($1,793 million) decline in underlying sales, a 5 percent ($793
million) unfavorable impact from foreign currency translation and a 1 percent
($68 million) positive contribution from acquisitions. The decline in
underlying sales for the nine months of fiscal 2009 reflects a 17 percent
decrease in the United States and a 4 percent decrease in international sales,
including decreases in Europe (11 percent), Middle East/Africa (3 percent) and
Latin America (1 percent), partially offset by increases in Asia (1 percent) and
Canada (3 percent). Underlying sales reflect an approximate 11
percent loss from volume and a 1 percent positive impact from higher
pricing. Sales declined across all segments as the Company’s
businesses continued to be impacted by the broad slowdown in consumer and
capital goods businesses.
Costs of
sales for the nine months of fiscal 2009 and 2008 were $9,922 million and
$11,446 million, respectively. Cost of sales as a percent of net
sales was 63.6 percent in the nine months of 2009, compared with 63.2 percent in
the nine months of 2008. Gross profit was $5,671 million and $6,665
million for the nine months ended June 30, 2009 and 2008, respectively,
resulting in gross profit margins of 36.4 percent and 36.8
percent. The decrease in gross profit margin during the nine months
of 2009 primarily reflects deleverage on the lower sales volume and negative
product mix, which were partially offset by savings from productivity
improvements. The negative impact of foreign currency translation and
lower sales volume reduced the gross profit amount. Higher sales
prices were partially offset by higher wage costs.
Selling,
general and administrative (SG&A) expenses for the nine months of 2009 were
$3,401 million, or 21.8 percent of net sales, compared with $3,757 million, or
20.7 percent of net sales for the nine months of 2008. The decrease
of $356 million was largely due to lower sales volume, foreign currency
translation and cost reductions. The increase in SG&A as a
percent of sales was primarily the result of deleverage on the lower sales
volume, partially offset by cost reductions and lower incentive stock
compensation expense.
Other
deductions, net were $353 million for the nine months of 2009, a $183 million
increase from the $170 million for the same period in the prior year, due to
higher rationalization costs in 2009 and lower nonrecurring
gains. For the nine months ended June 30, 2009, costs for the
rationalization of operations were $190 million, compared with $49 million in
the prior year period. Gains were $35 million in the nine months of
fiscal 2009, including the $25 million asset sale benefit in the second quarter,
compared with gains of $64 million in the prior year. In the nine
months of fiscal 2008, the Company recognized pretax gains of $39 million on the
sale of its equity investment in Industrial Motion Control Holdings and $18
million on the sale of a facility. See Notes 5 and 6 for further
details regarding other deductions, net and rationalization costs.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
Pretax
earnings from continuing operations decreased $831 million for the nine months
of 2009, or 32 percent to $1,760 million, compared with $2,591 million for the
prior year. This decrease was primarily due to lower sales, lower
gross profit and higher SG&A relative to sales, and an increase in other
deductions, net. The earnings decline predominantly reflects
decreases of $237 million in Industrial Automation, $190 million in Network
Power, $163 million in Climate Technologies and $161 million in Appliance and
Tools. Year-to-date pretax margin declined 3.0 percentage points, to 11.3
percent, primarily due to the factors cited in the discussion of third quarter
results.
Income
taxes were $542 million and $827 million for the nine months ended June 30, 2009
and 2008, respectively, resulting in effective tax rates of 31 percent and 32
percent, respectively. The effective tax rate for fiscal year 2009 is
currently estimated to be 30 percent.
Earnings
and earnings per share from continuing operations were $1,218 million and $1.60,
respectively, for the nine months ended June 30, 2009, decreases of 31 percent
and 28 percent, compared with $1,764 million and $2.23 for the nine months ended
June 30, 2008. Higher restructuring expenses in 2009 combined with
lower gains versus the prior year negatively impacted earnings per share
comparisons by $0.15 per share. The 28 percent decrease in earnings
per share also reflects the benefit of treasury share purchases.
As there
were no discontinued operations in the nine months of fiscal 2009, net earnings
were also $1,218 million and earnings per share were also $1.60 for the nine
months ended June 30, 2009, decreases of 29 percent and 27 percent,
respectively, compared with $1,724 million and $2.18 for the nine months ended
June 30, 2008. Net earnings for the nine months of fiscal 2008
included a loss from discontinued operations of $40 million, or $0.05 per share,
consisting of a $42 million gain from the sale of the Brooks Instrument unit, an
$88 million loss related to the European appliance motor and pump business and
combined earnings of $6 million related to these businesses.
BUSINESS
SEGMENTS
Following
is a summary of segment results for the nine months ended June 30, 2009 compared
with the nine months ended June 30, 2008. The Company defines segment
earnings as earnings before interest and taxes.
Process
Management
Nine months ended June 30,
|
|
2008
|
|
|
2009
|
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
4,764 |
|
|
|
4,588 |
|
|
|
(4 |
)% |
Earnings
|
|
$ |
890 |
|
|
|
782 |
|
|
|
(12 |
)% |
Margin
|
|
|
18.7 |
% |
|
|
17.1 |
% |
|
|
|
|
Process
Management sales were $4,588 million, a decrease of 4 percent from the prior
year. Results were mixed across the segment with sales down for the
measurement and flow and the systems and solutions businesses, reflecting
weakness in the chemical, refining and marine markets, and modest sales growth
for the valves business. Underlying sales increased 2 percent,
reflecting volume gains, while foreign currency translation had an unfavorable
impact of 7 percent ($318 million) and the Roxar acquisition had a favorable
impact of 1 percent ($42 million). The underlying sales increase
reflects growth in Asia (15 percent), Europe (3 percent), Latin America (3
percent) and Canada (11 percent), partially offset by decreases in the United
States (6 percent) and Middle East/Africa (2 percent). Earnings for
the first nine months decreased 12 percent, to $782 million from $890
million. The margin decrease reflects negative product mix and higher
restructuring costs of $18 million, which were partially offset by savings from
productivity improvements. Price increases and material cost
containment were more than offset by higher wage costs.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
Industrial
Automation
Nine months ended June 30,
|
|
2008
|
|
|
2009
|
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
3,572 |
|
|
|
2,876 |
|
|
|
(19 |
) % |
Earnings
|
|
$ |
528 |
|
|
|
291 |
|
|
|
(45 |
) % |
Margin
|
|
|
14.8 |
% |
|
|
10.1 |
% |
|
|
|
|
Sales for
the Industrial Automation segment decreased 19 percent to $2,876 million for the
nine months of 2009. Sales results reflect a steep decline among all businesses
due to the slowdown in the capital goods markets. Underlying sales declined 16
percent, foreign currency translation had a 5 percent ($194 million) unfavorable
impact and the System Plast and Trident Power acquisitions had a 2 percent ($59
million) positive contribution. The underlying sales decrease reflects an
approximate 18 percent decline from volume, partially offset by an estimated 2
percent positive impact from price. Underlying sales included a 15 percent
decrease internationally, primarily due to declines of 17 percent in Europe and
11 percent in Asia, and an 18 percent decrease in the United States. Earnings
were $291 million compared with $528 million in the prior year primarily
reflecting lower sales volume. The margin decrease reflects deleverage on the
lower sales volume and higher restructuring costs of $14 million, partially
offset by savings from cost reductions. Additionally, higher selling prices were
partially offset by higher materials and wage costs.
Network
Power
Nine months ended June 30,
|
|
2008
|
|
|
2009
|
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
4,598 |
|
|
|
4,021 |
|
|
|
(13 |
) % |
Earnings
|
|
$ |
579 |
|
|
|
389 |
|
|
|
(33 |
) % |
Margin
|
|
|
12.6 |
% |
|
|
9.7 |
% |
|
|
|
|
Network
Power sales decreased 13 percent, to $4,021 million for the nine months of 2009,
reflecting declines in the inbound power, uninterruptible power supply,
precision cooling and embedded power businesses due to the continued slowdown in
customers’ capital spending, partially offset by strength in the China network
power systems business. The sales decrease reflects underlying sales that
declined 9 percent on lower volume and a 4 percent ($170 million) unfavorable
impact from foreign currency translation. Geographically, underlying sales
reflect decreases of 18 percent in the United States and 17 percent in Europe,
while sales increased 5 percent in Asia and 4 percent in Latin America. Earnings
of $389 million decreased 33 percent from the prior year primarily due to higher
restructuring costs of $66 million (including acquisition integration costs) and
lower sales volume. The margin decrease reflects a negative impact from
acquisitions, as well as deleverage on the lower sales volume and unfavorable
product mix, which were partially offset by savings from cost reduction actions.
Materials cost containment was partially offset by a decrease in selling prices
and increased wage costs.
Climate
Technologies
Nine months ended June 30,
|
|
2008
|
|
|
2009
|
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
2,809 |
|
|
|
2,284 |
|
|
|
(19 |
)% |
Earnings
|
|
$ |
413 |
|
|
|
250 |
|
|
|
(39 |
)% |
Margin
|
|
|
14.7 |
% |
|
|
10.9 |
% |
|
|
|
|
Climate
Technologies sales of $2,284 million for the nine months of 2009 decreased 19
percent, reflecting declines across all of the businesses, especially the
compressor, temperature sensors and heater controls businesses. The
sales decline was due to a 17 percent decrease in underlying sales, a 3 percent
($75 million) unfavorable impact from foreign currency translation and a 1
percent ($16 million) positive contribution from
acquisitions. Underlying sales include an estimated 19 percent
decline from lower volume and an estimated 2 percent positive impact from higher
selling prices. Sales declines in the compressor business reflect the
worldwide slowdown in air-conditioning and refrigeration markets, particularly
in the United States and Asia. Sales in the U.S. decreased 17 percent
while international sales also decreased 17 percent, reflecting declines in Asia
(25 percent), Europe (6 percent) and Latin America (11
percent). Earnings decreased 39 percent during the period to $250
million primarily due to lower sales volume, a negative $19 million impact from
foreign currency transactions related to the strengthening of the U.S. dollar in
2009 versus weakening in the prior year, and higher restructuring costs of $26
million, partially offset by savings from cost reduction
initiatives. The margin decrease reflects deleverage on the lower
sales volume and higher material and wage costs, which were only partially
offset by price increases.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
Appliance
and Tools
Nine months ended June 30,
|
|
2008
|
|
|
2009
|
|
|
Change
|
|
(dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
2,886 |
|
|
|
2,269 |
|
|
|
(21 |
)% |
Earnings
|
|
$ |
409 |
|
|
|
248 |
|
|
|
(39 |
)% |
Margin
|
|
|
14.2 |
% |
|
|
10.9 |
% |
|
|
|
|
Appliance
and Tools segment sales decreased 21 percent to $2,269 million for the nine
months of 2009. This decrease reflects a 20 percent decline in
underlying sales and a 1 percent ($36 million) unfavorable impact from foreign
currency translation. Declines in the storage, tools and appliance
businesses were due to the continued downturn in the U.S. residential and
nonresidential markets, while declines in the motors and appliance solutions
businesses reflect major customers reducing inventory and production levels due
to the difficult economic conditions. The underlying sales decrease
of 20 percent reflects a 23 percent decline in volume and an approximate 3
percent positive impact from pricing. Underlying international sales
declined approximately 14 percent, while underlying sales in the United States
decreased 21 percent. Earnings were $248 million, a decrease of 39
percent compared with the prior year, reflecting deleverage on the lower sales
volume and higher restructuring costs of $17 million, partially offset by
savings from cost reductions. Higher sales prices were partially
offset by higher raw materials and wage costs.
FINANCIAL
CONDITION
A
comparison of key elements of the Company's financial condition for the nine
months ended June 30, 2009 as compared to the year ended September 30, 2008 and
the nine months ended June 30, 2008 follows:
|
|
September 30,
2008
|
|
|
June 30,
2009
|
|
|
|
|
|
|
|
|
|
|
Working
capital (in millions)
|
|
$ |
2,758 |
|
|
|
2,725 |
|
Current
ratio
|
|
1.4
to 1
|
|
|
1.5
to 1
|
|
Total
debt to total capital
|
|
|
33.1 |
% |
|
|
38.0 |
% |
Net
debt to net capital
|
|
|
22.7 |
% |
|
|
30.9 |
% |
Interest
coverage ratio
|
|
|
15.7 |
X |
|
|
11.0 |
X |
The
ratios of debt to capital changed due to an increase in borrowings to finance
acquisitions and a decrease in stockholders’ equity primarily as a result of
treasury stock purchases and unfavorable foreign currency
translation. 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 from continuing operations before income taxes
and interest expense, divided by interest expense) was 11.0 times for the nine
months of 2009, compared with 14.8 times for the prior year, primarily due to
lower earnings in 2009.
During
the third quarter of 2009, the Company issued $250 million of 4.125% notes due
April 2015, $250 million of 5.00% notes due April 2019 and $250 million of
6.125% notes due April 2039 under an automatic shelf registration statement on
file with the Securities and Exchange Commission. During the second
quarter of 2009, the Company issued $500 million of 4.875% notes due October
2019 and also repaid $250 million of 5.85% notes that had
matured. The net proceeds from the sale of the notes were used to
repay a portion of commercial paper borrowings and for general corporate
purposes.
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
Cash and
equivalents decreased by $395 million during the nine months of
2009. Cash provided by operating activities of $1,734 million was
down $264 million compared with $1,998 million in the prior year period
primarily as a result of decreased earnings and increased net pension
funding. With the decline in sales, working capital has been reduced,
including accounts receivable and inventory liquidations of $839 million and
$328 million, respectively, partially offset by an accounts payable reduction of
$800 million. Operating cash flow more than funded dividends of $749
million and capital expenditures of $388 million, while proceeds from long-term
debt of $1,254 million provided additional cash for acquisitions of $735 million
and treasury stock purchases of $718 million. For the nine months
ended June 30, 2009, free cash flow of $1,346 million (operating cash flow of
$1,734 million less capital expenditures of $388 million) was down 12 percent
from free cash flow of $1,537 million (operating cash flow of $1,998 million
less capital expenditures of $461 million) in the prior year, primarily due to
lower operating cash flow. Other investing cash flow for fiscal 2008
included proceeds of $54 million related to the sale of an equity investment and
$100 million related to the divestiture of the Brooks Instrument
unit.
Based on
the decline in asset values stemming from adverse conditions in the financial
markets, and with a discount rate of 6.25%, the Company estimates the funded
status of its pension plans is approximately a $600 million deficit as of June
30, 2009. The Company currently anticipates making pension
contributions totaling approximately $300 million for fiscal
2009. Fiscal 2009 pension expense is not impacted by the funded
status. Fiscal 2010 expense is expected to increase and will be determined
based on the funded status as of September 30, 2009, when the Company adopts the
measurement date provisions of FAS 158.
Emerson
maintains a conservative financial structure to provide the strength and
flexibility necessary to achieve its strategic objectives. Although
the credit markets have continued to experience adverse conditions, the Company
currently believes that sufficient funds will be available to meet the Company’s
needs for the foreseeable future through existing resources, ongoing operations
and commercial paper or backup credit lines. However, the Company
could be adversely affected if credit market conditions deteriorate further or
continue for an extended period of time and customers, suppliers and financial
institutions are unable to meet their commitments to the
Company. Emerson 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 its capital structure on a short- and long-term basis.
New Accounting
Pronouncements
Emerson
adopted the provisions of FAS No. 165, “Subsequent Events,” in the third quarter
of fiscal 2009. FAS 165 established accounting and disclosure
requirements for subsequent events and had no effect on the Company’s
operations.
Emerson
plans to adopt the measurement provision of FAS No. 158, “Employers’ Accounting
for Defined Benefit Pension and Other Postretirement Plans,” in the fourth
quarter of fiscal 2009. This provision requires employers to measure
defined benefit plan assets and obligations as of the date of their fiscal
year-end. To transition to a fiscal year-end measurement date
pursuant to FAS 158, the Company will measure its defined benefit plan assets
and obligations as of September 30, 2009 and expects at that time to record an
approximate $15 million after-tax adjustment to ending retained earnings and
accumulated other comprehensive income.
OUTLOOK
Based on
current economic conditions and the Company’s performance in the first nine
months of 2009, reported sales are forecast to be in the range of $20.8 billion
to $21.1 billion, or negative 15 percent to negative 16 percent compared with
2008 sales of $24.8 billion. Underlying sales are expected to
decrease in the range of negative 12 percent to negative 13 percent, which
excludes an estimated 4 percent unfavorable impact from foreign currency
translation at current exchange rates, and a favorable impact from completed
acquisitions of approximately 1 percent. Based on this level of
sales, the Company forecasts 2009 diluted earnings per share in the range of
$2.20 to $2.30. Rationalization of operations expense is estimated to
be approximately $280 million to $300 million for fiscal
2009. Operating cash flow is estimated at approximately $3 billion
and capital expenditures are estimated to be $0.5 billion to $0.6 billion for
2009. Based on the expectation of continued weakness in served
markets, the Company forecasts a net sales decrease of negative 10 percent to
negative 13 percent for the first half of fiscal 2010. A
decrease in underlying sales of negative 14 percent to negative 17 percent is
expected which excludes an estimated 2 percent positive impact from completed
acquisitions and an estimated 2 percent positive impact from foreign currency
translation at current exchange rates.
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, 2008, 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, 2009, 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,
2009, 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.
The
Company’s Board of Directors authorized the repurchase of up to 80 million
shares under the May 2008 program. No shares were purchased during the
quarter ended June 30, 2009. The maximum number of shares that may
yet be purchased under this program was 51.4 million as of June 30,
2009.
Item
6. Exhibits.
(a) Exhibits
(Listed by numbers corresponding to the Exhibit Table of Item 601 in Regulation
S-K).
|
4
|
Emerson
agrees to furnish to the Securities and Exchange Commission, upon request,
copies of any long-term debt instruments that authorize an amount of
securities constituting 10 percent or less of the total assets of Emerson
and its subsidiaries on a consolidated
basis.
|
|
12
|
Ratio
of Earnings to Fixed Charges.
|
|
31
|
Certifications
pursuant to Exchange Act Rule
13a-14(a).
|
|
32
|
Certifications
pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. Section
1350.
|
|
101
|
Attached
as Exhibit 101 to this report are the following documents formatted in
XBRL (Extensible Business Reporting Language): (i) Consolidated Statements
of Earnings for the Three and Nine Months ended June 30, 2008 and 2009,
(ii) Consolidated Balance Sheets at September 30, 2008 and June 30, 2009,
(iii) Consolidated Statements of Cash Flows for the nine months ended June
30, 2008 and 2009, and (iv) Notes to Consolidated Financial Statements for
the nine months ended June 30, 2009. In accordance with Rule
406T of Regulation S-T, the XBRL related information in Exhibit 101 to
this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for
purposes of Section 18 of the Exchange Act, or otherwise subject to the
liability of that section, and shall not be part of any registration
statement or other document filed under the Securities Act or the Exchange
Act, except as shall be expressly set forth by specific reference in such
filing.
|
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
EMERSON
ELECTRIC CO.
|
|
|
|
|
Date:
August 5, 2009
|
By /s/ Walter J. Galvin
|
|
|
|
|
|
Walter
J. Galvin
|
|
|
Senior
Executive Vice President
|
|
|
and
Chief Financial Officer
|
|
|
|
|
|
(on
behalf of the registrant and
|
|
|
as
Chief Financial Officer)
|
|
EMERSON
ELECTRIC CO. AND SUBSIDIARIES
|
FORM
10-Q
|
INDEX TO
EXHIBITS
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.
|
|
|
|
101
|
|
Attached
as Exhibit 101 to this report are the following documents formatted in
XBRL (Extensible Business Reporting Language): (i) Consolidated Statements
of Earnings for the Three and Nine Months ended June 30, 2008 and 2009,
(ii) Consolidated Balance Sheets at September 30, 2008 and June 30, 2009,
(iii) Consolidated Statements of Cash Flows for the nine months ended June
30, 2008 and 2009, and (iv) Notes to Consolidated Financial Statements for
the nine months ended June 30, 2009. In accordance with Rule
406T of Regulation S-T, the XBRL related information in Exhibit 101 to
this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for
purposes of Section 18 of the Exchange Act, or otherwise subject to the
liability of that section, and shall not be part of any registration
statement or other document filed under the Securities Act or the Exchange
Act, except as shall be expressly set forth by specific reference in such
filing.
|