EMERSON ELECTRIC CO - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2005

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, and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

Common stock outstanding at March 31, 2005: 416,698,354 shares.

FORM 10-Q

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
	Items 2 and 3. Management’s Discussion and Analysis of Results of Operations and Financial Condition
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 6. Exhibits
SIGNATURE
EX-12 Ratio of Earnings to Fixed Charges
EX-31 Certifications Pursuant to Exchange Act Rule 13a-14(a)
EX-32 Certifications Purusant to Exchange Act Rule 13a-14(b)

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, 2004 AND 2005
(Dollars in millions except per share amounts; unaudited)


	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2004		2005		2004		2005
Net Sales	$	3,859		4,227		7,459		8,197

Costs and expenses:
Cost of sales		2,503		2,725		4,821		5,283
Selling, general and administrative expenses		807		893		1,597		1,765
Other deductions, net		30		59		108		111
Interest expense (net of interest income of $7, $9, $12 and $17, respectively)		53		52		110		106


Earnings before income taxes		466		498		823		932

Income taxes		148		150		261		287


Net earnings	$	318		348		562		645


Basic earnings per common share	$	0.76		0.84		1.34		1.55


Diluted earnings per common share	$	0.75		0.83		1.33		1.53


Cash dividends per common share	$	0.400		0.415		0.800		0.830

See accompanying notes to consolidated financial statements.

FORM 10-Q

EMERSON ELECTRIC CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions except per share amounts; unaudited)


	September 30,			March 31,
	2004			2005
ASSETS
Current assets
Cash and equivalents	$	1,346			1,606
Receivables, less allowances of $78 and $80, respectively		2,932			3,155
Inventories		1,705			1,907
Other current assets		433			478


Total current assets		6,416			7,146


Property, plant and equipment, net		2,937			2,976


Other assets
Goodwill		5,259			5,406
Other		1,749			1,735


Total other assets		7,008			7,141

	$	16,361			17,263


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Short-term borrowings and current maturities of long-term debt	$	902			1,569
Accounts payable		1,629			1,653
Accrued expenses		1,695			1,736
Income taxes		113			149


Total current liabilities		4,339			5,107


Long-term debt		3,136			2,881


Other liabilities		1,648			1,664


Stockholders’ equity
Preferred stock of $2.50 par value per share. Authorized 5,400,000 shares; issued — none		—			—
Common stock of $.50 par value per share. Authorized 1,200,000,000 shares; issued 476,677,006 shares; outstanding 419,428,547 shares and 416,698,354 shares, respectively		238			238
Additional paid in capital		87			105
Retained earnings		9,471			9,767
Accumulated other comprehensive income		(88	)		175
Cost of common stock in treasury, 57,248,459 shares and 59,978,652 shares, respectively		(2,470	)		(2,674	)


Total stockholders’ equity		7,238			7,611

	$	16,361			17,263

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, 2004 AND 2005
(Dollars in millions; unaudited)


	Six Months Ended
	March 31,
	2004			2005
Operating activities
Net earnings	$	562			645
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		270			276
Changes in operating working capital		(130	)		(284	)
Other		33			65


Net cash provided by operating activities		735			702


Investing activities
Capital expenditures		(147	)		(232	)
Purchases of businesses, net of cash and equivalents acquired		—			(97	)
Other		33			(29	)


Net cash used in investing activities		(114	)		(358	)


Financing activities
Net increase in short-term borrowings		105			414
Proceeds from long-term debt		28			1
Principal payments on long-term debt		(7	)		(17	)
Dividends paid		(337	)		(349	)
Net issuances (purchases) of treasury stock		21			(199	)


Net cash used in financing activities		(190	)		(150	)


Effect of exchange rate changes on cash and equivalents		38			66


Increase in cash and equivalents		469			260

Beginning cash and equivalents		696			1,346


Ending cash and equivalents	$	1,165			1,606


Changes in operating working capital
Receivables	$	(136	)		(97	)
Inventories		(33	)		(111	)
Other current assets		(3	)		(3	)
Accounts payable		(38	)		(44	)
Accrued expenses		30			(67	)
Income taxes		50			38

	$	(130	)		(284	)

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 by 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, 2004.

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				Six Months Ended
	March 31,				March 31,
	2004		2005		2004		2005
Basic		420.0		417.0		419.8		417.6
Dilutive shares		3.0		3.9		2.8		3.8

Diluted		423.0		420.9		422.6		421.4

3. Comprehensive income is summarized as follows (dollars in millions):


	Three Months Ended					Six Months Ended
	March 31,					March 31,
	2004		2005			2004		2005
Net earnings	$	318		348			562		645
Foreign currency translation adjustments and other		112		(30	)		287		263

	$	430		318			849		908


EMERSON ELECTRIC CO. AND SUBSIDIARIES		FORM 10-Q

4. Other Financial Information
(Dollars in millions; unaudited)


	September 30,		March 31,
	2004		2005
Inventories
Finished products	$	693		772
Raw materials and work in process		1,012		1,135

	$	1,705		1,907


Property, plant and equipment, net
Property, plant and equipment, at cost	$	7,119		7,404
Less accumulated depreciation		4,182		4,428

	$	2,937		2,976


Goodwill
Process Management	$	1,638		1,663
Industrial Automation		880		908
Network Power		1,770		1,812
Climate Technologies		380		381
Appliance and Tools		591		642

	$	5,259		5,406


Changes in the goodwill balances since September 30, 2004, are primarily due to the translation of non-U.S. currencies to the U.S. dollar.

Other assets, other
Pension plans	$	883		862
Equity and other investments		223		241
Intellectual property and customer relationships		205		199
Capitalized software		148		152
Leveraged leases		124		121
Other		166		160

	$	1,749		1,735



Product warranty liability	$	180		174


Other liabilities
Deferred income taxes	$	528		534
Postretirement plans, excluding current portion		306		312
Retirement plans		285		302
Minority interest		126		138
Other		403		378

	$	1,648		1,664


EMERSON ELECTRIC CO. AND SUBSIDIARIES		FORM 10-Q

5. Net periodic pension expense is summarized as follows (dollars in millions):


	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2004			2005			2004			2005
Service cost	$	17			16			34			33
Interest cost		41			44			82			88
Expected return on plan assets		(54	)		(59	)		(108	)		(118	)
Net amortization		20			20			40			40

	$	24			21			48			43

Net postretirement plan expense is summarized as follows (dollars in millions):


	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2004		2005		2004		2005
Service cost	$	2		2		4		3
Interest cost		6		6		12		12
Net amortization		4		5		8		11

	$	12		13		24		26


EMERSON ELECTRIC CO. AND SUBSIDIARIES		FORM 10-Q

6. Effective October 1, 2002, Emerson adopted the fair value method provisions of FAS 123. Options granted after September 30, 2002, are expensed based on their fair value at date of grant over the vesting period, generally three years. Previously, the Company accounted for options pursuant to APB 25 and no expense was recognized. The following table illustrates the effect on net earnings and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period (dollars in millions, except per-share amounts).


	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2004		2005		2004		2005
Net earnings, as reported	$	318		348		562		645

Add: Stock-based employee compensation expense included in reported net earnings, net of related tax effects		3		14		15		31

Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		5		14		18		33


Pro forma net earnings	$	316		348		559		643


Earnings per share:
Basic — as reported	$	0.76		0.84		1.34		1.55
Basic — pro forma	$	0.75		0.84		1.33		1.55

Diluted — as reported	$	0.75		0.83		1.33		1.53
Diluted — pro forma	$	0.74		0.83		1.32		1.53

7. Other deductions, net are summarized as follows (dollars in millions):


	Three Months Ended					Six Months Ended
	March 31,					March 31,
	2004			2005		2004			2005
Other deductions, net
Rationalization of operations	$	28			28		61			57
Amortization of intangibles		4			7		10			13
Other		25			24		64			41
Gains from divestitures		(27	)		—		(27	)		—

	$	30			59		108			111

For the six months ended March 31, 2005, Other included a pretax gain of $13 million related to the sale of a manufacturing facility which was exited in 2004. Also in the first six months of 2005, the Company recorded a $13 million gain for a payment received under the U.S. Continued Dumping and Subsidy Offset Act. In January 2004, the Company sold 2 million shares of MKS Instruments, Inc., a publicly-traded company, and continues to hold 10 million shares; the Company also sold its investment in the Louisville Ladder joint venture. The Company recorded a pretax gain of $27 million in the second quarter of 2004 from these transactions.

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	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 by 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, 2004.

	2.	Reconciliations of weighted average common shares for basic earnings per common share and diluted earnings per common share follow (shares in millions):