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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-Q


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

For the quarterly period ended June 30, 2019

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
logo_emersona08.jpg
43-0259330
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
 
8000 W. Florissant Ave.
 
 

P.O. Box 4100
 
St. Louis,
Missouri
63136
(Address of principal executive offices)
(Zip Code)

Registrant's telephone number, including area code: (314) 553-2000

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock of $0.50 par value per share
EMR
New York Stock Exchange
 
 
Chicago Stock Exchange
0.375% Notes due 2024
EMR 24
New York Stock Exchange
1.250% Notes due 2025
EMR 25A
New York Stock Exchange
2.000% Notes due 2029
EMR 29
New York Stock Exchange

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 No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes No



1






Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
 
 
 
 
 
Non-accelerated filer
 
 
Smaller reporting company
 
 
 
 
 
Emerging growth company
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No

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, 2019: 615,101,462 shares.


2




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

Consolidated Statements of Earnings
EMERSON ELECTRIC CO. & SUBSIDIARIES

Three and nine months ended June 30, 2018 and 2019
(Dollars in millions, except per share amounts; unaudited)
 
 
Three Months Ended
June 30,
 
Nine Months Ended
June 30,
 
2018

 
2019

 
2018

 
2019

Net sales
$
4,456

 
4,684

 
12,520

 
13,401

 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
Cost of sales
2,514

 
2,683

 
7,147

 
7,714

Selling, general and administrative expenses
1,058

 
1,126

 
3,088

 
3,348

Other deductions, net
77

 
65

 
243

 
172

Interest expense (net of interest income of $10, $7, $35 and $19, respectively)
39

 
43

 
113

 
134

 
 
 
 
 
 
 
 
Earnings before income taxes
768

 
767

 
1,929

 
2,033

 
 
 
 
 
 
 
 
Income taxes
49

 
155

 
327

 
429

 
 
 
 
 
 
 
 
Net earnings
719

 
612

 
1,602

 
1,604

 
 
 
 
 
 
 
 
Less: Noncontrolling interests in earnings of subsidiaries
7

 
8

 
16

 
15

 
 
 
 
 
 
 
 
Net earnings common stockholders
$
712

 
604

 
1,586

 
1,589

 
 
 
 
 
 
 
 
Basic earnings per share common stockholders
$
1.13

 
0.98

 
2.50

 
2.57

 
 
 
 
 
 
 
 
Diluted earnings per share common stockholders
$
1.12

 
0.97

 
2.49

 
2.55

 
 
 
 
 
 
 
 
Cash dividends per common share
$
0.485

 
0.49

 
1.455

 
1.47

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 See accompanying Notes to Consolidated Financial Statements.


3




Consolidated Statements of Comprehensive Income
EMERSON ELECTRIC CO. & SUBSIDIARIES

Three and nine months ended June 30, 2018 and 2019
(Dollars in millions; unaudited)

 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
 
2018


 
2019

 
 
2018

 
 
2019

Net earnings
 
$
719

 
 
612

 
 
1,602

 
 
1,604

 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation
 
(273
)
 
 
(93
)
 
 
(118
)
 
 
(40
)
Pension and postretirement
 
22

 
 
13

 
 
67

 
 
38

Cash flow hedges
 
(14
)
 
 
(8
)
 
 
(22
)
 
 
2

        Total other comprehensive income (loss)
 
(265
)
 
 
(88
)
 
 
(73
)
 
 

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
 
454

 
 
524

 
 
1,529

 
 
1,604

 
 
 
 
 
 
 
 
 
 
 
 
Less: Noncontrolling interests in comprehensive
income of subsidiaries
 
7

 
 
8

 
 
16

 
 
16

Comprehensive income common stockholders
 
$
447

 
 
516

 
 
1,513

 
 
1,588



































See accompanying Notes to Consolidated Financial Statements.


4




Consolidated Balance Sheets
EMERSON ELECTRIC CO. & SUBSIDIARIES

(Dollars and shares in millions, except per share amounts; unaudited)
 
Sept 30, 2018
 
June 30, 2019
ASSETS
 
 
 
Current assets
 
 
 
Cash and equivalents
$
1,093

 
1,603

Receivables, less allowances of $113 and $100, respectively
3,023

 
2,901

Inventories
1,813

 
2,061

Other current assets
690

 
785

Total current assets
6,619

 
7,350

 
 
 
 
Property, plant and equipment, net
3,562

 
3,614

Other assets
 

 
 
Goodwill
6,455

 
6,544

Other intangible assets
2,751

 
2,691

Other
1,003

 
1,118

Total other assets
10,209

 
10,353

Total assets
$
20,390

 
21,317

 
 
 
 
LIABILITIES AND EQUITY
 

 
 

Current liabilities
 

 
 

Short-term borrowings and current maturities of long-term debt
$
1,623

 
1,877

Accounts payable
1,943

 
1,785

Accrued expenses
2,534

 
2,453

Income taxes
64

 
103

Total current liabilities
6,164

 
6,218

 
 
 
 
Long-term debt
3,137

 
4,336

 
 
 
 
Other liabilities
2,099

 
1,959

 
 
 
 
Equity
 

 
 

Common stock, $0.50 par value; authorized, 1,200.0 shares; issued, 953.4 shares; outstanding, 629.2 shares and 615.1 shares, respectively
477

 
477

Additional paid-in-capital
348

 
387

Retained earnings
23,072

 
23,777

Accumulated other comprehensive income (loss)
(1,015
)
 
(1,016
)
Cost of common stock in treasury, 324.2 shares and 338.3 shares, respectively
(13,935
)
 
(14,870
)
Common stockholders’ equity
8,947

 
8,755

Noncontrolling interests in subsidiaries
43

 
49

Total equity
8,990

 
8,804

Total liabilities and equity
$
20,390

 
21,317







See accompanying Notes to Consolidated Financial Statements. 


5




Consolidated Statements of Cash Flows
EMERSON ELECTRIC CO. & SUBSIDIARIES

Nine Months Ended June 30, 2018 and 2019
(Dollars in millions; unaudited)

 
 
Nine Months Ended
 
 
June 30,
 
 
2018

 
2019

Operating activities
 
 
 
 
Net earnings
 
$
1,602

 
1,604

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
 
        Depreciation and amortization
 
557

 
609

        Changes in operating working capital
 
(286
)
 
(352
)
        Other, net
 
(5
)
 
(59
)
            Cash provided by operating activities
 
1,868

 
1,802

 
 
 
 
 
Investing activities
 
 
 
 
Capital expenditures
 
(314
)
 
(395
)
Purchases of businesses, net of cash and equivalents acquired
 
(770
)
 
(385
)
Divestitures of businesses
 
223

 
10

Other, net
 
(71
)
 
(91
)
    Cash used in investing activities
 
(932
)
 
(861
)
 
 
 
 
 
Financing activities
 
 
 
 
Net increase in short-term borrowings
 
1,581

 
427

Proceeds from long-term debt
 

 
1,691

Payments of long-term debt
 
(251
)
 
(655
)
Dividends paid
 
(924
)
 
(909
)
Purchases of common stock
 
(1,000
)
 
(1,000
)
Other, net
 
34

 
21

    Cash used in financing activities
 
(560
)
 
(425
)
 
 
 
 
 
Effect of exchange rate changes on cash and equivalents
 
(27
)
 
(6
)
Increase in cash and equivalents
 
349

 
510

Beginning cash and equivalents
 
3,062

 
1,093

Ending cash and equivalents
 
$
3,411

 
1,603

 
 
 
 
 
Changes in operating working capital
 
 
 
 
Receivables
 
$
27

 
178

Inventories
 
(133
)
 
(217
)
Other current assets
 
(15
)
 
(74
)
Accounts payable
 
(97
)
 
(156
)
Accrued expenses
 
(83
)
 
(116
)
Income taxes
 
15

 
33

Total changes in operating working capital
 
$
(286
)
 
(352
)








See accompanying Notes to Consolidated Financial Statements.


6




Notes to Consolidated Financial Statements
EMERSON ELECTRIC CO. & SUBSIDIARIES

(Dollars, euros and shares in millions, except per share amounts or where noted)

(1) BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary for a fair presentation of operating results for the interim periods presented. Adjustments consist of normal and recurring accruals. The consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all disclosures required for annual financial statements presented in conformity with U.S. generally accepted accounting principles (GAAP). 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, 2018. Certain prior year amounts have been reclassified to conform to current year presentation.

On October 1, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers, which updated and consolidated revenue recognition guidance from multiple sources into a single, comprehensive standard to be applied for all contracts with customers. The fundamental principle of the revised standard is to recognize revenue based on the transfer of goods and services to customers at the amount the Company expects to be entitled to in exchange for those goods and services. The Company adopted the new standard using the modified retrospective approach and applied the guidance to open contracts which were not completed at the date of adoption. The cumulative effect of adoption resulted in a $25 increase to beginning retained earnings as of October 1, 2018. This increase primarily related to contracts where a portion of revenue for delivered goods or services was previously deferred due to contingent payment terms. The adoption of ASC 606 did not materially impact the Company's consolidated financial statements as of and for the three and nine months ended June 30, 2019.

In the first quarter of fiscal 2019, the Company adopted updates to ASC 715, Compensation - Retirement Benefits, which permit only the service cost component of net periodic pension and postretirement expense to be reported with compensation costs, while all other components are required to be reported separately in other deductions. These updates were adopted retrospectively and resulted in the reclassification of income for the three and nine months ended June 30, 2018 of $11 and $32, respectively, from cost of sales and SG&A to other deductions, net. Segment earnings were not impacted by the updates to ASC 715.

In February 2016, the FASB issued ASC 842, Leases, which requires rights and obligations related to lease arrangements to be recognized on the balance sheet. Also required are additional disclosures regarding the amount, timing and uncertainty of cash flows resulting from lease arrangements. Currently, obligations classified as operating leases are not recorded on the balance sheet but must be disclosed. The Company is required to adopt the new standard on October 1, 2019 and expects to use the optional transition method under which prior periods will not be adjusted. As previously disclosed, the adoption of ASC 842 is expected to impact the Company’s balance sheet due to the recognition of right-of-use assets and related lease liabilities, but is not expected to materially impact its earnings or cash flows. The Company is in the process of implementing changes to its business processes, systems, controls and accounting policies to support recognition and disclosure under the new guidance.

(2) REVENUE RECOGNITION

Emerson is a global manufacturer that combines technology and engineering to provide innovative solutions to its customers, largely in the form of tangible products. The Company evaluates its contracts with customers to identify the promised goods or services and recognizes revenue for the identified performance obligations at the amount the Company expects to be entitled to in exchange for those goods or services. A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. Revenue is recognized when, or as, performance obligations are satisfied and control has transferred to the customer, typically when products are shipped or delivered, title and risk of loss pass to the customer, and the Company has a present right to payment. The vast majority of the Company's revenues relate to a broad offering of manufactured products which are recognized at the point in time when control transfers, generally in accordance with shipping terms. A portion of the Company's revenues relate to the sale of software and post-contract customer support, parts and labor for repairs, and engineering services. In limited circumstances, contracts include multiple performance obligations, where


7




revenue is recognized separately for each good or service, as well as contracts where revenue is recognized over time as control transfers to the customer.
    
Revenue is recognized over time for approximately 5 percent of the Company's revenues. These contracts largely relate to projects in the Process Control Systems & Solutions product offering within the Automation Solutions segment where revenue is recognized using the percentage-of-completion method to reflect the transfer of control over time, while a small amount is attributable to long-term maintenance and service contracts where revenue is typically recognized on a straight-line basis as the services are provided. Approximately 5 percent of revenues relate to sales arrangements with multiple performance obligations, principally in the Automation Solutions segment. Tangible products represent a large majority of the delivered items in contracts with multiple performance obligations or where revenue is recognized over time, while a smaller portion is attributable to installation, service and maintenance.

For revenues recognized over time, the Company typically uses an input method to determine progress and recognize revenue, based on costs incurred. The Company believes costs incurred closely correspond with its performance under the contract and the transfer of control to the customer.
    
In sales arrangements that involve multiple performance obligations, revenue is allocated based on the relative standalone selling price for each performance obligation. Observable selling prices from actual transactions are used whenever possible. In other instances, the Company determines the standalone selling price based on third-party pricing or management's best estimate. Generally, contract duration is short-term, and cancellation, termination or refund provisions apply only in the event of contract breach and are rarely invoked.    
    
Payment terms vary but are generally short-term in nature. The Company's long-term contracts, where revenue is generally recognized over time, are typically billed as work progresses in accordance with the contract terms and conditions, either at periodic intervals or upon achievement of certain milestones. The timing of revenue recognition and billings under these contracts results in either unbilled receivables (contract assets) when revenue recognized exceeds billings, or customer advances (contract liabilities) when billings exceed revenue recognized. Unbilled receivables are reclassified to accounts receivable when an unconditional right to consideration exists, typically when a milestone in the contract is achieved. The Company does not evaluate whether the transaction price includes a significant financing component for contracts where the time between cash collection and performance is less than one year.     
    
Certain arrangements with customers include variable consideration, typically in the form of rebates, cash discounts or penalties. In limited circumstances, the Company sells products with a general right of return. In most instances, returns are limited to product quality issues. The Company records a reduction to revenue at the time of sale to reflect the ultimate amount of consideration it expects to receive. The Company's estimates are updated quarterly based on historical experience, trend analysis, and expected market conditions. Variable consideration is typically not constrained at the time revenue is recognized.
    
The Company offers warranties, which vary by product line and are competitive for the markets in which the Company operates. Warranties are largely offered to provide assurance that the product will function as intended and generally extend for a period of one to two years from the date of sale or installation. Provisions for warranty expense are estimated at the time of sale based on historical experience and adjusted quarterly for any known issues that may arise. Product warranty expense is less than one percent of sales.
    
Capitalized amounts related to incremental costs to obtain customer contracts and costs to fulfill contracts are immaterial.
    


8




The following table summarizes the balances of the Company's unbilled receivables (contract assets), which are reported in Other current assets, and its customer advances (contract liabilities), which are reported in Accrued expenses.     
 
Sept 30, 2018
 
June 30, 2019
Unbilled receivables (contract assets)
 
$
321

 
 
438

Customer advances (contract liabilities)
 
(510
)
 
 
(539
)
      Net contract liabilities
 
$
(189
)
 
 
(101
)
    

The majority of the Company's contract balances relate to arrangements where revenue is recognized over time and payments from customers are made according to a contractual billing schedule. The decrease in net contract liabilities was due to revenue recognized for performance completed during the period which exceeded customer billings. Revenue recognized for the three and nine months ended June 30, 2019 included approximately $45 and $370, respectively, that was included in the beginning contract liability balance. Other factors that impacted the change in net contract liabilities were immaterial. Revenue recognized for the nine months ended June 30, 2018 for performance obligations that were fully satisfied in previous periods, including cumulative catchup adjustments on the Company's long-term contracts, was not material.

As of June 30, 2019, the Company's backlog relating to unsatisfied (or partially unsatisfied) performance obligations in contracts with its customers was approximately $5.5 billion. The Company expects to recognize approximately 85 percent of its remaining performance obligations as revenue over the next 12 months, with the remainder substantially over the subsequent two years thereafter.     

See Note 12 for additional information about the Company's revenues.

(3) WEIGHTED-AVERAGE COMMON SHARES

Reconciliations of weighted-average shares for basic and diluted earnings per common share follow. Earnings allocated to participating securities were inconsequential.
 
Three Months Ended
June 30,
 
Nine Months Ended
June 30,
 
2018


2019


2018


2019

 
 
 
 
 
 
 
 
Basic shares outstanding
629.4

 
614.3

 
633.4

 
617.4

Dilutive shares
3.5

 
4.7

 
3.1

 
4.2

Diluted shares outstanding
632.9

 
619.0

 
636.5

 
621.6

 

(4) OTHER FINANCIAL INFORMATION

Sept 30, 2018
 
June 30, 2019
Inventories
 
 
 
 
 
Finished products
 
$
592

 
 
636

Raw materials and work in process
 
1,221

 
 
1,425

Total
 
$
1,813

 
 
2,061

Property, plant and equipment, net
 
 
 
Property, plant and equipment, at cost
 
$
8,370

 
 
8,687

Less: Accumulated depreciation
 
4,808

 
 
5,073

     Total
 
$
3,562

 
 
3,614





9




 
Sept 30, 2018
 
June 30, 2019
Goodwill by business segment
 
 
 
 
 
Automation Solutions
 
$
5,355

 
 
5,462

 
 
 
 
 
 
Climate Technologies
 
670

 
 
670

Tools & Home Products
 
430

 
 
412

Commercial & Residential Solutions
 
1,100

 
 
1,082

 
 
 
 
 
 
     Total
 
$
6,455

 
 
6,544

Other intangible assets
 
 
 
Gross carrying amount
 
$
4,667

 
 
4,854

Less: Accumulated amortization
 
1,916

 
 
2,163

     Net carrying amount
 
$
2,751

 
 
2,691


Other intangible assets include customer relationships of $1,423 and $1,517 as of June 30, 2019 and September 30, 2018, respectively.
Other assets include the following:
 
 
 
Pension assets
 
$
591

 
 
701

Asbestos-related insurance receivables
 
$
124

 
 
117

Deferred income taxes
 
$
74

 
 
87

Accrued expenses include the following:
 
 
 
 
 
Employee compensation
 
$
629

 
 
598

Customer advances (contract liabilities)
 
$
510

 
 
539

Product warranty
 
$
124

 
 
127

Other liabilities
 
 
 
 
 
Pension and postretirement liabilities
 
$
625

 
 
627

Deferred income taxes
 
484

 
 
435

Asbestos litigation
 
334

 
 
324

Other
 
656

 
 
573

     Total
 
$
2,099

 
 
1,959



(5) FINANCIAL INSTRUMENTS

Following is a discussion regarding the Company’s use of financial instruments:
Hedging Activities – As of June 30, 2019, the notional amount of foreign currency hedge positions was approximately $2.2 billion, and commodity hedge contracts totaled approximately $117 (primarily 45 million pounds of copper and aluminum). All derivatives receiving hedge accounting are cash flow hedges. The majority of hedging gains and losses deferred as of June 30, 2019 are expected to be recognized over the next 12 months as the underlying forecasted transactions occur. Gains and losses on foreign currency derivatives reported in Other deductions, net reflect hedges of balance sheet exposures that do not receive hedge accounting. The following gains and losses are included in earnings and other comprehensive income (OCI) for the three and nine months ended June 30, 2019 and 2018:
 
 
 
 
Into Earnings
 
Into OCI
 
 
 
 
3rd Quarter
 
Nine Months
 
3rd Quarter
 
Nine Months
Gains (Losses)
 
Location
 
2018

 
2019

 
2018

 
2019

 
2018

 
2019

 
2018

 
2019

Commodity
 
Cost of sales
 
$
2

 
(2
)
 
13

 
(8
)
 
(3
)
 
(8
)
 
1

 
(5
)
Foreign currency
 
Sales, cost of sales
 
(1
)
 
4

 
(1
)
 
10

 
(15
)
 

 
(19
)
 
10

Foreign currency
 
Other deductions, net
 
28

 
3

 
16

 
43

 
 
 
 
 
 
 
 
     Total
 
 
 
$
29

 
5

 
28

 
45

 
(18
)
 
(8
)
 
(18
)
 
5




10




Regardless of whether derivatives receive hedge accounting, the Company expects hedging gains or losses to be essentially offset by losses or gains on the related underlying exposures. The amounts ultimately recognized will differ from those presented above for open positions, which remain subject to ongoing market price fluctuations until settlement. Derivatives receiving hedge accounting are highly effective and no amounts were excluded from the assessment of hedge effectiveness, including for the net investment hedge described below. Hedge ineffectiveness was immaterial for the three and nine months ended June 30, 2019 and 2018.
Net Investment Hedge – In January 2019, the Company issued 500 of 1.25% notes due October 2025 and 500 of 2.0% notes due October 2029. In May 2019, the Company issued 500 of 0.375% notes due May 2024. The net proceeds from the sale of the notes were used to repay commercial paper borrowings and for general corporate purposes. The euro notes reduce foreign currency risk associated with the Company's international subsidiaries that use the euro as their functional currency and have been designated as a hedge of a portion of the investment in these operations. Pretax gains of $6 ($4 after-tax) and $12 ($9 after-tax) were recognized in other comprehensive income (loss) related to the net investment hedge for the three and nine months ended June 30, 2019, respectively. Amounts deferred in accumulated other comprehensive income (loss) will remain until the hedged investment is sold or substantially liquidated.
Fair Value Measurement – Valuations for all derivatives and the Company's long-term debt fall within Level 2 of the GAAP valuation hierarchy. As of June 30, 2019, the fair value of long-term debt was $5.3 billion, which exceeded the carrying value by $411.

The fair values of commodity and foreign currency contracts were reported in other current assets and accrued expenses as summarized below:
 
September 30, 2018
 
June 30, 2019
 
Assets
 
Liabilities
 
Assets
 
Liabilities
Commodity
 
$
1

 
10

 
1

 
7

Foreign Currency
 
$
35

 
11

 
35

 
9


Counterparties to derivatives arrangements are companies with investment-grade credit ratings. The Company has bilateral collateral arrangements with counterparties with credit rating-based posting thresholds that vary depending on the arrangement. If credit ratings on the Company's debt fall below pre-established levels, counterparties can require immediate full collateralization of all derivatives in net liability positions. The maximum amount that could potentially have been required was $6. The Company also can demand full collateralization of derivatives in net asset positions should any counterparty credit ratings fall below certain thresholds. No collateral was posted with counterparties and none was held by the Company as of June 30, 2019.



11





(6) EQUITY

The change in equity for the three and nine months ended June 30, 2018 and 2019 is shown below:  
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
2018

 
2019

 
2018

 
2019

 
 
 
 
 
 
 
 
Common stock
$
477

 
477

 
477

 
477

 
 
 
 
 
 
 
 
Additional paid-in-capital
 
 
 
 
 
 
 
     Beginning balance
323

 
380

 
297

 
348

     Stock plans
9

 
7

 
35

 
39

        Ending balance
332

 
387

 
332

 
387

 
 
 
 
 
 
 
 
Retained earnings
 
 
 
 
 
 
 
     Beginning balance
22,254

 
23,475

 
21,995

 
23,072

     Net earnings common stockholders
712

 
604

 
1,586

 
1,589

     Dividends paid
(306
)
 
(302
)
 
(924
)
 
(909
)
     Adoption of accounting standard updates

 

 
3

 
25

        Ending balance
22,660

 
23,777

 
22,660

 
23,777

 
 
 
 
 
 
 
 
Accumulated other comprehensive income (loss)
 
 
 
 
 
 
 
     Beginning balance
(827
)
 
(928
)
 
(1,019
)
 
(1,015
)
     Foreign currency translation
(273
)
 
(93
)
 
(118
)
 
(41
)
     Pension and postretirement
22

 
13

 
67

 
38

     Cash flow hedges
(14
)
 
(8
)
 
(22
)
 
2

        Ending balance
(1,092
)
 
(1,016
)
 
(1,092
)
 
(1,016
)
 
 
 
 
 
 
 
 
Treasury stock
 
 
 
 
 
 
 
     Beginning balance
(13,735
)
 
(14,878
)
 
(13,032
)
 
(13,935
)
     Purchases
(250
)
 

 
(1,000
)
 
(1,000
)
     Issued under stock plans
21

 
8

 
68

 
65

        Ending balance
(13,964
)
 
(14,870
)
 
(13,964
)
 
(14,870
)
 
 
 
 
 
 
 
 
Common stockholders' equity
8,413

 
8,755

 
8,413

 
8,755

 
 
 
 
 
 
 
 
Noncontrolling interests in subsidiaries
 
 
 
 
 
 
 
     Beginning balance
45

 
46

 
52

 
43

     Net earnings
7

 
8

 
16

 
15

     Other comprehensive income

 

 

 
1

     Dividends paid
(5
)
 
(5
)
 
(21
)
 
(10
)
        Ending balance
47

 
49

 
47

 
49

 
 
 
 
 
 
 
 
Total equity
$
8,460

 
8,804

 
8,460

 
8,804




12




(7) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Activity in Accumulated other comprehensive income (loss) for the three and nine months ended June 30, 2018 and 2019 is shown below:  
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
 
2018

 
 
2019

 
 
2018

 
 
2019

Foreign currency translation
 
 
 
 
 
 
 
 
 
 
 
   Beginning balance
 
$
(214
)
 
 
(548
)
 
 
(369
)
 
 
(600
)
   Other comprehensive income (loss) before reclassifications
 
(273
)
 
 
(93
)
 
 
(101
)
 
 
(41
)
   Reclassified to gain/loss on sale of business
 

 
 

 
 
(17
)
 
 

   Ending balance
 
(487
)
 
 
(641
)
 
 
(487
)
 
 
(641
)
 
 
 
 
 
 
 
 
 
 
 
 
Pension and postretirement
 
 
 
 
 
 
 
 
 
 
 
   Beginning balance
 
(617
)
 
 
(395
)
 
 
(662
)
 
 
(420
)
   Amortization of deferred actuarial losses into earnings
 
22

 
 
13

 
 
67

 
 
38

   Ending balance
 
(595
)
 
 
(382
)
 
 
(595
)
 
 
(382
)
 
 
 
 
 
 
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
   Beginning balance
 
4

 
 
15

 
 
12

 
 
5

   Deferral of gains (losses) arising during the period
 
(13
)
 
 
(6
)
 
 
(13
)
 
 
4

   Reclassification of realized (gains) losses to sales and cost of sales
 
(1
)
 
 
(2
)
 
 
(9
)
 
 
(2
)
   Ending balance
 
(10
)
 
 
7

 
 
(10
)
 
 
7

 
 
 
 
 
 
 
 
 
 
 
 
Accumulated other comprehensive income (loss)
 
$
(1,092
)
 
 
(1,016
)
 
 
(1,092
)
 
 
(1,016
)
 
 
 
 
 
 
 
 
 
 
 
 
Activity above is shown net of income taxes for the three and nine months ended June 30, 2019 and 2018, respectively, as follows: foreign currency translation: $(2), $-, $(3), and $-; amortization of pension and postretirement deferred actuarial losses: $(4), $(8), $(12), and $(24); deferral of cash flow hedging gains (losses): $2, $5, $(1), and $5; reclassification of realized cash flow hedging (gains) losses: $-, $-, $-, and $3.


(8) PENSION & POSTRETIREMENT PLANS

Total periodic pension and postretirement (income) expense is summarized below:
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
 
2018
 
 
2019
 
 
2018

 
 
2019
Service cost
 
$
19

 
 
18

 
 
57

 
 
54

Interest cost
 
46

 
 
49

 
 
139

 
 
149

Expected return on plan assets
 
(87
)
 
 
(88
)
 
 
(262
)
 
 
(264
)
Net amortization
 
30

 
 
17

 
 
91

 
 
50

Total
 
$
8

 
 
(4
)
 
 
25

 
 
(11
)




13




(9) OTHER DEDUCTIONS, NET

Other deductions, net are summarized below:
 
Three Months Ended
June 30,
 
Nine Months Ended
June 30,
 
2018
 
 
 
2019

 
 
2018

 
 
2019

 
 
 
 
 
 
 
 
 
 
 
 
Amortization of intangibles
 
$
47

 
 
60

 
 
154

 
 
177

Restructuring costs
 
14

 
 
20

 
 
38