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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 March 31, 2020

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
emr-20200331_g1.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,Missouri63136
(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 classTrading
Symbol(s)
Name of each exchange on which registered
Common Stock of $0.50 par value per shareEMRNew York Stock Exchange
Chicago Stock Exchange
0.375% Notes due 2024EMR 24New York Stock Exchange
1.250% Notes due 2025EMR 25ANew York Stock Exchange
2.000% Notes due 2029EMR 29New 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








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 filerAccelerated filer
Non-accelerated filerSmaller 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 March 31, 2020: 597,475,300 shares.







PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

Consolidated Statements of Earnings
EMERSON ELECTRIC CO. & SUBSIDIARIES

Three and six months ended March 31, 2019 and 2020
(Dollars in millions, except per share amounts; unaudited)
 
 Three Months Ended
March 31,
Six Months Ended
March 31,
 2019  2020  2019  2020  
Net sales$4,570  4,162  8,717  8,313  
Costs and expenses:
Cost of sales2,645  2,412  5,031  4,804  
Selling, general and administrative expenses1,145  983  2,222  2,106  
Other deductions, net57  42  107  220  
Interest expense (net of interest income of $7, $6, $12 and $12, respectively)
48  36  91  71  
Earnings before income taxes675  689  1,266  1,112  
Income taxes150  165  274  259  
Net earnings525  524  992  853  
Less: Noncontrolling interests in earnings of subsidiaries5  7  7  10  
Net earnings common stockholders$520  517  985  843  
Basic earnings per share common stockholders$0.85  0.85  1.59  1.38  
Diluted earnings per share common stockholders$0.84  0.84  1.58  1.37  
Cash dividends per common share$0.49  0.50  0.98  1.00  

 


















See accompanying Notes to Consolidated Financial Statements.
1




Consolidated Statements of Comprehensive Income
EMERSON ELECTRIC CO. & SUBSIDIARIES

Three and six months ended March 31, 2019 and 2020
(Dollars in millions; unaudited)

 Three Months Ended March 31,Six Months Ended March 31,
 2019  2020  2019  2020  
Net earnings  $525  524  992  853  
Other comprehensive income (loss), net of tax:
Foreign currency translation  88  (281) 53  (182) 
Pension and postretirement12  30  25  58  
Cash flow hedges  25  (75) 10  (56) 
        Total other comprehensive income (loss) 125  (326) 88  (180) 
Comprehensive income  650  198  1,080  673  
Less: Noncontrolling interests in comprehensive income of subsidiaries  6  8  8  11  
Comprehensive income common stockholders  644  190  1,072  662  


































See accompanying Notes to Consolidated Financial Statements.
2




Consolidated Balance Sheets
EMERSON ELECTRIC CO. & SUBSIDIARIES

(Dollars and shares in millions, except per share amounts; unaudited)
 Sept 30, 2019Mar 31, 2020
ASSETS  
Current assets  
Cash and equivalents$1,494  2,583  
Receivables, less allowances of $112 and $112, respectively
2,985  2,641  
Inventories1,880  2,058  
Other current assets780  750  
Total current assets7,139  8,032  
Property, plant and equipment, net3,642  3,553  
Other assets 
Goodwill6,536  6,520  
Other intangible assets2,615  2,498  
Other565  1,108  
Total other assets9,716  10,126  
Total assets$20,497  21,711  
LIABILITIES AND EQUITY  
Current liabilities  
Short-term borrowings and current maturities of long-term debt$1,444  3,741  
Accounts payable1,874  1,521  
Accrued expenses2,658  2,678  
Total current liabilities5,976  7,940  
Long-term debt4,277  3,960  
Other liabilities1,971  2,248  
Equity  
Common stock, $0.50 par value; authorized, 1,200.0 shares; issued, 953.4 shares; outstanding, 611.0 shares and 597.5 shares, respectively
477  477  
Additional paid-in-capital393  453  
Retained earnings24,199  24,431  
Accumulated other comprehensive income (loss)(1,722) (1,903) 
Cost of common stock in treasury, 342.4 shares and 355.9 shares, respectively
(15,114) (15,941) 
Common stockholders’ equity8,233  7,517  
Noncontrolling interests in subsidiaries40  46  
Total equity8,273  7,563  
Total liabilities and equity$20,497  21,711  






See accompanying Notes to Consolidated Financial Statements.
3




Consolidated Statements of Equity
EMERSON ELECTRIC CO. & SUBSIDIARIES

Three and six months ended March 31, 2019 and 2020
(Dollars in millions; unaudited)

Three Months Ended March 31,Six Months Ended March 31,
2019  2020  2019  2020  
Common stock$477  477  477  477  
Additional paid-in-capital
     Beginning balance375  447  348  393  
     Stock plans5  6  32  60  
        Ending balance380  453  380  453  
Retained earnings
     Beginning balance23,252  24,220  23,072  24,199  
     Net earnings common stockholders520  517  985  843  
     Dividends paid(302) (306) (607) (611) 
     Adoption of accounting standard updates5    25    
        Ending balance23,475  24,431  23,475  24,431  
Accumulated other comprehensive income (loss)
     Beginning balance(1,052) (1,576) (1,015) (1,722) 
     Foreign currency translation87  (282) 52  (183) 
     Pension and postretirement12  30  25  58  
     Cash flow hedges25  (75) 10  (56) 
        Ending balance(928) (1,903) (928) (1,903) 
Treasury stock
     Beginning balance(14,816) (15,147) (13,935) (15,114) 
     Purchases(75) (813) (1,000) (942) 
     Issued under stock plans13  19  57  115  
        Ending balance(14,878) (15,941) (14,878) (15,941) 
Common stockholders' equity8,526  7,517  8,526  7,517  
Noncontrolling interests in subsidiaries
     Beginning balance40  38  43  40  
     Net earnings5  7  7  10  
     Other comprehensive income1  1  1  1  
     Dividends paid    (5) (5) 
        Ending balance46  46  46  46  
Total equity$8,572  7,563  8,572  7,563  







See accompanying Notes to Consolidated Financial Statements.
4




Consolidated Statements of Cash Flows
EMERSON ELECTRIC CO. & SUBSIDIARIES

Six Months Ended March 31, 2019 and 2020
(Dollars in millions; unaudited)

Six Months Ended
March 31,
 2019  2020  
Operating activities  
Net earnings$992  853  
Adjustments to reconcile net earnings to net cash provided by operating activities:
        Depreciation and amortization406  422  
        Stock compensation52  18  
        Pension expense  34  
        Changes in operating working capital(530) (260) 
        Other, net(64) (55) 
            Cash provided by operating activities856  1,012  
Investing activities
Capital expenditures(274) (225) 
Purchases of businesses, net of cash and equivalents acquired(243) (96) 
Divestitures of businesses5    
Other, net(65) (42) 
    Cash used in investing activities(577) (363) 
Financing activities
Net increase in short-term borrowings851  2,076  
Proceeds from short-term borrowings greater than three months  433  
Proceeds from long-term debt1,135    
Payments of long-term debt(406) (502) 
Dividends paid(607) (611) 
Purchases of common stock(1,000) (942) 
Other, net29  39  
    Cash provided by financing activities2  493  
Effect of exchange rate changes on cash and equivalents10  (53) 
Increase in cash and equivalents291  1,089  
Beginning cash and equivalents1,093  1,494  
Ending cash and equivalents$1,384  2,583  
Changes in operating working capital
Receivables$175  283  
Inventories(205) (216) 
Other current assets(82) 32  
Accounts payable(211) (290) 
Accrued expenses(207) (69) 
Total changes in operating working capital$(530) (260) 






See accompanying Notes to Consolidated Financial Statements.
5




Notes to Consolidated Financial Statements
EMERSON ELECTRIC CO. & SUBSIDIARIES

(Dollars 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, 2019. Certain prior year amounts have been reclassified to conform to current year presentation.

On October 1, 2019, the Company adopted ASC 842, Leases, which requires rights and obligations related to lease arrangements to be recognized on the balance sheet, using the optional transition method under which prior periods were not adjusted. The Company elected the package of practical expedients for leases that commenced prior to the adoption date, which included carrying forward the historical lease classification as operating or finance. The adoption of ASC 842 resulted in the recognition of operating lease right-of-use assets and related lease liabilities of approximately $500 as of October 1, 2019, but did not materially impact the Company's earnings or cash flows for the three and six months ended March 31, 2020.

On October 1, 2019, the Company adopted updates to ASC 815, Derivatives and Hedging, which permit hedging certain contractually specified risk components. Additionally, the updates eliminate the requirement to separately measure and report hedge ineffectiveness and simplify hedge documentation and effectiveness assessment requirements. These updates were adopted using a modified retrospective approach and were immaterial to the Company's financial statements for the three and six months ended March 31, 2020.

(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 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, while a smaller portion is recognized over time or relates to sales arrangements with multiple performance obligations. See Note 13 for additional information about the Company's revenues.

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, 2019Mar 31, 2020
Unbilled receivables (contract assets)$456  397  
Customer advances (contract liabilities)(519) (587) 
      Net contract liabilities$(63) (190) 
        
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 increase in net contract liabilities was due to customer billings which exceeded revenue recognized for performance completed during the period. Revenue recognized for the three and six months ended March 31, 2020 included approximately $56 and $326, 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 six months ended March 31, 2020 for performance obligations that were satisfied in previous periods, including cumulative catchup adjustments on the Company's long-term contracts, was not material.

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As of March 31, 2020, the Company's backlog relating to unsatisfied (or partially unsatisfied) performance obligations in contracts with its customers was approximately $5.7 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.  

(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
March 31,
Six Months Ended
March 31,
 2019  2020  2019  2020  
Basic shares outstanding614.0  607.4  619.0  608.7  
Dilutive shares4.1  3.6  3.9  3.9  
Diluted shares outstanding618.1  611.0  622.9  612.6  
 
(4) ACQUISITIONS AND DIVESTITURES

During the first six months of 2020, the Company's acquisition spending totaled $96, net of cash acquired.

The Company acquired eight businesses in 2019, all in the Automation Solutions segment, for $469, net of cash acquired. These eight businesses had combined annual sales of approximately $300. The Company recognized goodwill of $213 ($158 of which is expected to be tax deductible) and other identifiable intangible assets of $155, primarily customer relationships and intellectual property with a weighted-average life of approximately nine years.

Valuations of certain acquired assets and liabilities are in-process and subject to refinement for transactions completed after March 31, 2019.

(5) PENSION & POSTRETIREMENT PLANS

Total periodic pension and postretirement (income) expense is summarized below:
 Three Months Ended March 31,Six Months Ended March 31,
 2019  2020  2019  2020  
Service cost$18  22  $36  44  
Interest cost50  40  100  80  
Expected return on plan assets
(88) (84) (176) (168) 
Net amortization16  38  33  75  
Total$(4) 16  $(7) 31  

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(6) OTHER DEDUCTIONS, NET

Other deductions, net are summarized below:
 Three Months Ended
March 31,
Six Months Ended
March 31,
 2019  2020  2019  2020  
Amortization of intangibles (intellectual property and customer
relationships)
$60  59  $117  118  
Restructuring costs10  31  20  128  
Special advisory fees      13  
Other(13) (48) (30) (39) 
Total$57  42  $107  220  

In the second quarter of fiscal 2020, the change in Other included favorable impacts from foreign currency transactions of $36 and supplemental retirement plans of $16, partially offset by an unfavorable impact from pensions of $16. On a year-to-date basis, the change in Other reflects a favorable impact from foreign currency transactions of $22 and lower litigation costs, partially offset by an unfavorable impact from pensions of $30.

(7) RESTRUCTURING COSTS

Restructuring expense reflects costs associated with the Company’s ongoing efforts to improve operational efficiency and deploy assets globally in order to remain competitive on a worldwide basis. The costs incurred in the first half of fiscal 2020 largely relate to the Company's initiatives to improve operating margins that began in the third quarter of fiscal 2019 and include workforce reductions of approximately 1,800 employees. The Company expects fiscal 2020 restructuring expense and related costs to be approximately $280, an increase of $65 compared to its previous estimate, including costs to complete actions initiated in the first half of the year.

Restructuring expense by business segment follows:
 Three Months Ended
March 31,
Six Months Ended
March 31,
 2019  2020  2019  2020  
Automation Solutions$6  23  11  106  
Climate Technologies1  2  4  9  
Tools & Home Products2  5  4  8  
Commercial & Residential Solutions3  7  8  17  
Corporate1  1  1  5  
Total$10  31  20  128  

Details of the change in the liability for restructuring costs during the six months ended March 31, 2020 follow:
 Sept 30, 2019  Expense  Utilized/Paid  Mar 31, 2020  
Severance and benefits$62  105  57  110  
Other7  23  26  4  
Total$69  128  83  114  

The tables above do not include $9 of costs related to these restructuring actions incurred in the second quarter of fiscal 2020 that U.S. GAAP requires to be reported in cost of sales.  
8




(8) INCOME TAXES

Income taxes were $165 in the second quarter of fiscal 2020 and $150 in 2019, resulting in effective tax rates of 24 percent and 22 percent, respectively. The current year rate included unfavorable discrete items, which increased the rate 1 percentage point, while the prior year rate included favorable discrete tax items, which reduced the rate 2 percentage points.

Income taxes were $259 for the first six months of 2020 and $274 for 2019, resulting in effective tax rates of 23 percent and 22 percent, respectively. The prior year rate included favorable discrete items, which reduced the rate 2 percentage points.

On March 27, 2020, the CARES Act (the "Act") was enacted in response to the COVID-19 pandemic, and among other things, provides tax relief to businesses. Tax provisions of the Act include the deferral of certain payroll taxes, relief for retaining employees, and other provisions. The Company is evaluating the impact of the Act and currently expects to benefit from the deferral of certain payroll taxes through the end of calendar year 2020.

(9) LEASES

The Company leases offices; manufacturing facilities and equipment; and transportation, information technology and office equipment under operating lease arrangements. Finance lease arrangements are immaterial. The Company determines whether an arrangement is, or contains, a lease at contract inception. An arrangement contains a lease if the Company has the right to direct the use of and obtain substantially all of the economic benefits of an identified asset. Right-of-use assets and lease liabilities are recognized at lease commencement based on the present value of lease payments over the lease term. Leases with an initial term of 12 months or less are not recognized on the balance sheet and are recorded as short-term lease expense. The discount rate used to calculate present value is the Company's incremental borrowing rate based on the lease term and the economic environment of the applicable country or region.

Certain leases contain renewal options or options to terminate prior to lease expiration, which are included in the measurement of right-of-use assets and lease liabilities when it is reasonably certain they will be exercised. The Company has elected to account for lease and non-lease components as a single lease component for its offices and manufacturing facilities. Some lease arrangements include payments that are adjusted periodically based on actual charges incurred for common area maintenance, utilities, taxes and insurance, or changes in an index or rate referenced in the lease. The fixed portion of these payments is included in the measurement of right-of-use assets and lease liabilities at lease commencement, while the variable portion is recorded as variable lease expense. The Company's leases typically do not contain material residual value guarantees or restrictive covenants.

The components of lease expense for the three and six months ended March 31, 2020 were as follows:
 Three Months EndedSix Months Ended
March 31, 2020
Operating lease expense$53  106  
Variable lease expense$5  10  

Short-term lease expense and sublease income were immaterial for the three and six months ended March 31, 2020. Cash paid for operating leases is classified within operating cash flows and was $101 for the six months ended March 31, 2020. Operating lease right-of-use asset additions were $123 for the six months ended March 31, 2020.

The following table summarizes the balances of the Company's operating lease right-of-use assets and operating lease liabilities as of March 31, 2020, the vast majority of which relates to offices and manufacturing facilities:
Mar 31, 2020
Right-of-use assets (Other assets)$496  
Current lease liabilities (Accrued expenses)$148  
Noncurrent lease liabilities (Other liabilities)$353  
9





The weighted-average remaining lease term for operating leases was 5.2 years and the weighted-average discount rate was 2.8 percent as of March 31, 2020.

Future maturities of operating lease liabilities as of March 31, 2020 are summarized below:
Mar 31, 2020
Remainder of 2020$84  
2021132  
2022100  
202373  
202451  
Thereafter94  
Total lease payments534  
Less: Interest33  
Total lease liabilities$501  

Lease commitments that have not yet commenced were immaterial as of March 31, 2020.

The future minimum annual rentals under noncancelable long-term leases as of September 30, 2019 were as follows: $159 in 2020, $112 in 2021, $82 in 2022, $57 in 2023, $38 in 2024 and $63 thereafter.

(10) OTHER FINANCIAL INFORMATION

Sept 30, 2019Mar 31, 2020
Inventories
Finished products$578  641  
Raw materials and work in process