Company Quick10K Filing
Quick10K
Emerson Electric
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$66.80 615 $41,060
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-12-31 Quarter: 2018-12-31
10-K 2018-09-30 Annual: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-K 2016-09-30 Annual: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-K 2015-09-30 Annual: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-K 2014-09-30 Annual: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-06-17 Regulation FD
8-K 2019-06-04 Officers, Exhibits
8-K 2019-05-22 Other Events, Exhibits
8-K 2019-05-15 Other Events, Exhibits
8-K 2019-05-07 Earnings, Exhibits
8-K 2019-04-29 Regulation FD
8-K 2019-02-05 Earnings, Exhibits
8-K 2019-02-05 Shareholder Vote
8-K 2019-01-30 Regulation FD
8-K 2019-01-15 Other Events, Exhibits
8-K 2019-01-08 Other Events, Exhibits
8-K 2018-12-17 Regulation FD
8-K 2018-11-06 Earnings, Exhibits
8-K 2018-10-02 Officers, Exhibits
8-K 2018-10-02 Officers, Exhibits
8-K 2018-09-18 Regulation FD
8-K 2018-08-15 Other Events, Exhibits
8-K 2018-08-13 Officers, Exhibits
8-K 2018-08-07 Earnings, Exhibits
8-K 2018-06-21 Regulation FD
8-K 2018-06-05 Amend Bylaw, Exhibits
8-K 2018-05-23 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2018-05-01 Earnings, Exhibits
8-K 2018-04-03 Other Events
8-K 2018-03-15 Regulation FD
8-K 2018-02-06 Officers, Shareholder Vote
8-K 2018-01-10 Officers
CCL Carnival 28,420
MOH Molina Healthcare 8,040
WLK Westlake Chemical 7,780
CCMP Cabot Microelectronics 3,320
VC Visteon 1,740
ACMR ACM Research 298
ESCA Escalade 167
ZFGN Zafgen 97
LQMT Liquidmetal Technologies 0
LVLT Level 3 Communications 0
EMR 2019-03-31
Part I. Financial Information
Item 1. Financial Statements
Item 4. Controls and Procedures
Part II. Other Information
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31 q2fy19exhibit31.htm
EX-32 q2fy19exhibit32.htm

Emerson Electric Earnings 2019-03-31

EMR 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 emr-3312019x10q.htm 10-Q Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-Q
 
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 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
(State or other jurisdiction of
incorporation or organization)
logo_emersona06.jpg
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 ý 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 ý 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 filer ý
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 ý






1



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
1.250% Notes due 2025
EMR 25A
New York Stock Exchange
2.000% Notes due 2029
EMR 29
New York Stock Exchange

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common stock of $0.50 par value per share outstanding at April 30, 2019: 615,026,583 shares.


2


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

Consolidated Statements of Earnings
EMERSON ELECTRIC CO. & SUBSIDIARIES

Three and six months ended March 31, 2018 and 2019
(Dollars in millions, except per share amounts; unaudited)
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2018

 
2019

 
2018

 
2019

Net sales
$
4,248

 
4,570

 
8,064

 
8,717

 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
Cost of sales
2,431

 
2,645

 
4,633

 
5,031

Selling, general and administrative expenses
1,035

 
1,145

 
2,030

 
2,222

Other deductions, net
88

 
57

 
166

 
107

Interest expense (net of interest income of $14, $7, $25 and $12, respectively)
36

 
48

 
74

 
91

 
 
 
 
 
 
 
 
Earnings before income taxes
658

 
675

 
1,161

 
1,266

 
 
 
 
 
 
 
 
Income taxes
169

 
150

 
278

 
274

 
 
 
 
 
 
 
 
Net earnings
489

 
525

 
883

 
992

 
 
 
 
 
 
 
 
Less: Noncontrolling interests in earnings of subsidiaries
7

 
5

 
9

 
7

 
 
 
 
 
 
 
 
Net earnings common stockholders
$
482

 
520

 
874

 
985

 
 
 
 
 
 
 
 
Basic earnings per share common stockholders
$
0.76

 
0.85

 
1.37

 
1.59

 
 
 
 
 
 
 
 
Diluted earnings per share common stockholders
$
0.76

 
0.84

 
1.37

 
1.58

 
 
 
 
 
 
 
 
Cash dividends per common share
$
0.485

 
0.49

 
0.97

 
0.98

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 See accompanying Notes to Consolidated Financial Statements.


3


Consolidated Statements of Comprehensive Income
EMERSON ELECTRIC CO. & SUBSIDIARIES

Three and six months ended March 31, 2018 and 2019
(Dollars in millions; unaudited)

 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
 
2018


 
2019

 
 
2018

 
 
2019

Net earnings
 
$
489

 
 
525

 
 
883

 
 
992

 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation
 
148

 
 
88

 
 
155

 
 
53

Pension and postretirement
 
22

 
 
12

 
 
45

 
 
25

Cash flow hedges
 
(5
)
 
 
25

 
 
(8
)
 
 
10

        Total other comprehensive income
 
165

 
 
125

 
 
192

 
 
88

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
 
654

 
 
650

 
 
1,075

 
 
1,080

 
 
 
 
 
 
 
 
 
 
 
 
Less: Noncontrolling interests in comprehensive
income of subsidiaries
 
7

 
 
6

 
 
9

 
 
8

Comprehensive income common stockholders
 
$
647

 
 
644

 
 
1,066

 
 
1,072



































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
 
Mar 31, 2019
ASSETS
 
 
 
Current assets
 
 
 
Cash and equivalents
$
1,093

 
1,384

Receivables, less allowances of $113 and $105, respectively
3,023

 
2,911

Inventories
1,813

 
2,073

Other current assets
690

 
784

Total current assets
6,619

 
7,152

 
 
 
 
Property, plant and equipment, net
3,562

 
3,615

Other assets
 

 
 
Goodwill
6,455

 
6,509

Other intangible assets
2,751

 
2,701

Other
1,003

 
1,094

Total other assets
10,209

 
10,304

Total assets
$
20,390

 
21,071

 
 
 
 
LIABILITIES AND EQUITY
 

 
 

Current liabilities
 

 
 

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

 
2,551

Accounts payable
1,943

 
1,730

Accrued expenses
2,534

 
2,349

Income taxes
64

 
84

Total current liabilities
6,164

 
6,714

 
 
 
 
Long-term debt
3,137

 
3,786

 
 
 
 
Other liabilities
2,099

 
1,999

 
 
 
 
Equity
 

 
 

Common stock, $0.50 par value; authorized, 1,200.0 shares; issued, 953.4 shares; outstanding, 629.2 shares and 614.8 shares, respectively
477

 
477

Additional paid-in-capital
348

 
380

Retained earnings
23,072

 
23,475

Accumulated other comprehensive income (loss)
(1,015
)
 
(928
)
Cost of common stock in treasury, 324.2 shares and 338.5 shares, respectively
(13,935
)
 
(14,878
)
Common stockholders’ equity
8,947

 
8,526

Noncontrolling interests in subsidiaries
43

 
46

Total equity
8,990

 
8,572

Total liabilities and equity
$
20,390

 
21,071







See accompanying Notes to Consolidated Financial Statements. 


5


Consolidated Statements of Cash Flows
EMERSON ELECTRIC CO. & SUBSIDIARIES

Six months ended March 31, 2018 and 2019
(Dollars in millions; unaudited)

 
 
Six Months Ended
 
 
March 31,
 
 
2018

 
2019

Operating activities
 
 
 
 
Net earnings
 
$
883

 
992

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
 
        Depreciation and amortization
 
378

 
406

        Changes in operating working capital
 
(363
)
 
(530
)
        Other, net
 
46

 
(12
)
            Cash provided by operating activities
 
944

 
856

 
 
 
 
 
Investing activities
 
 
 
 
Capital expenditures
 
(194
)
 
(274
)
Purchases of businesses, net of cash and equivalents acquired
 
(770
)
 
(243
)
Divestitures of businesses
 
221

 
5

Other, net
 
(42
)
 
(65
)
    Cash used in investing activities
 
(785
)
 
(577
)
 
 
 
 
 
Financing activities
 
 
 
 
Net increase in short-term borrowings
 
782

 
851

Proceeds from long-term debt
 

 
1,135

Payments of long-term debt
 
(251
)
 
(406
)
Dividends paid
 
(618
)
 
(607
)
Purchases of common stock
 
(750
)
 
(1,000
)
Other, net
 
(6
)
 
29

    Cash provided by (used in) financing activities
 
(843
)
 
2

 
 
 
 
 
Effect of exchange rate changes on cash and equivalents
 
66

 
10

Increase (decrease) in cash and equivalents
 
(618
)
 
291

Beginning cash and equivalents
 
3,062

 
1,093

Ending cash and equivalents
 
$
2,444

 
1,384

 
 
 
 
 
Changes in operating working capital
 
 
 
 
Receivables
 
$
80

 
175

Inventories
 
(172
)
 
(205
)
Other current assets
 
(12
)
 
(82
)
Accounts payable
 
(161
)
 
(211
)
Accrued expenses
 
(149
)
 
(222
)
Income taxes
 
51

 
15

Total changes in operating working capital
 
$
(363
)
 
(530
)








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 relates 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 six months ended March 31, 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 six months ended March 31, 2018 of $11 and $21, respectively, from cost of sales and SG&A to other deductions, net. Segment earnings were not impacted by the updates to ASC 715.

(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 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


7


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.
    
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
 
Mar 31, 2019
Unbilled receivables (contract assets)
 
$
321

 
 
426

Customer advances (contract liabilities)
 
(510
)
 
 
(532
)
      Net contract liabilities
 
$
(189
)
 
 
(106
)
    

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 six months ended March 31, 2019 included approximately $105 and $325, respectively, that was included in the beginning contract liability balance. No other factors materially impacted the change in net contract liabilities. Revenue recognized for the six months ended March 31, 2019 for performance obligations that were fully satisfied in previous periods, including cumulative catchup adjustments on the Company's long-term contracts, was not material.



8


As of March 31, 2019, the Company's backlog relating to unsatisfied (or partially unsatisfied) performance obligations in contracts with its customers was approximately $5.6 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
March 31,
 
Six Months Ended
March 31,
 
2018


2019


2018


2019

 
 
 
 
 
 
 
 
Basic shares outstanding
632.6

 
614.0

 
635.4

 
619.0

Dilutive shares
3.4

 
4.1

 
2.9

 
3.9

Diluted shares outstanding
636.0

 
618.1

 
638.3

 
622.9

 

(4) OTHER FINANCIAL INFORMATION

Sept 30, 2018
 
Mar 31, 2019
Inventories
 
 
 
 
 
Finished products
 
$
592

 
 
684

Raw materials and work in process
 
1,221

 
 
1,389

Total
 
$
1,813

 
 
2,073

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

 
 
8,634

Less: Accumulated depreciation
 
4,808

 
 
5,019

     Total
 
$
3,562

 
 
3,615

Goodwill by business segment
 
 
 
 
 
Automation Solutions
 
$
5,355

 
 
5,421

 
 
 
 
 
 
Climate Technologies
 
670

 
 
672

Tools & Home Products
 
430

 
 
416

Commercial & Residential Solutions
 
1,100

 
 
1,088

 
 
 
 
 
 
     Total
 
$
6,455

 
 
6,509

Other intangible assets
 
 
 
Gross carrying amount
 
$
4,667

 
 
4,787

Less: Accumulated amortization
 
1,916

 
 
2,086

     Net carrying amount
 
$
2,751

 
 
2,701

Other intangible assets include customer relationships of $1,445 and $1,517 as of March 31, 2019 and September 30, 2018, respectively.
Other assets include the following:
 
 
 
 
 
Pension assets
 
$
591

 
 
673

Asbestos-related insurance receivables
 
$
124

 
 
118

Deferred income taxes
 
$
74

 
 
83



9


 
Sept 30, 2018
 
Mar 31, 2019
Accrued expenses include the following:
 
 
 
 
 
Employee compensation
 
$
629

 
 
525

Customer advances
 
$
510

 
 
532

Product warranty
 
$
124

 
 
119

Other liabilities
 
 
 
 
 
Pension and postretirement liabilities
 
$
625

 
 
624

Deferred income taxes
 
484

 
 
483

Asbestos litigation
 
334

 
 
328

Other
 
656

 
 
564

     Total
 
$
2,099

 
 
1,999


(5) FINANCIAL INSTRUMENTS

Following is a discussion regarding the Company’s use of financial instruments:
Hedging Activities – As of March 31, 2019, the notional amount of foreign currency hedge positions was approximately $2.3 billion, and commodity hedge contracts totaled approximately $118 (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 March 31, 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 six months ended March 31, 2019 and 2018:
 
 
 
 
Into Earnings
 
Into OCI
 
 
 
 
2nd Quarter
 
Six Months
 
2nd Quarter
 
Six Months
Gains (Losses)
 
Location
 
2018

 
2019

 
2018

 
2019

 
2018

 
2019

 
2018

 
2019

Commodity
 
Cost of sales
 
$
6

 
(3
)
 
11

 
(6
)
 
(9
)
 
10

 
4

 
3

Foreign currency
 
Sales, cost of sales
 

 
4

 

 
6

 
8

 
22

 
(4
)
 
10

Foreign currency
 
Other deductions, net
 
(12
)
 
29

 
(12
)
 
40

 
 
 
 
 
 
 
 
     Total
 
 
 
$
(6
)
 
30

 
(1
)
 
40

 
(1
)
 
32

 

 
13

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 six months ended March 31, 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. 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. A pretax gain of $6 ($5 after-tax) was recognized in other comprehensive income (loss) for the three months ended March 31, 2019 related to the net investment hedge. 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 March 31, 2019, the fair value of long-term debt was $4.9 billion, which exceeded the carrying value by $306.


10


The fair values of commodity and foreign currency contracts were reported in other current assets and accrued expenses as summarized below:
 
September 30, 2018
 
March 31, 2019
 
Assets
 
Liabilities
 
Assets
 
Liabilities
Commodity
 
$
1

 
10

 
4

 
3

Foreign Currency
 
$
35

 
11

 
28

 
15

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 $7. 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 March 31, 2019.

(6) EQUITY

The change in equity for the three and six months ended March 31, 2018 and 2019 is shown below:  
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2018

 
2019

 
2018

 
2019

 
 
 
 
 
 
 
 
Common stock
$
477

 
477

 
477

 
477

 
 
 
 
 
 
 
 
Additional paid-in-capital
 
 
 
 
 
 
 
     Beginning balance
306

 
375

 
297

 
348

     Stock plans
17

 
5

 
26

 
32

        Ending balance
323

 
380

 
323

 
380

 
 
 
 
 
 
 
 
Retained earnings
 
 
 
 
 
 
 
     Beginning balance
22,079

 
23,252

 
21,995

 
23,072

     Net earnings common stockholders
482

 
520

 
874

 
985

     Dividends paid
(307
)
 
(302
)
 
(618
)
 
(607
)
     Adoption of accounting standard updates

 
5

 
3

 
25

        Ending balance
22,254

 
23,475

 
22,254

 
23,475

 
 
 
 
 
 
 
 
Accumulated other comprehensive income (loss)
 
 
 
 
 
 
 
     Beginning balance
(992
)
 
(1,052
)
 
(1,019
)
 
(1,015
)
     Foreign currency translation
148

 
87

 
155

 
52

     Pension and postretirement
22

 
12

 
45

 
25

     Cash flow hedges
(5
)
 
25

 
(8
)
 
10

        Ending balance
(827
)
 
(928
)
 
(827
)
 
(928
)
 
 
 
 
 
 
 
 
Treasury stock
 
 
 
 
 
 
 
     Beginning balance
(13,521
)
 
(14,816
)
 
(13,032
)
 
(13,935
)
     Purchases
(250
)
 
(75
)
 
(750
)
 
(1,000
)
     Issued under stock plans
36

 
13

 
47

 
57

        Ending balance
(13,735
)
 
(14,878
)
 
(13,735
)
 
(14,878
)
 
 
 
 
 
 
 
 
Common stockholders' equity
8,492

 
8,526

 
8,492

 
8,526

 
 
 
 
 
 
 
 
Noncontrolling interests in subsidiaries
 
 
 
 
 
 
 
     Beginning balance
39

 
40

 
52

 
43

     Net earnings
7

 
5

 
9

 
7

     Other comprehensive income

 
1

 

 
1

     Dividends paid
(1
)
 

 
(16
)
 
(5
)
        Ending balance
45

 
46

 
45

 
46

 
 
 
 
 
 
 
 
Total equity
$
8,537

 
8,572

 
8,537

 
8,572



11


(7) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Activity in Accumulated other comprehensive income (loss) for the three and six months ended March 31, 2018 and 2019 is shown below:  
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
 
2018

 
 
2019

 
 
2018

 
 
2019

Foreign currency translation
 
 
 
 
 
 
 
 
 
 
 
   Beginning balance
 
$
(362
)
 
 
(635
)
 
 
(369
)
 
 
(600
)
   Other comprehensive income (loss) before reclassifications
 
148

 
 
87

 
 
172

 
 
52

   Reclassified to gain/loss on sale of business
 

 
 

 
 
(17
)
 
 

   Ending balance
 
(214
)
 
 
(548
)
 
 
(214
)
 
 
(548
)
 
 
 
 
 
 
 
 
 
 
 
 
Pension and postretirement
 
 
 
 
 
 
 
 
 
 
 
   Beginning balance
 
(639
)
 
 
(407
)
 
 
(662
)
 
 
(420
)
   Amortization of deferred actuarial losses into earnings
 
22

 
 
12

 
 
45

 
 
25

   Ending balance
 
(617
)
 
 
(395
)
 
 
(617
)
 
 
(395
)
 
 
 
 
 
 
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
   Beginning balance
 
9

 
 
(10
)
 
 
12

 
 
5

   Deferral of gains (losses) arising during the period
 
(1
)
 
 
24

 
 

 
 
10

   Reclassification of realized (gains) losses to sales and cost of sales
 
(4
)
 
 
1

 
 
(8
)
 
 

   Ending balance
 
4

 
 
15

 
 
4

 
 
15

 
 
 
 
 
 
 
 
 
 
 
 
Accumulated other comprehensive income (loss)
 
$
(827
)
 
 
(928
)
 
 
(827
)
 
 
(928
)
 
 
 
 
 
 
 
 
 
 
 
 
Activity above is shown net of income taxes for the three and six months ended March 31, 2019 and 2018, respectively, as follows: foreign currency translation: $(1), $-, $(1), and $-; amortization of pension and postretirement deferred actuarial losses: $(4), $(8), $(8), and $(16); deferral of cash flow hedging gains (losses): $(8), $-, $(3), and $-; reclassification of realized cash flow hedging (gains) losses: $-, $2, $-, and $3.

(8) PENSION & POSTRETIREMENT PLANS

Total periodic pension and postretirement (income) expense is summarized below:
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
 
2018
 
 
2019
 
 
2018

 
 
2019
Service cost
 
$
19

 
 
18

 
 
38

 
 
36

Interest cost
 
47

 
 
50

 
 
93

 
 
100

Expected return on plan assets
 
(88
)
 
 
(88
)
 
 
(175
)
 
 
(176
)
Net amortization
 
30

 
 
16

 
 
61

 
 
33

Total
 
$
8

 
 
(4
)
 
 
17

 
 
(7
)



12


(9) OTHER DEDUCTIONS, NET

Other deductions, net are summarized below:
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2018
 
 
 
2019

 
 
2018

 
 
2019

 
 
 
 
 
 
 
 
 
 
 
 
Amortization of intangibles
 
$
51

 
 
60

 
 
107

 
 
117

Restructuring costs
 
9

 
 
10

 
 
24

 
 
20

Other
 
28

 
 
(13
)
 
 
35

 
 
(30
)
Total
 
$
88

 
 
57

 
 
166

 
 
107


The increase in amortization for the three and six months ended March 31, 2019 is due to higher intangibles amortization of $13 and $29, respectively, which largely relates to acquisitions completed in 2018, partially offset by backlog amortization of $4 and $19, respectively, incurred in the prior year related to the valves & controls acquisition. In the second quarter of 2019, Other included lower acquisition/divestiture-related costs of $33 and a favorable impact on comparisons from pensions of $11. On a year-to-date basis, Other reflects lower acquisition/divestiture-related costs of $35, pension expenses of $22 and foreign currency transactions of $10.

(10) 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. Costs for the three and six months ended March 31, 2019 largely relate to restructuring of the global cost structure consistent with the current level of economic activity, as well as the redeployment of resources for future growth.

Restructuring expense by business segment follows:
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2018
 
 
2019
 
 
2018
 
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
Automation Solutions
 
$
7

 
 
6

 
 
17

 
 
11

 
 
 
 
 
 
 
 
 
 
 
 
Climate Technologies
 
2

 
 
1

 
 
7

 
 
4

Tools & Home Products
 

 
 
2

 
 

 
 
4

Commercial & Residential Solutions
 
2

 
 
3

 
 
7

 
 
8

 
 
 
 
 
 
 
 
 
 
 
 
Corporate
 

 
 
1

 
 

 
 
1

 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
9

 
 
10

 
 
24

 
 
20


Details of the change in the liability for restructuring costs during the six months ended March 31, 2019 follow:
 
Sept 30, 2018
 
 
Expense
 
 
Utilized/Paid
 
 
Mar 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
Severance and benefits
 
$
46

 
 
10

 
 
22

 
 
34

Lease and other contract terminations
 
3

 
 

 
 
1

 
 
2

Asset write-downs
 

 
 
2

 
 
2

 
 

Vacant facility and other shutdown costs
 
3

 
 
4

 
 
5

 
 
2

Start-up and moving costs
 

 
 
4

 
 
4

 
 

Total
 
$
52

 
 
20

 
 
34

 
 
38

 




13


(11) INCOME TAXES

On December 22, 2017, the U.S. government enacted tax reform, the Tax Cuts and Jobs Act (the "Act"), which made comprehensive changes to U.S. federal income tax laws by moving from a global to a modified territorial tax regime. The Act includes a reduction of the U.S. corporate income tax rate from 35 percent to 21 percent in calendar year 2018 along with the elimination of certain deductions and credits, and a one-time "deemed repatriation" of accumulated foreign earnings. The Company recognized a net tax benefit of $43 ($0.07 per share) in the first quarter of fiscal 2018 and $189 ($0.30 per share) for the full year due to impacts of the Act.

Effective in fiscal 2019, the Act also subjects the Company to U.S. tax on global intangible low-taxed income earned by certain of its foreign subsidiaries. The Company has elected to recognize this tax as a period expense when it is incurred.

In the first quarter of fiscal 2019, the Company completed its accounting for the impacts of the Act and recorded a $100 benefit relating to the one-time tax on deemed repatriation of accumulated foreign earnings, which was offset by a related increase to its unrecognized tax benefits.

Given the complexities associated with the Act, additional regulatory guidance is expected to be issued. Recently, the U.S. Treasury and Internal Revenue Service released proposed regulations relating to the utilization of foreign tax credits, the calculation of global intangible low-taxed income, and other provisions of the Act. The proposed regulations were subject to a comment period and final regulations are expected to be issued after consideration of comments received. The Company will include the effects of any final regulations, as well as any additional guidance or legislative changes, in the period they are issued. In the second quarter of fiscal 2019, the Company recorded a $13 tax benefit due to the issuance of final regulations related to the one-time tax on deemed repatriation, which was unrelated to the $100 benefit described above.

Income taxes were $150 in the second quarter of 2019 and $169 in 2018, resulting in effective tax rates of 22 percent and 26 percent, respectively. The effective tax rates in both years reflect the lower U.S. corporate income tax rate as a result of the Act. The current year rate also included the impact of the $13 tax benefit discussed above.

Income taxes were $274 for the first six months of 2019 and $278 for 2018, resulting in effective tax rates of 22 percent and 24 percent, respectively. The effective tax rates in both years reflect the lower U.S. corporate income tax rate as a result of the Act. The current year rate also included favorable discrete items, which reduced the rate approximately 2 percentage points, while the prior year rate included the $43 net tax benefit discussed above.

(12) BUSINESS SEGMENTS

Summarized information about the Company's results of operations by business segment follows:
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
Sales
 
Earnings
 
Sales
 
Earnings
 
2018

 
2019

 
2018

 
2019

 
2018

 
2019

 
2018

 
2019

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Automation Solutions
$
2,771

 
3,010

 
436

 
444

 
5,343

 
5,809

 
822

 
851

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Climate Technologies
1,128

 
1,092

 
253

 
226

 
2,050

 
1,972

 
418

 
372

Tools & Home Products
355

 
469

 
96

 
102

 
685

 
927

 
183

 
193

Commercial & Residential Solutions
1,483

 
1,561

 
349

 
328

 
2,735

 
2,899

 
601

 
565

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Differences in accounting methods
 
 
 
 
55

 
65

 
 
 
 
 
106

 
124

Corporate and other
 
 
 
 
(146
)
 
(114
)
 
 
 
 
 
(294
)
 
(183
)
Eliminations/Interest
(6
)
 
(1
)
 
(36
)
 
(48
)
 
(14
)
 
9

 
(74
)
 
(91
)
     Total
$
4,248

 
4,570

 
658

 
675

 
8,064

 
8,717

 
1,161

 
1,266




14


The decrease in Corporate and other for the second quarter of 2019 was primarily due to lower acquisition/divestiture-related costs of $33. On a year-to-date basis, Corporate and other also included lower incentive stock compensation of $49, reflecting a decreasing stock price in the current year compared to an increasing stock price in the prior year, while the prior year included valves & controls first year acquisition accounting charges of $10 related to inventory and $19 for backlog amortization.
Automation Solutions sales by major product offering are summarized below:
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
 
2018

 
 
2019

 
 
2018

 
 
2019

 
 
 
 
 
 
 
 
 
 
 
 
Measurement & Analytical Instrumentation
 
$
860

 
 
927

 
 
$
1,632

 
 
1,785

Valves, Actuators & Regulators
 
921

 
 
937

 
 
1,784

 
 
1,811

Industrial Solutions
 
484

 
 
574

 
 
912

 
 
1,116

Process Control Systems & Solutions
 
506

 
 
572

 
 
1,015

 
 
1,097

     Automation Solutions
 
$
2,771

 
 
3,010

 
 
$
5,343

 
 
5,809


Segment sales by geographic destination are summarized below:
 
Three Months Ended March 31,
 
2018
 
2019
 
Automation Solutions

 
Commercial & Residential Solutions

 
Total

 
Automation Solutions

 
Commercial & Residential Solutions

 
Total

 
 
 
 
 
 
 
 
 
 
 
 
Americas
$
1,372

 
983

 
2,355

 
1,523

 
1,082

 
2,605

Asia, Middle East & Africa
868

 
340

 
1,208

 
910

 
285

 
1,195

Europe
531

 
160

 
691

 
577

 
194

 
771

     Total
$
2,771

 
1,483

 
4,254

 
3,010

 
1,561

 
4,571

 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended March 31,
 
2018
 
2019
 
Automation Solutions

 
Commercial & Residential Solutions

 
Total

 
Automation Solutions

 
Commercial & Residential Solutions

 
Total

 
 
 
 
 
 
 
 
 
 
 
 
Americas
$
2,658

 
1,761

 
4,419

 
2,928

 
1,989

 
4,917

Asia, Middle East & Africa
1,658

 
688

 
2,346

 
1,751

 
550

 
2,301

Europe
1,027

 
286

 
1,313

 
1,130

 
360

 
1,490

     Total
$
5,343

 
2,735

 
8,078

 
5,809

 
2,899

 
8,708


(13) ACQUISITIONS AND DIVESTITURES

During the first six months of 2019, the Company acquired six businesses in the Automation Solutions segment for $243, net of cash acquired, which included the acquisition of Machine Automation Solutions (General Electric's former Intelligent Platforms business). These six businesses had combined annual sales of approximately $240.

On July 17, 2018, the Company completed the acquisition of Aventics, a global provider of smart pneumatics technologies that power machine and factory automation applications, for $622, net of cash acquired. This business, which has annual sales of approximately $425, is reported in the Industrial Solutions product offering in the Automation Solutions segment. The Company recognized goodwill of $354 ($20 of which is expected to be tax deductible), and identifiable intangible assets of $278, primarily intellectual property and customer relationships with a weighted-average useful life of approximately 12 years.

On July 2, 2018, the Company completed the acquisition of Textron's tools and test equipment business for $810, net of cash acquired. This business, with annual sales of approximately $470, is a manufacturer of electrical and utility tools, diagnostics, and test and measurement instruments, and is reported in the Tools & Home products


15


segment. The Company recognized goodwill of $361 ($17 of which is expected to be tax deductible), and identifiable intangible assets of $358, primarily intellectual property and customer relationships with a weighted-average useful life of approximately 14 years.

Valuations of acquired assets and liabilities are in process and subject to refinement.

On December 1, 2017, the Company acquired Paradigm, a provider of software solutions for the oil and gas industry, for $505, net of cash acquired. This business had annual sales of approximately $140 and is included in the Measurement & Analytical Instrumentation product offering within Automation Solutions. The Company recognized goodwill of $309 ($170 of which is expected to be tax deductible), and identifiable intangible assets of $238, primarily intellectual property and customer relationships with a weighted-average useful life of approximately 11 years.

During 2018, the Company also acquired four smaller businesses, two in the Automation Solutions segment and two in the Climate Technologies segment.

On October 2, 2017, the Company sold its residential storage business for $200 in cash, and recognized a small pretax gain and an after-tax loss of $24 ($0.04 per share) in the first quarter of 2018 due to income taxes resulting from nondeductible goodwill. The Company realized $150 in after-tax cash proceeds from the sale.

Pro Forma Financial Information
The following unaudited pro forma consolidated condensed financial results of operations are presented as if the 2018 acquisitions occurred on October 1, 2016 and the acquisition of the valves & controls business occurred on October 1, 2015. The pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved had the acquisitions occurred as of that time.
 
Three Months Ended
 
Six Months Ended
 
March 31, 2018
 
 
 
 
 
 
Net sales
 
$
4,501

 
 
$
8,588

Net earnings common stockholders
 
$
493

 
 
$
903

Diluted earnings per share
 
$
0.77

 
 
$
1.41





16


Items 2 and 3.

Management's Discussion and Analysis of Financial Condition and Results of Operations 

OVERVIEW

Net sales for the second quarter of 2019 were $4.6 billion, up 8 percent, supported by acquisitions which added 6 percent, and adversely affected by foreign currency translation which deducted 2 percent. Underlying sales, which exclude foreign currency translation, acquisitions and divestitures, increased 4 percent, reflecting broad-based global demand in energy-related and global industrial markets, steady growth in North American air conditioning markets, and favorable global trends for professional tools.
Net earnings common stockholders were $520 million, up 8 percent, and diluted earnings per share were $0.84, up 11 percent.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31  

Following is an analysis of the Company’s operating results for the second quarter ended March 31, 2019, compared with the second quarter ended March 31, 2018.
 
2018
 
2019
 
Change
(dollars in millions, except per share amounts)
 

 
 

 
 
 
 
 
 
 
 
Net sales
$
4,248

 
4,570

 
8
%
Gross profit
$
1,817

 
1,925

 
6
%
Percent of sales
42.8
%
 
42.1
%
 
 

 
 
 
 
 
 
SG&A
$
1,035

 
1,145

 
11
%
Percent of sales
24.4
%
 
25.0
%
 
 

Other deductions, net
$
88

 
57

 
 

Interest expense, net
$
36

 
48

 
 

 
 
 
 
 
 
Earnings before income taxes
$
658

 
675

 
3
%
Percent of sales
15.5
%
 
14.8
%
 
 

Net earnings common stockholders
$
482

 
520

 
8
%
Percent of sales
11.4
%
 
11.4
%
 
 

 
 
 
 
 
 
Diluted earnings per share
$
0.76

 
0.84

 
11
%

Net sales for the second quarter of 2019 were $4.6 billion, an increase of $322 million, or 8 percent compared with $4.2 billion in 2018. Underlying sales increased 4 percent ($169 million) on higher volume and slightly higher price. Acquisitions added 6 percent ($256 million) and foreign currency translation subtracted 2 percent ($103 million). Underlying sales increased 5 percent in the U.S. and 3 percent internationally. The Americas was up 7 percent and Europe was up 2 percent, while Asia, Middle East & Africa was flat (China up 2 percent, versus up 21 percent in 2018). Sales increased $239 million in Automation Solutions, supported by acquisitions and continued broad-based global demand. Commercial & Residential Solutions sales increased $78 million due to acquisitions, partially offset by slower demand in Asia, Middle East & Africa.

Cost of sales for the second quarter of 2019 were $2.6 billion, an increase of $214 million compared with $2.4 billion in 2018, primarily due to acquisitions and higher volume partially offset by the impact of foreign currency translation. Gross margin of 42.1 percent decreased 0.7 percentage points, reflecting unfavorable mix and first year acquisition accounting charges related to inventory of $7 million.

Selling, general and administrative (SG&A) expenses of $1.1 billion increased $110 million compared with the prior year, primarily due to acquisitions and higher volume. SG&A as a percent of sales increased 0.6 percentage points to 25.0 percent, primarily due to acquisitions, which negatively impacted comparisons by 0.4 percentage points. Higher investment spending and higher incentive stock compensation of $14 million were partially offset by leverage on higher volume.


17



Other deductions, net were $57 million in 2019, a decrease of $31 million compared with the prior year, reflecting lower acquisition/divestiture-related costs of $33 million and a favorable impact from pensions of $11 million, partially offset by higher intangibles amortization of $9 million. See Note 9.

Pretax earnings of $675 million increased $17 million, or 3 percent. Earnings increased $8 million in Automation Solutions and decreased $21 million in Commercial & Residential Solutions, while Corporate and other expense decreased $32 million. See Note 12 and the following Business Segments discussion.

Income taxes were $150 million for 2019 and $169 million for 2018, resulting in effective tax rates of 22 percent and 26 percent, respectively. The effective tax rates in both years reflect the lower U.S. corporate income tax rate as a result of the Tax Cuts and Jobs Act (the "Act"). The current year rate also included a tax benefit of $13 million due to the issuance of final regulations related to the one-time tax on deemed repatriation. The effective tax rate for full year 2019 is currently expected to be approximately 23 percent

Given the complexities associated with the Act, additional regulatory guidance is expected to be issued. The Company will include the effects of any final regulations, as well as any additional guidance or legislative changes, in the period they are issued. See Note 11.

Net earnings common stockholders in the second quarter of 2019 were $520 million, up 8 percent, compared with $482 million in the prior year, and earnings per share were $0.84, up 11 percent, compared with $0.76 in 2018.

Business Segments
Following is an analysis of operating results for the Company’s business segments for the second quarter ended March 31, 2019, compared with the second quarter ended March 31, 2018. The Company defines segment earnings as earnings before interest and taxes. See Note 12 for a discussion of the Company's business segments.
 
AUTOMATION SOLUTIONS
Three Months Ended Mar 31
2018
 
2019
 
Change
(dollars in millions)
 
 
 
 
 
 
 
 
 
 
 
Sales
$
2,771

 
3,010

 
9
%
Earnings
$
436

 
444

 
2
%
     Margin
15.7
%
 
14.8
%
 
 

Sales by Major Product Offering
 
 
 
 
 
Measurement & Analytical Instrumentation
$
860

 
927

 
8
%
Valves, Actuators & Regulators
921

 
937

 
2
%
Industrial Solutions
484

 
574

 
19
%
Process Control Systems & Solutions
506

 
572

 
13
%
     Total
$
2,771

 
3,010

 
9
%

Automation Solutions sales were $3.0 billion in the second quarter, an increase of $239 million, or 9 percent. Underlying sales increased 7 percent ($175 million) on higher volume and slightly higher price. Acquisitions added 5 percent ($143 million) and foreign currency translation had a 3 percent ($79 million) unfavorable impact. Sales for Measurement & Analytical Instrumentation increased $67 million, or 8 percent, on continued broad-based demand in global industrial markets. Valves, Actuators & Regulators increased $16 million, or 2 percent, due to favorable global oil and gas demand. Industrial Solutions sales increased $90 million, or 19 percent, due to the Aventics acquisition ($99 million). Process Control Systems & Solutions increased $66 million, or 13 percent, due to the Machine Automation Solutions acquisition ($44 million), continued favorable demand for small and mid-sized projects focused on expansion and optimization of existing assets, and strong maintenance and repair demand. Underlying sales increased 9 percent in the Americas (U.S. up 7 percent), 1 percent in Europe and 6 percent in Asia, Middle East & Africa (China up 11 percent). Earnings were $444 million, an increase of $8 million, or 2 percent, due to higher volume and price. Margin decreased 0.9 percentage points to 14.8 percent, reflecting a dilutive impact from acquisitions of 0.8 percentage points and unfavorable foreign currency transactions of 0.2


18


percentage points. Leverage on higher volume and favorable price-cost were offset by higher investment spending and unfavorable mix.

COMMERCIAL & RESIDENTIAL SOLUTIONS
Three Months Ended Mar 31
2018
 
2019
 
Change
(dollars in millions)
 
 
 
 
 
 
 
 
 
 
 
Sales:
 
 
 
 
 
  Climate Technologies
$
1,128

 
1,092

 
(3
)%
  Tools & Home Products
355

 
469

 
32
 %
     Total
$
1,483

 
1,561

 
5
 %
 
 
 
 
 
 
Earnings:
 
 
 
 
 
  Climate Technologies
$
253

 
226

 
(10
)%
  Tools & Home Products
96

 
102

 
5
 %
     Total
$
349

 
328

 
(6
)%
     Margin
23.6
%
 
21.0
%
 
 

Commercial & Residential Solutions sales were $1.6 billion in the second quarter, up $78 million, or 5 percent compared to the prior year. Acquisitions added 7 percent ($108 million) and foreign currency translation subtracted 2 percent ($24 million). Underlying sales decreased $6 million as lower volume was largely offset by higher price. Climate Technologies sales were $1.1 billion in the second quarter, a decrease of $36 million, or 3 percent. HVAC sales were down sharply in Asia, Middle East & Africa, while growth in the U.S. was solid. Cold chain sales were down modestly on lower global demand. Tools & Home Products sales were $469 million in the second quarter, an increase of $114 million, or 32 percent, reflecting the tools and test acquisition, which added $108 million, and favorable trends in global professional tools markets. Food waste disposers were down slightly while wet/dry vacuums were up modestly. Overall, underlying sales increased 4 percent in the Americas (U.S. up 3 percent) and 2 percent in Europe, while Asia, Middle East & Africa decreased 15 percent (China down 16 percent). Earnings were $328 million, a decrease of $21 million, and margin declined 2.6 percentage points, primarily due to a dilutive impact from the tools and test acquisition of 1.1 percentage points and unfavorable business mix of 0.8 percentage points. Deleverage on lower volume in the Climate Technologies segment also reduced margin, partially offset by favorable price-cost due to pricing actions effective in the second quarter.




19