Emerson Reports Fiscal Third-Quarter Results.Business Editors ST. LOUIS--(BUSINESS WIRE)--Aug. 6, 2002 Emerson (NYSE NYSE See: New York Stock Exchange :EMR (ElectroMagnetic Radiation) The emanation of energy from everything in the universe. Although the EMR from electrical and electronic devices is typically measured for practical, every-day situations, every object, including humans, emanates energy. ): -- Second Consecutive Quarter of Sequential Improvement In Sales, Earnings and Operating Margin -- Restructuring Remains at Elevated Levels -- Continued Strong Operating Cash Flow and Free Cash Flow Generation -- FAS 142 Adopted as Previously Announced -- Company to Expense Stock Options Emerson (NYSE: EMR) announced today that for the third quarter ended June June: see month. 30, 2002, the company achieved sales of $3.6 billion, net earnings of $282 million, and diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of of $0.67. The results represent a second consecutive sequential One after the other in some consecutive order such as by name or number. improvement in quarterly results, with sales and earnings up 4 percent and 2 percent, respectively, over second-quarter results. In the third quarter of fiscal 2001, Emerson reported sales of $3.9 billion, net earnings of $330 million and diluted earnings per share of $0.77. In a difficult economic environment, Emerson maintained elevated levels of restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). , which reduced net earnings in the quarter. Restructuring delivered substantial benefits to operating margins Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: in the quarter, as evidenced by the sequential 0.8 point margin improvement, on top of a similar 0.8 point increase in the second quarter. Additionally, because of the environment, the company experienced higher-than-normal inventory and bad debt expenses. The after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. impact of these restructuring and other costs was approximately $40 million for the quarter. During the quarter, Emerson divested Daniel Daniel, book of the Bible Daniel, book of the Bible. It combines "court" tales, perhaps originating from the 6th cent. B.C., and a series of apocalyptic visions arising from the time of the Maccabean emergency (167–164 B.C. Valve valve, device for controlling the flow of fluids (liquids and gases). Valves vary in construction and size depending upon their function. Some are classified according to their method of operation or design, e.g. , the industrial valve business that was part of the Daniel Industries acquisition in fiscal 1999, for a pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern gain of $42 million. The after-tax impact of gains from divestitures was approximately $25 million, or $0.06 per share. Excluding these two items, the diluted earnings per share run rate for the quarter would have been $0.70. As shown below, the earnings for the quarter were impacted by gains from divestitures, ongoing restructuring, as well as higher than normal inventory and bad debt expenses:
Net Earnings (mil.) Diluted EPS
As reported $282 $0.67
Divestiture Gains $(25) $(0.06)
Restructuring and Other $40 $0.09
As adjusted - run rate $297 $0.70
Operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. for the quarter was $488 million, up 44 percent from $339 million in the third quarter of fiscal 2001, driven by strong improvements in working capital and operating profit margins Operating profit margin The ratio of operating profit to net sales. . Free cash flow increased 86 percent versus the third quarter of fiscal 2001, from $221 million to $409 million, reflecting the improved operating cash flow and lower capital spending capital spending Spending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years. . Year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. , operating cash flow increased 16 percent, to $1.2 billion, and free cash flow was $927 million, an increase of 54 percent over the prior year. "I am pleased that in a persistently challenging economy we achieved sequential sales and earnings increases in all five of our business segments, as well as exceptionally strong cash generation," said David N. Farr FARR Find and Run Robot FARR Friedreich Ataxia with Retained Reflexes FARR Forward Area Alerting Radar Receiver FARR Focused Area Risk Reduction (Air Force) FARR Forward Area Refueling and Rearming , chief executive officer. "We have sustained key technology and growth investments in our businesses throughout this downturn Downturn The transition point between a rising, expanding economy to a falling, contracting one. downturn A decline in security prices or economic activity following a period of rising or stable prices or activity. , which have kept us in a strong competitive position and contributed to these results." Farr added, "We continue to take a conservative approach to managing costs and strengthening our balance sheet to position Emerson for the future and to deliver solid financial performance. This straightforward approach also applies to our assessment of goodwill impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. and decision to expense stock options." The company took a previously announced non-cash asset impairment charge of $938 million in connection with the adoption of FAS 142, which is recognized in the first quarter of 2002. The charge was primarily in the Electronics & Telecommunications Communicating information, including data, text, pictures, voice and video over long distance. See communications. segment. The impact of this charge on the nine-month results is shown in the attached financial statements. As reported earlier, the discontinuation dis·con·tin·u·a·tion n. A cessation; a discontinuance. Noun 1. discontinuation - the act of discontinuing or breaking off; an interruption (temporary or permanent) discontinuance of goodwill amortization increases fiscal 2002 earnings by $0.35 per share, or approximately $0.09 per quarter. The change also reduces Emerson's effective tax rate by approximately 2.5 percentage points. Commenting on the outlook for the remainder of fiscal 2002, Farr said, "Based upon the third-quarter results and recent stable order trends, we expect sales for the fourth quarter to be in line with both the current third quarter and the fourth quarter a year ago. This sales environment, combined with further benefits from our restructuring actions, should drive continued improvement in operating profitability. In addition, we expect lower gains on divestitures and higher restructuring costs. Fourth-quarter reported earnings per share are expected to be up modestly versus the $0.58 (excluding the $377 million year-end year-end also year·end n. The end of a year. adj. Occurring or done at the end of the year: a year-end audit. Noun 1. incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. restructuring charge restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. ) reported in the fourth quarter of 2001, the first year-over-year quarterly increase since March 2001. "The economic environment remains challenging and unpredictable, and we are prepared to further accelerate cost actions should this become necessary. We will continue to focus on working capital and capital spending efficiency, which should enable a double-digit dou·ble-dig·it adj. Being between 10 and 99 percent: double-digit inflation. increase in free cash flow for the entire fiscal year." Business Segment Highlights Discussing third-quarter business segment results, Farr said, "The process control business reported sales of $851 million, a reduction of 4 percent versus a year ago. Underlying sales, excluding divestitures, acquisitions and currency exchange, decreased less than 1 percent following a very strong underlying increase a year ago. Growth in Europe Europe (y  r`əp), 6th largest continent, c.4,000,000 sq mi (10,360,000 sq km) including adjacent islands (1992 est. pop. 512,000,000). and Latin America Latin America, the Spanish-speaking, Portuguese-speaking, and French-speaking countries (except Canada) of North America, South America, Central America, and the West Indies. was offset by weakness in Asia."In July July: see month. , Emerson announced a three-year, $60 million agreement to provide automation equipment for ChevronTexaco Corp. facilities worldwide, demonstrating Emerson's broad product offerings and industry strength. Emerson continues to invest and expand on its strength in systems and software as evidenced in the recent release of version 7.1 of the DeltaV For other uses, see Delta-v (disambiguation). The DeltaV digital process control system and distributed control system is widely used in many industries around the world. digital automation system and version 6.0 of AMS AMS - Andrew Message System predictive maintenance Predictive maintenance (PdM) techniques help determine the condition of in-service equipment in order to predict when maintenance should be performed. This approach offers cost savings over routine or time-based preventive maintenance because tasks are performed only when software. Since the beginning of the year, Emerson Process Management has won more than $200 million in major projects. These projects reflect the strength of our PlantWeb (www.EmersonProcess.com/PlantWeb) digital architecture, and should provide positive momentum into the rest of calendar 2002 and into 2003. "Sales in the electronics and telecommunications business were $614 million for the quarter, an increase of 4 percent from the second quarter. This was the first quarter of sequential improvement since December December: see month. of 2000, and we are encouraged by the stability of orders over the past several months. Underlying sales decreased 31 percent versus prior year, with strong declines in all areas except Asia, which showed slight sales growth. Profitability for this segment sequentially se·quen·tial adj. 1. Forming or characterized by a sequence, as of units or musical notes. 2. Sequent. se·quen increased 1.8 percentage points due to the restructuring efforts over the past year and the stabilizing stabilizing, v to hold a limb motionless in order to ground its energy; a standard isometric resistance technique, it releases tension and lengthens muscle fibers. demand. This business is positioned to realize continued strong profitability improvement as demand returns. "During the quarter, we announced that our Network Power business won orders totaling more than $33 million to upgrade and protect the Intranet network serving 300 U.S. Navy and Marine Corps bases, as well as major contracts to provide reliable power to a national retail chain and a new 30-story office building in London London, city, Canada London, city (1991 pop. 303,165), SE Ont., Canada, on the Thames River. The site was chosen in 1792 by Governor Simcoe to be the capital of Upper Canada, but York was made capital instead. London was settled in 1826. , whose major tenant is Lehman Brothers Lehman Brothers Holdings Inc. (NYSE: LEH), founded in 1850, is a diversified, global financial services firm. It is a participant in investment banking, equity and fixed income sales, research and trading, investment management, private equity, and private banking. . Projects such as these, which are outside the weak telecom market, are important factors for our stabilizing demand. We also announced the creation of Emerson Network Power China, which leverages the Avansys China acquisition in this important market. "Heating, ventilating ventilating Natural or mechanically induced movement of fresh air into or through an enclosed space. The hazards of poor ventilation were not clearly understood until the early 20th century. Expired air may be laden with odors, heat, gases, or dust. and air conditioning air conditioning, mechanical process for controlling the humidity, temperature, cleanliness, and circulation of air in buildings and rooms. Indoor air is conditioned and regulated to maintain the temperature-humidity ratio that is most comfortable and healthful. sales were $693 million, up 1 percent over the fiscal 2001 third quarter and 8 percent versus the second quarter of fiscal 2002. The improvement reflects the recent seasonal upturn in U.S. residential air conditioning orders. Underlying sales were flat with increased sales in Asia and North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. offset by declines in Europe and Latin America. Based on continued strong U.S. orders, we anticipate solid fourth-quarter growth. "In April, Emerson Climate Technologies announced its Retail Services organization will provide Internet-based energy efficiency services to Tesco PLC, the largest food retailer in the United Kingdom. Additionally, Emerson recently entered into an agreement with the Great Atlantic & Pacific Tea Company to provide energy efficiency and site monitoring See Web analytics. services for up to 500 A & P food stores. This demonstrates the solid position that Emerson has established in the services and solutions segment of the market. "Sales in the industrial automation segment have been dramatically affected by reduced capital spending in North America. Sales were $619 million, down from the $739 million for the third quarter 2001, but up 3 percent sequentially from second quarter, indicating that business activity has stabilized sta·bi·lize v. sta·bi·lized, sta·bi·liz·ing, sta·bi·liz·es v.tr. 1. To make stable or steadfast. 2. . Underlying sales declined 12 percent from the prior year, driven by continued weakness in the European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. and U.S. industrial goods industrial goods npl → bienes mpl de producción markets. "Sales for the appliance A stand-alone hardware device or software environment dedicated to a specific task. See hardware appliance and software appliance. and tools business were up 6 percent sequentially and up 1 percent year over year, reaching $898 million for the quarter. Underlying sales grew slightly over the prior year, with slight growth in appliance components and a modest improvement in commercial and industrial motors. Double-digit growth continues at Closet Maid and In-Sink-Erator, driven by the strong housing market." Financial Highlights Farr continued, "Our results for the quarter reflect our long- long- Adverb (in combination) for or lasting a long time: long-established, long-lasting standing commitment to cost management and a strong balance sheet. With our emphasis on working capital efficiency and cash flow improvement, inventory and accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying levels were reduced from a year ago. As a result, trade working capital at the end of the quarter was 21 percent of sales, down from 23 percent of sales at the end of fiscal 2001. In addition, the 54 percent increase in year-to-date free cash flow to $927 million included approximately $160 million in pension fund contributions. "Net debt to net capital was 45 percent at the end of the quarter, and interest coverage was at 7.2 times for the nine months ended June 30, 2002. We expect to further reduce debt this year, with solid cash generation, reduced capital spending and lower levels of acquisition," Farr said. Emerson also announced that the company will begin expensing stock options effective October October: see month. 1, 2002. Earlier in 2002, the company issued approximately two million options to more than 2,000 employees, and no new options will be issued in the fourth quarter of fiscal 2002. Expensing of options would have an annual impact to earnings of approximately $0.04 per share, in line with the amounts regularly shown in the company's annual reports. Statements in this release that are not strictly historical may be "forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. " statements, which involve risks and uncertainties. These include economic and currency conditions, market demand, pricing, and competitive and technological factors, among others, as set forth in the company's SEC filings.
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Quarter Ended June 30, Percent
2001 2002 Change
Net sales $3,904.9 $3,570.7 (8.6%)
Less: Costs and expenses
Cost of sales 2,540.3 2,340.2
SG&A expenses 731.2 716.5
Interest expense 72.1 60.5
Other deductions, net 58.1 32.6
Total costs and expenses 3,401.7 3,149.8
Income before income taxes 503.2 420.9 (16.4%)
Income taxes 172.8 139.3
Net earnings $330.4 $281.6 (14.8%)
Basic earnings per common share $0.77 $0.68 (11.7%)
Diluted earnings per common share $0.77 $0.67 (13.0%)
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Nine Months Ended June 30, Percent
2001 2002 Change
Net sales $11,927.7 $10,286.3 (13.8%)
Less: Costs and expenses
Cost of sales 7,724.3 6,697.0
SG&A expenses 2,295.2 2,188.7
Interest expense 235.0 192.4
Other deductions, net 80.5 14.5
Total costs and expenses 10,335.0 9,092.6
Income before income taxes and
cumulative effect of change
in accounting principle 1,592.7 1,193.7 (25.1%)
Income taxes 546.2 382.7
Earnings before cumulative effect
of change in accounting principle 1,046.5 811.0 (22.5%)
Cumulative effect of change in
accounting principle, net of tax -- (937.7)
Net earnings $1,046.5 $(126.7) (112.1%)
Basic earnings per common share:
Before cumulative effect of
change in accounting principle $2.45 $1.94 (20.8%)
Cumulative effect of change in
accounting principle -- (2.24)
Basic earnings per common share $2.45 $(0.30) (112.2%)
Diluted earnings per common share:
Before cumulative effect of change
in accounting principle $2.43 $1.93 (20.6%)
Cumulative effect of change in
accounting principle -- (2.23)
Diluted earnings per common
share $2.43 $(0.30) (112.3%)
EMERSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
June 30,
2001 2002
Assets
Cash and equivalents $423.2 $548.0
Receivables, net 2,717.2 2,603.6
Inventories 2,058.9 1,698.0
Other current assets 471.5 451.6
Total current assets 5,670.8 5,301.2
Property, plant & equipment, net 3,280.0 3,108.1
Goodwill 5,225.0 4,876.1
Other 1,301.6 1,611.5
$15,477.4 $14,896.9
Liabilities and Stockholders' Equity
Short-term borrowings and current
maturities of long-term debt $2,394.3 $2,343.9
Accounts payable 1,163.2 1,175.9
Accrued expenses 1,521.5 1,471.3
Income taxes 117.6 173.0
Total current liabilities 5,196.6 5,164.1
Long-term debt 2,276.5 2,749.4
Other liabilities 1,294.7 1,326.6
Stockholders' equity 6,709.6 5,656.8
$15,477.4 $14,896.9
EMERSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(DOLLARS IN MILLIONS)
Nine Months Ended June 30,
2001 2002
Operating Activities
Net earnings $1,046.5 $(126.7)
Depreciation and amortization 536.2 409.4
Changes in operating working capital (375.7) 215.6
Cumulative effect of change in accounting
principle -- 937.7
Gains on divestitures, pension funding and
other (194.1) (257.5)
Net cash provided by operating activities 1,012.9 1,178.5
Investing Activities
Capital expenditures (409.8) (251.0)
Purchases of businesses, net of cash and
equivalents acquired (154.4) (730.8)
Divestitures of businesses and other, net 170.9 197.1
Net cash used in investing activities (393.3) (784.7)
Financing Activities
Net increase (decrease) in short-term
borrowings 91.0 (207.1)
Proceeds from long-term debt 35.4 509.1
Principal payments on long-term debt (20.8) (23.4)
Dividends paid (491.8) (489.0)
Net purchases of treasury stock (79.1) (4.0)
Net cash used in financing activities (465.3) (214.4)
Effect of exchange rate changes on cash and
equivalents (11.9) 12.9
Increase in cash and equivalents 142.4 192.3
Beginning cash and equivalents 280.8 355.7
Ending cash and equivalents $423.2 $548.0
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND PROFITS
(DOLLARS IN MILLIONS)
Quarter Ended June 30,
2001 2002
Sales
Process Control $887.2 $851.3
Industrial Automation 739.2 619.1
Electronics and Telecommunications 817.8 614.4
Heating, Ventilating, and Air Conditioning 686.3 692.5
Appliance and Tools 887.2 898.4
4,017.7 3,675.7
Eliminations (112.8) (105.0)
Total Emerson $3,904.9 $3,570.7
Quarter Ended June 30,
2001 2002
Earnings
Process Control $95.0 $97.5
Industrial Automation 102.8 71.5
Electronics and Telecommunications 66.3 29.8
Heating, Ventilating, and Air Conditioning 104.1 110.4
Appliance and Tools 124.9 132.1
493.1 441.3
Differences in accounting methods 47.8 39.1
Interest income, corporate and other 34.4 1.1
Interest expense (72.1) (60.6)
Income before income taxes $503.2 $420.9
In connection with the adoption of FAS 142, fiscal 2002 segment earnings exclude goodwill amortization. Third quarter of fiscal 2001 segment earnings include goodwill amortization as follows (in millions): Process Control $14; Industrial Automation $6; Electronics and Telecommunications $13; Heating, Ventilating, and Air Conditioning $4; and Appliance and Tools $5.
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND PROFITS
(DOLLARS IN MILLIONS)
Nine Months Ended June 30,
2001 2002
Sales
Process Control $2,511.5 $2,484.2
Industrial Automation 2,252.3 1,875.9
Electronics and Telecommunications 2,929.6 1,839.8
Heating, Ventilating, and Air Conditioning 1,889.1 1,791.7
Appliance and Tools 2,668.0 2,576.6
12,250.5 10,568.2
Eliminations (322.8) (281.9)
Total Emerson $11,927.7 $10,286.3
Nine Months Ended June 30,
2001 2002
Earnings
Process Control $243.1 $277.3
Industrial Automation 316.0 223.9
Electronics and Telecommunications 345.1 80.6
Heating, Ventilating, and Air Conditioning 285.2 264.1
Appliance and Tools 392.7 351.4
1,582.1 1,197.3
Differences in accounting methods 145.5 111.3
Interest income, corporate and other 100.1 77.6
Interest expense (235.0) (192.5)
Income before income taxes $1,592.7 $1,193.7
In connection with the adoption of FAS 142, fiscal 2002 segment earnings exclude goodwill amortization. First nine months of fiscal 2001 segment earnings include goodwill amortization as follows (in millions): Process Control $42; Industrial Automation $19; Electronics and Telecommunications $40; Heating, Ventilating, and Air Conditioning $11; and Appliance and Tools $13. |
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