Emerson Reports Fourth Quarter And Fiscal 2001 Results; Free Cash Flow Increases To $1.2 Billion.Business Editors ST. LOUIS--(BUSINESS WIRE)--Nov. 6, 2001 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. ) announced today that for fiscal year 2001 ended September September: see month. 30 the company achieved sales of $15.5 billion, operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before of $1.3 billion, operating earnings per share of $3.01, operating earnings per share excluding goodwill amortization of $3.36, 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. of $1.7 billion and free cash flow of $1.2 billion. Including $377 million in 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. pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta rationalization rationalization, in psychology: see defense mechanism. charges recognized in the fourth quarter, earnings and earnings per share were $1.0 billion and $2.40 respectively. "Fiscal 2001 was a challenging year," 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. "As we said previously, economic difficulties that were initially confined con·fine v. con·fined, con·fin·ing, con·fines v.tr. 1. To keep within bounds; restrict: Please confine your remarks to the issues at hand. See Synonyms at limit. to spending in U.S. industrial goods industrial goods npl → bienes mpl de producción and telecom equipment expanded into a broad-based broad-based Of or relating to an index or average that provides a good representation of the overall market. The S&P 500 and NYSE Composite are generally regarded as broad-based stock indexes, while the popular Dow Jones Industrial Average is biased global 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. now affecting all of our businesses. "Sales for the industrial automation; 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. ; and appliance A stand-alone hardware device or software environment dedicated to a specific task. See hardware appliance and software appliance. and tools businesses declined versus 2000, and electronics and telecommunications Communicating information, including data, text, pictures, voice and video over long distance. See communications. sales declined in the second half of the year. Emerson's end market and geographic diversity generally serves as a buffer buffer, solution that can keep its relative acidity or alkalinity constant, i.e., keep its pH constant, despite the addition of strong acids or strong bases. in economic downturns, but the current environment is exceptionally widespread. In response, we have taken aggressive cost savings and asset management actions. "Our process business achieved an outstanding year, with underlying sales growth of nearly 10 percent, and earnings growth of 28 percent, significantly outpacing the overall market." Farr continued, "Another major highlight in 2001 was our growth in free cash flow, which was achieved despite the downturn in earnings. The growth was driven both by lower working capital, particularly receivables Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed and inventory, and a 20 percent reduction in 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. . We continue to focus aggressively on total asset efficiency, because it is another key component of providing value to shareholders. Net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight for the year were $15,479,625,000 versus sales of $15,544,802,000 in 2000. Net operating earnings for the year were $1,292,200,000, compared with $1,422,400,000. Reported earnings were $1,031,767,000 versus $1,422,400,000. Operating earnings per share for fiscal 2001 were $3.01 versus $3.30. Operating earnings per share excluding goodwill amortization for fiscal 2001 were $3.36 versus $3.63. Reported earnings per share were $2.40 versus $3.30 a year ago. Operating cash flow for fiscal 2001 was $1,707,725,000 versus $1,839,755,000 the prior year. Free cash flow was $1,153,546,000, an increase of 1 percent over $1,147,769,000 a year ago. Fourth quarter net sales were $3,551,948,000 versus net sales of $4,065,032,000 for the comparable 2000 period. Reported earnings registered a loss of $14,701,000, or $0.03 per share, versus $370,975,000, or $0.86 per share a year ago. Net operating earnings for the fourth quarter of fiscal 2001 were $245,700,000, versus $370,975,000. Operating earnings per share were $0.58 per share versus $0.86. Operating earnings per share excluding goodwill amortization for the quarter were $0.67 versus $0.95. Operating Highlights Discussing segment results for the fiscal year, Farr said, "The electronics and telecommunications business increased 9 percent in 2001, reaching $3.6 billion, driven by acquisitions and very strong underlying gains in the first half. After around a 30 percent underlying increase in the first half, sales declined over 20 percent in the second half, with the rapid reversal creating significant near-term near-term adj. Of, for, or involving a short period of time in the near future. pressure on earnings. "We have taken aggressive actions to deal with this business downturn -- actions which have enabled us to remain profitable despite the significant drop in volume -- and expect to return toward our earlier profitability levels as the market returns to growth. Emerson's scale and broad product, geographic and customer diversity have enabled us to deliver this performance, and the recent Avansys acquisition in China will further build on these strengths. Avansys will also allow us to accelerate our broad 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). opportunities across the electronics and telecom business. "The process business achieved an 8 percent sales increase, reaching $3.3 billion, the result of continued high customer demand for our innovative PlantWeb technology and strong growth in the solutions and services areas of this business. These capabilities have dramatically increased Emerson's end-market opportunity, and the uniqueness of our offerings has allowed Emerson to firmly establish a leading position. Emerson's product strength in control systems, valve and measurement devices also played a key role in our growth, as general maintenance and repair spending returned to more normalized levels after a challenging 1999 and 2000. "Sales for the heating, ventilating and air conditioning business decreased slightly to $2.4 billion, primarily due to significantly lower U.S. demand for air conditioning and refrigeration refrigeration, process for drawing heat from substances to lower their temperature, often for purposes of preservation. Refrigeration in its modern, portable form also depends on insulating materials that are thin yet effective. products at the residential, commercial and industrial levels. Underlying sales 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). grew at mid-single-digit rates for the year,
and Asia, which now represents approximately 15 percent of the segment
sales, continued to grow at double-digit dou·ble-dig·itadj. Being between 10 and 99 percent: double-digit inflation. rates. "Copeland Scroll To continuously move forward, backward or sideways through the text and images on screen or within a window. Scrolling implies continuous and smooth movement, a line, character or pixel at a time, as if the data were on a paper scroll being rolled behind the screen. See auto scroll. sales reached nearly $900 million in 2001, registering mid-single-digit growth for the year, and now account for over 35 percent of the HVAC (Heating Ventilation Air Conditioning) In the home or small office with a handful of computers, HVAC is more for human comfort than the machines. In large datacenters, a humidity-free room with a steady, cool temperature is essential for the trouble-free segment revenue. We continue to develop new growth opportunities for Scroll technology, including the fiscal 2001 launches of a Digital Scroll for variable compression capacity and a 25-horsepower commercial Scroll product. Both of these new products expand our market space considerably. We are also confident that Scroll's superior efficiency versus alternate compression techniques will enable us to further increase our presence in the U.S. residential air conditioning market as the efficiency standards are raised within the next five years. "Industrial automation sales declined 7 percent for the year to $3.0 billion, due to widespread weakness in the U.S. capital goods Capital Goods Any goods used by an organization to produce other goods. Notes: Examples of capital goods include office buildings, equipment, and machinery. See also: Capital Expenditure, Disinvestment Capital goods markets. Underlying European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. sales grew approximately 5 percent for the year, but the euro exchange rate effectively negated this growth, and underlying Asian sales increased modestly versus 2000. "Appliance and tools segment sales decreased to $3.5 billion, primarily the result of the Vermont Vermont (vərmŏnt`) [Fr.,=green mountain], New England state of the NE United States. It is bordered by New Hampshire, across the Connecticut R. American divestiture The breakup of AT&T. By federal court order, AT&T divested itself on January 1, 1984 of its 23 operating companies, which became known as the Regional Bell Operating Companies (RBOCs). in fiscal 2000, the weak U.S. capital goods environment and a challenging appliances market. Underlying tools sales were flat versus 2000. Financial Highlights "Emerson finished the year in a solid financial position, largely due to our strong cash flow performance for the year," Farr said. "Net debt to net capital was 42 percent at September 30, 2001. We increased share buyback Buyback The buying back of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies will buyback shares either to increase the value of shares still available (reducing supply), or to eliminate any threats by shareholders who may during the fourth quarter, ending the year with 10.1 million shares repurchased." Commenting on Emerson's share repurchase Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. activity, Farr said, "Through September, we acquired 39.4 million of the 40 million shares authorized Shares authorized The maximum number of shares of stock of a company allowed in the articles of incorporation, which may be changed only by a shareholder vote. See: Issued and outstanding. shares authorized See authorized capital stock. by the board in 1996. To maintain flexibility, management is recommending to the board today the authorization The right or permission to use a system resource; the process of granting access. See access control. of an additional 40 million shares, representing approximately 10 percent of the company's outstanding stock, for an extended repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. program to be completed over approximately the next five years." Farr continued, "We consider stock repurchase Stock repurchase A firm's repurchase of outstanding shares of its common stock. and dividends to be an integral part of delivering value to our stockholders. With respect to dividends, we have communicated our plan to reduce our payout ratio Payout Ratio The percentage of earnings paid out in dividends. It is calculated by dividing dividends per share by earnings per share. Notes: The payout ratio indicates how well earnings support the dividend payments: the lower the ratio, the more secure the dividend. relative to prior-year earnings into the 40 to 45 percent range, and this will be implemented over time. For fiscal 2002, management is recommending to the board today an increase in the annual dividend from $1.53 to $1.55, representing our 46th consecutive year of increases. Repositioning repositioning Laparoscopic surgery The changing of a Pt's position during a procedure to improve access or visualization of the operative field, which may be linked to complications, as it changes anatomic planes of operation. Cf Laparoscopic surgery. "Our strategy to reposition Emerson into faster-growth areas and create enhanced shareholder value continued throughout 2001," Farr said. "During the year, we divested the Sweco and Xomox industrial products operations. We also moved our Camco mechanical indexing operations into a joint venture with Crane Co., and we recently agreed to sell our ENI semiconductor equipment division to MKS (Mortice Kern Systems Inc., Waterloo, Ontario, www.mks.com) A software company that specializes in programming tools and utilities for a variety of platforms. For example, its RCS system for Windows, OS/2 and Unix is a version control software package. Instruments, Inc. in exchange for MKS equity. These transactions reduce Emerson's annual sales by approximately $350 million. "After strong acquisition activity in 1999 and 2000, fiscal 2001 acquisitions were focused on smaller product and service additions. On October 22, 2001, we announced the acquisition of Avansys Power Co., Ltd. for approximately $750 million in cash. Avansys significantly increases our participation in the China communications market, which has continued to show strong growth. Avansys also provides Emerson an outstanding engineering and manufacturing infrastructure that will play an integral role in the current global rationalization of our entire power conversion operations. Outlook for Fiscal 2002 "As we indicated on October 22, the economy remains challenging, and we are approaching fiscal 2002 as another tough year," Farr said. "'Pay as you go' restructuring will again be well above historical levels, as we continue to aggressively pursue cost containment cost containment, n the features of a dental benefits program or of the administration of the program designed to reduce or eliminate certain charges to the plan. and rationalization. To drive free cash flow and increased asset efficiency, we will again reduce capital spending in 2002. While the first half will begin with earnings dynamics similar to the fourth quarter, we are confident our approach will again enable Emerson to generate solid earnings and cash flow in the weak environment." Emerson will post an audio summary of the fourth quarter and fiscal year results on the company web site, www.gotoemerson.com/financial after 9:00 a.m. Eastern Time today. Statements in this release that are not strictly historical may be "forward-looking" 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 September 30, Percent
2001 2000 Change
Net sales $3,551.9 $4,065.0 (12.6%)
Less: Costs and expenses
Cost of sales 2,394.2 2,607.8
SG&A expenses 786.7 775.4
Interest expense 69.3 83.4
Other deductions, net 305.8 28.8
Income (loss) before income taxes (4.1) 569.6 (100.7%)
Income taxes 10.6 198.6
Net earnings (loss) $(14.7) $371.0 (104.0%)
Diluted earnings per common share ($0.03) $0.86 (103.5%)
Operating earnings
per common share (1) $0.58 $0.86 (32.6%)
Operating earnings
per common share,
excluding goodwill amortization $0.67 $0.95 (29.5%)
Twelve Months Ended September 30, Percent
2001 2000 Change
Net sales $15,479.6 $15,544.8 (0.4%)
Less: Costs and expenses
Cost of sales 10,118.5 10,016.0
SG&A expenses 3,081.9 2,987.9
Interest expense 304.3 287.6
Other deductions, net 386.3 75.0
Income before income taxes 1,588.6 2,178.3 (27.1%)
Income taxes 556.8 755.9
Net earnings $1,031.8 $1,422.4 (27.5%)
Diluted earnings per common share $2.40 $3.30 (27.3%)
Operating earnings
per common share (1) $3.01 $3.30 (8.8%)
Operating earnings
per common share,
excluding goodwill amortization $3.36 $3.63 (7.4%)
(1) Operating earnings per share excludes incremental rationalization
charges in Cost of sales, SG&A expenses and Other deductions, net
of $89 million, $51 million and $237 million respectively, for a
total of $377 million.
EMERSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
September 30,
2001 2000
Assets
Cash and equivalents $355.7 $280.8
Receivables, net 2,551.2 2,705.6
Inventories 1,896.8 2,052.7
Other current assets 516.4 443.6
Total current assets 5,320.1 5,482.7
Property, plant & equipment, net 3,288.0 3,243.4
Goodwill 5,182.0 5,320.0
Other 1,256.3 1,118.2
$15,046.4 $15,164.3
Liabilities and Stockholders' Equity
Short-term borrowings and current
maturities of long-term debt $2,447.5 $2,352.7
Accounts payable 1,127.5 1,210.6
Accrued expenses 1,619.4 1,390.6
Income taxes 184.7 264.9
Total current liabilities 5,379.1 5,218.8
Long-term debt 2,255.6 2,247.7
Other liabilities 1,297.7 1,295.0
Stockholders' equity 6,114.0 6,402.8
$15,046.4 $15,164.3
EMERSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
Twelve Months Ended September 30,
2001 2000
Operating Activities
Net earnings $1,031.8 $1,422.4
Depreciation and amortization 708.5 678.5
Changes in operating working capital 121.2 (104.9)
Gains on divestitures,
pension funding and other (153.8) (156.2)
Net cash provided by
operating activities 1,707.7 1,839.8
Investing Activities
Capital expenditures (554.2) (692.0)
Purchases of businesses, net of cash
and equivalents acquired (200.1) (1,971.8)
Divestitures of businesses
and other, net 206.6 168.6
Net cash used in
investing activities (547.7) (2,495.2)
Financing Activities
Net increase in short-term borrowings 97.2 514.6
Proceeds from long-term debt 35.9 1,197.8
Principal payments on long-term debt (25.2) (18.4)
Dividends paid (654.0) (613.2)
Net purchases of treasury stock (533.7) (376.2)
Net cash (used in) provided
by financing activities (1,079.8) 704.6
Effect of exchange rate changes
on cash and equivalents (5.3) (34.5)
Increase in cash and equivalents 74.9 14.7
Beginning cash and equivalents 280.8 266.1
Ending cash and equivalents $355.7 $280.8
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND PROFITS
(DOLLARS IN MILLIONS)
Quarter Ended September 30,
2001 2000
Sales
Process Control $874.3 $858.8
Industrial Automation 716.1 790.7
Electronics and Telecommunications 660.1 1,027.6
Heating, Ventilating and
Air Conditioning 548.8 606.9
Appliance and Tools 831.9 876.1
3,631.2 4,160.1
Eliminations (79.3) (95.1)
Total Emerson $3,551.9 $4,065.0
Quarter Ended September 30,
2001 2000
Earnings
Process Control $115.0 $101.3
Industrial Automation 85.6 119.2
Electronics and Telecommunications 14.2 149.8
Heating, Ventilating and
Air Conditioning 61.3 86.9
Appliance and Tools 110.3 131.3
386.4 588.5
Differences in accounting methods 45.3 48.8
Interest income, corporate
and other (1) (366.4) 15.7
Interest expense (69.4) (83.4)
Income (loss) before income taxes $(4.1) $569.6
(1) Interest income, corporate and other includes $377 million of
incremental rationalization charges recognized in the fourth
quarter of fiscal 2001.
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND PROFITS
(DOLLARS IN MILLIONS)
Twelve Months Ended September 30,
2001 2000
Sales
Process Control $3,347.7 $3,099.9
Industrial Automation 3,006.7 3,237.2
Electronics and Telecommunications 3,589.7 3,288.3
Heating, Ventilating and
Air Conditioning 2,437.9 2,500.2
Appliance and Tools 3,499.9 3,810.9
15,881.9 15,936.5
Eliminations (402.3) (391.7)
Total Emerson $15,479.6 $15,544.8
Twelve Months Ended September 30,
2001 2000
Earnings
Process Control $359.7 $280.9
Industrial Automation 400.0 466.4
Electronics and Telecommunications 359.3 446.9
Heating, Ventilating and
Air Conditioning 346.5 381.6
Appliance and Tools 503.0 581.1
1,968.5 2,156.9
Differences in accounting methods 190.8 189.6
Interest income, corporate and other (1) (266.4) 119.4
Interest expense (304.3) (287.6)
Income before income taxes $1,588.6 $2,178.3
(1) Interest income, corporate and other includes $377 million of
incremental rationalization charges recognized in the fourth
quarter of fiscal 2001.
SOURCE: Emerson
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