Emerson Reports Increased Second-Quarter 2003 Sales; Earnings of $236 Million with Growth in Four of Five Segments.Business Editors ST. LOUIS--(BUSINESS WIRE)--May 6, 2003 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. ) -- EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. Excluding Gains from Divestitures Up 12 Percent -- Reported EPS Down 14 Percent Due to Impact of Divestitures -- 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). Drives Margin Improvement -- Cash Flow on Track with Targets Emerson (NYSE: EMR) announced that second-quarter fiscal 2003 earnings were $236 million, or $0.56 per share, compared with $275 million, or $0.65 per share in the second quarter of 2002. Reported pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta , net earnings, and earnings per share were down 14 percent due to the difference in 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). gains between the two periods. Excluding the impact of gains from divestitures, earnings per share for the second quarter of 2003 increased 12 percent. The company reported no gains from divestitures during the second quarter of 2003 versus gains of $93 million, or $0.15 per share, in the second quarter of 2002. Second quarter sales increased to $3.5 billion from $3.4 billion a year ago. Underlying sales, which are adjusted to remove the impact of exchange rates, divestitures, and acquisitions, were down slightly. Consolidated operating profit Operating profit (or loss) Revenue from a firm's regular activities less costs and expenses and before income deductions. operating profit See operating income. for the quarter increased 3 percent reflecting the benefits of Emerson's restructuring initiatives. Ongoing restructuring costs were $36 million, down from $55 million in the second quarter of 2002 but still slightly higher than historical levels. 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 $374 million and free cash flow was $308 million. 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 was $681 million, down 1 percent from $690 million, and free cash flow increased 6 percent to $550 million from $518 million reflecting 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. . Commenting on the quarterly results, 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 , Emerson's chief executive officer, said, "I am pleased that despite lower underlying sales our restructuring efforts allowed us to achieve solid earnings growth in four of our five business segments, with total segment earnings increasing to $416 million from $392 million in the second quarter of 2002. Although persistent weakness remains in many of our end markets, we continue to strengthen our technology and leadership positions in major market segments around the world and drive capital efficiency improvements across our entire company. The progress we made toward these objectives during the quarter is shown in our margin improvement, new customer and project wins, and continued capital efficiency gains. Financial Highlights "We made excellent progress on our operating cash flow and free cash flow performance and are on track with our targets of approximately $1.7 billion and $1.3 billion, respectively, for the fiscal year. Free cash flow for the quarter again exceeded earnings and we continued to improve our working capital efficiency, with trade working capital as a percent to sales improving to 21.6 percent in the second quarter of 2003 from 23.8 percent in the same period of the prior year. "The ratio of net debt to net capital declined to 39.3 percent from 43.0 percent, as the result of more than $700 million in net debt reduction during the past year. The interest coverage ratio was 6.4 times for the first half of fiscal 2003. Since October October: see month. 2001, we have issued $1.5 billion of long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. , taking advantage of the low interest rate environment and further strengthening liquidity. "Our strong balance sheet, earnings quality and cash flow performance provide us the flexibility to simultaneously invest in our businesses, pursue acquisitions, and provide direct returns to shareholders in the form of dividends and stock repurchases Stock repurchase A firm's repurchase of outstanding shares of its common stock. . "The sluggish economic environment and uncertainty continues to dampen business investment and capital spending in many of the industries we serve. Our focus remains on delivering solid cash flow performance and margin improvement, while further strengthening our lead against our competition in key markets around the world." Operating Highlights Sales in the 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. business increased 8 percent to $693 million; driven by continued penetration gains, market growth and a 3 percent favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. currency impact. The sales increase reflected strong growth in Asia, solid growth in the European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. commercial market and modest growth in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . Earnings increased 9 percent to $104 million, a margin increase of 20 basis points, driven primarily by higher sales. During the quarter, Lennox Lennox, uninc. city (1990 pop. 22,757), Los Angeles co., S Calif., a residential and industrial suburb of Los Angeles. Industries, Inc. announced the selection of Emerson Climate Technologies UltraTech(TM) products for its new line of premium residential air-conditioning air-conditioning Control of temperature, humidity, purity, and motion of air in an enclosed space, independent of outside conditions. In a self-contained air-conditioning unit, air is heated in a boiler unit or cooled by being blown across a refrigerant-filled coil and then systems. Emerson's 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. UltraTech(TM) two-stage compressors and its new Comfort Alert(tm) Diagnostics (1) Software routines that test hardware components (memory, keyboard, disks, etc.). Diagnostics are often stored in ROM chips and activated on startup. (2) Error messages in a programmer's source code that refer to statements or syntax that the compiler or assembler technology will enable the new Lennox system to be the most quiet, energy-efficient central air conditioner conditioner, n 1. an additive substance used to increase the effectiveness of another substance. 2. a substance added to enamel that improves a sealant's ability to adhere. on the market. Sales in industrial automation were $646 million, up nearly 8 percent from the second quarter of 2002, the result of an 8 percentage point favorable impact from currency. Underlying sales were flat with a moderate decline in industrial activity in the United States offset by an increase in international sales led by strength in Asia. Earnings for the segment were up 19 percent, a margin increase of 1.2 percentage points, demonstrating the benefits of the restructuring activities despite a flat underlying sales environment. Quarterly sales in process control declined 2 percent to $819 million reflecting a 5 percent increase from currency less a 3 percent impact from divestitures. Underlying sales were down 4 percent. U.S. sales were down 9 percent, while investments for new projects in Asia and Eastern Europe Eastern Europe The countries of eastern Europe, especially those that were allied with the USSR in the Warsaw Pact, which was established in 1955 and dissolved in 1991. showed strength. Customer maintenance and repairs orders were down, continuing to put pressure on margins across the business. The uncertainty experienced before and during the war led some customers to put long-cycle projects on hold during the quarter. Emerson Process Management continued to win a number of strategic projects in the oil and gas, refining refining, any of various processes for separating impurities from crude or semifinished materials. It includes the finer processes of metallurgy, the fractional distillation of petroleum into its commercial products, and the purifying of cane, beet, and maple sugar , power, biopharmaceutical, and petrochemical petrochemical, any one of a large group of chemicals derived from a component of petroleum or natural gas. The cracking processes for manufacturing gasoline produce vast quantities of gaseous hydrocarbons. markets around the world. Substantial growth opportunities exist in Eastern Europe and Asia. In Hungary, Emerson Process Management was awarded a $7 million contract to modernize mod·ern·ize v. mo·dern·ized, mo·dern·iz·ing, mo·dern·iz·es v.tr. To make modern in appearance, style, or character; update. v.intr. To accept or adopt modern ways, ideas, or style. a power plant for AES, the third-largest power producer in Hungary. Emerson's PlantWeb(R) (www.EmersonProcess.com/PlantWeb) digital plant architecture will anchor automation and 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 techniques designed to improve the power plant's efficiency, reliability and overall performance. In China, Emerson was awarded a $30 million automation project for one of the world's most highly optimized petrochemical facilities being built by SECCO sec·co n. pl. sec·cos The art or an example of painting on dry plaster. adj. Music Of or being a kind of recitative in which the words are sung rapidly to minimal accompaniment, usually just continuo. , a joint venture of BP, Sinopec, and the Shanghai Petrochemical Shanghai Petrochemical (SEHK: 338),(SSE: B>600688) (Traditional Chinese:上海石化, Simplified Chinese:上海石化), full name Sinopec Shanghai Petrochemical Company Limited Corporation (SPC 1. (business) SPC - Statistical Process Control. Something to do with quality management. 2. (body) SPC - Software Productivity Centre. 3. (company) SPC - Software Publishing Corporation. 4. ). The new 10-plant facility will be the world's largest installation of Fieldbus Digital Technology, with more than 23,000 FOUNDATION fieldbus FOUNDATION fieldbus is an all-digital, serial, two-way communications system that serves as the base-level network in a plant or factory automation environment. Developed and administered by the Fieldbus Foundation. devices and 10 DeltaV(TM) digital automation systems within the PlantWeb architecture. Emerson will support this effort from its Pudong facility located near the project site, just outside of Shanghai Shanghai (shăng`hī`, shäng`hī`), city (1994 est. pop. 12,980,000), in, but independent of, Jiangsu prov., E China, on the Huangpu (Whangpoo) River where it flows into the Chang (Yangtze) estuary. . Appliance A stand-alone hardware device or software environment dedicated to a specific task. See hardware appliance and software appliance. and tools segment sales increased 3 percent to $870 million, with a modest decline in underlying sales, favorable currency adding 2 percentage points, and the impact from acquisitions adding 1 percentage point. The tools and storage businesses were flat to slightly up driven by continued strong performance at ClosetMaid. Motors and appliance solutions sales were down slightly. Earnings for the segment increased 5 percent to $121 million, a 30 basis point margin improvement, driven by higher sales and restructuring. Emerson has made the strategic business decision to discontinue dis·con·tin·ue v. dis·con·tin·ued, dis·con·tin·u·ing, dis·con·tin·ues v.tr. 1. To stop doing or providing (something); end or abandon: the manufacture of bench top and stationary Stationary can mean:
Headquartered in Vinings, just outside Atlanta in unincorporated Cobb County, Georgia, Home Depot employs more than 355,000 people and operates 2,164 big-box on options to secure supply for Home Depot. Emerson has developed a program to license the RIDGID brand to top manufacturers to fulfill ful·fill also ful·fil tr.v. ful·filled, ful·fill·ing, ful·fills also ful·fils 1. To bring into actuality; effect: fulfilled their promises. 2. Home Depot's future requirements. Emerson remains fully committed (Law) committed to prison for trial, in distinction from being detained for examination. See also: Fully to its RIDGID brand. RIDGID's reputation for quality and the distribution of RIDGID woodworking power tools through Home Depot is important to both Home Depot and Emerson. Emerson will continue supporting the full RIDGID line and will remain a significant manufacturer of RIDGID wet/dry vacuums, hand tools, and other products for Home Depot. Emerson values its ongoing relationship with Home Depot, and this agreement will help ensure that the RIDGID brand continues to play a strong role in Home Depot's success. Emerson also expects the full RIDGID program to continue to make significant contributions to the company's revenues. This decision has no effect on Ridge professional contactor con·tac·tor n. An electrical relay used to control the flow of power in a circuit. and plumbing plumbing, piping systems inside buildings for water supply and sewage. The Romans had a highly developed plumbing system; water was brought to Rome by aqueducts and distributed to homes in lead pipes—hence the name plumbing from the Latin word plumbum tools, which is a separate Emerson business. In the electronics and telecommunications Communicating information, including data, text, pictures, voice and video over long distance. See communications. business, sales decreased 6 percent to $554 million for the quarter, including a 3 percentage point favorable impact from currency. Most major geographic markets experienced significant declines, except for Asia, which declined only modestly. The traditional environmental and power systems businesses were flat to slightly down, and the OEM (Original Equipment Manufacturer) The rebranding of equipment and selling it. The term initially referred to the company that made the products (the "original" manufacturer), but eventually became widely used to refer to the organization that buys the products and power electronics business experienced a decline in sales versus the prior year. The company is evaluating strategies to maximize the value of its Emerson Telecommunication telecommunication Communication between parties at a distance from one another. Modern telecommunication systems—capable of transmitting telephone, fax, data, radio, or television signals—can transmit large volumes of information over long distances. Products (Jordan) business, which is part of the electronics and telecommunications segment. The Board of Directors has approved a plan to divest To deprive or take away. Divest is usually used in reference to the relinquishment of authority, power, property, or title. If, for example, an individual is disinherited, he or she is divested of the right to inherit money. a portion of this business. Due to current challenging market conditions, a loss is reasonably possible on the sale of Dura-Line, the company's fiber-optic conduit conduit /con·du·it/ (kon´doo-it) channel. ileal conduit the surgical anastomosis of the ureters to one end of a detached segment of ileum, the other end being used to form a stoma on the unit, and an appraisal is being completed to determine possible 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. of the remaining business. The Company expects to realize tax benefits in excess of any loss resulting from the sale and impairment review as the tax basis significantly exceeds the carrying value Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. of this business. Upcoming Investor Events On Wednesday May 7, 2003 at 7:30 a.m. Eastern Daylight Time (6:30 a.m. Central) Emerson senior management will discuss the quarterly results during an investor conference call. All interested parties may listen to the live conference call via the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the by going to the Investor Relations Investor relations The process by which the corporation communicates with its investors. area of Emerson's Web site at www.gotoemerson.com/financial and completing a brief registration form. A replay of the conference call will be available for the next three months at the same location on the Web site. Details of upcoming events will be posted as they occur in the Investor Relations Calendar of Events on the corporate Web site. Forward-Looking and Cautionary Statements 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 March 31, Percent
2002 2003 Change
Net sales $ 3,421 $ 3,478 1.7%
Less: Costs and expenses
Cost of sales 2,232 2,265
SG&A expenses 724 734
Other deductions, net 2 74
Interest expense, net 58 57
Total costs and expenses 3,016 3,130
Income before income taxes 405 348 (14.0%)
Income taxes 130 112
Net earnings $ 275 $ 236 (14.3%)
Diluted earnings per common share $ 0.65 $ 0.56 (13.8%)
Quarter Ended March 31,
2002 2003
Other deductions, net
Gains from divestitures $ (93) $ -
Rationalization of operations 55 36
Amortization of intangibles 7 4
Other 33 34
Total $ 2 $ 74
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Six Months Ended March 31, Percent
2002 2003 Change
Net sales $ 6,716 $ 6,719 --
Less: Costs and expenses
Cost of sales 4,357 4,360
SG&A expenses 1,472 1,454
Other deductions, net (9) 121
Interest expense, net 123 115
Total costs and expenses 5,943 6,050
Income before income taxes and
cumulative effect of change in
accounting principle 773 669 (13.4%)
Income taxes 243 216
Earnings before cumulative effect of
change in accounting principle 530 453 (14.4%)
Cumulative effect of change in
accounting principle, net of tax (938) -
Net earnings $ (408) $ 453
Diluted earnings per common share:
Before cumulative effect of change
in accounting principle $ 1.26 $ 1.08 (14.3%)
Cumulative effect of change in
accounting principle (2.23) -
Diluted earnings per common share $ (0.97) $ 1.08
Six Months Ended March 31,
2002 2003
Other deductions, net
Gains from divestitures $ (178) $ (15)
Rationalization of operations 108 65
Amortization of intangibles 14 9
Other 47 62
Total $ (9) $ 121
Note: Prior year amounts have been restated to reflect the adoption of
FAS 142
EMERSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
March 31,
2002 2003
Assets
Cash and equivalents $ 448 $ 606
Receivables, net 2,531 2,547
Inventories 1,751 1,679
Other current assets 468 450
Total current assets 5,198 5,282
Property, plant & equipment, net 3,125 3,022
Goodwill 4,774 4,960
Other 1,482 1,540
$ 14,579 $ 14,804
Liabilities and Stockholders' Equity
Short-term borrowings and current
maturities of long-term debt $ 2,514 $ 1,045
Accounts payable 1,032 1,222
Accrued expenses 1,364 1,460
Income taxes 185 138
Total current liabilities 5,095 3,865
Long-term debt 2,738 3,486
Other liabilities 1,312 1,414
Stockholders' equity 5,434 6,039
$ 14,579 $ 14,804
Note: Prior year amounts have been restated to reflect the adoption of
FAS 142
EMERSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(DOLLARS IN MILLIONS)
Six Months Ended March 31,
2002 2003
Operating Activities
Net earnings $ (408) $ 453
Cumulative effect of change in accounting
principle 938 -
Depreciation and amortization 269 264
Changes in operating working capital (7) (67)
Gains on divestitures and other (102) 31
Net cash provided by operating activities 690 681
Investing Activities
Capital expenditures (172) (131)
Purchases of businesses, net of cash and
equivalents acquired (718) (1)
Divestitures of businesses and other, net 133 36
Net cash used in investing activities (757) (96)
Financing Activities
Net increase (decrease) in short-term
borrowings 6 (532)
Proceeds from long-term debt 501 493
Principal payments on long-term debt (10) (7)
Dividends paid (326) (330)
Treasury stock, net (7) 4
Net cash provided by (used in) financing
activities 164 (372)
Effect of exchange rate changes on cash and
equivalents (5) 12
Increase in cash and equivalents 92 225
Beginning cash and equivalents 356 381
Ending cash and equivalents $ 448 $ 606
Note: Prior year amounts have been restated to reflect the adoption of
FAS 142
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND PROFITS
(DOLLARS IN MILLIONS)
Quarter Ended March 31,
2002 2003
Sales
Process Control $ 837 $ 819
Industrial Automation 601 646
Electronics and Telecommunications 591 554
Heating, Ventilating, and Air Conditioning 640 693
Appliance and Tools 847 870
3,516 3,582
Eliminations (95) (104)
Total Emerson $ 3,421 $ 3,478
Quarter Ended March 31,
2002 2003
Earnings
Process Control $ 95 $ 89
Industrial Automation 67 81
Electronics and Telecommunications 19 21
Heating, Ventilating, and Air Conditioning 95 104
Appliance and Tools 116 121
392 416
Differences in accounting methods 33 33
Corporate and other 38 (44)
Interest expense, net (58) (57)
Income before income taxes $ 405 $ 348
Quarter Ended March 31,
2002 2003
Rationalization of operations
Process Control $ 8 $ 7
Industrial Automation 6 4
Electronics and Telecommunications 15 18
Heating, Ventilating, and Air Conditioning 5 7
Appliance and Tools 9 6
Corporate 12 (6)
Total Emerson $ 55 $ 36
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND PROFITS
(DOLLARS IN MILLIONS)
Six Months Ended March 31,
2002 2003
Sales
Process Control $ 1,633 $ 1,591
Industrial Automation 1,257 1,269
Electronics and Telecommunications 1,226 1,123
Heating, Ventilating, and Air Conditioning 1,099 1,205
Appliance and Tools 1,678 1,722
6,893 6,910
Eliminations (177) (191)
Total Emerson $ 6,716 $ 6,719
Six Months Ended March 31,
2002 2003
Earnings
Process Control $ 180 $ 164
Industrial Automation 152 163
Electronics and Telecommunications 51 58
Heating, Ventilating, and Air Conditioning 154 173
Appliance and Tools 219 239
756 797
Differences in accounting methods 72 64
Corporate and other 68 (77)
Interest expense, net (123) (115)
Income before income taxes $ 773 $ 669
Six Months Ended March 31,
2002 2003
Rationalization of operations
Process Control $ 15 $ 12
Industrial Automation 12 9
Electronics and Telecommunications 27 25
Heating, Ventilating, and Air Conditioning 13 11
Appliance and Tools 19 12
Corporate 22 (4)
Total Emerson $ 108 $ 65
Non-GAAP Financial Measures To supplement Emerson's financial information presented in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ), management uses additional measures to clarify and enhance understanding of past performance and prospects for the future. These measures may exclude, for example, the impact of unique items (acquisitions, divestitures, one-time gains and losses) or items outside of management's control (foreign currency exchange rates). -- Underlying sales (which exclude the impact of acquisitions and divestitures during the periods presented, and fluctuations in foreign currency exchange rates) are provided to facilitate relevant period-to-period comparisons of sales growth excluding these unique items. -- Operating profit (defined as 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 less cost of sales and selling, general and administrative expenses) is indicative of short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. operational performance and ongoing profitability. Management closely monitors operating profit of each business to evaluate past performance and actions required to improve profitability. -- Earnings per share excluding gains from divestitures provides additional insight into the underlying, ongoing operating performance of the Company which facilitates period-to-period comparisons excluding the earnings impact of one-time gains from strategic portfolio decisions. -- Free cash flow (operating cash flow less capital expenditures) is an indicator of the Company's cash generating capabilities after considering investments in capital assets capital assets n. equipment, property, and funds owned by a business. (See: capital, capital account) necessary to maintain and enhance existing operations. Operating cash flow adds back non-cash depreciation expense to earnings and thereby does not reflect a charge for necessary capital expenditures. Reconciliations of Non-GAAP Financial Measures The following reconciles each non-GAAP measure with the most directly comparable GAAP measure (dollars in millions, except per share amounts):
Percent
2002 2003 Change
Second-Quarter Operating Profit
Net Sales $ 3,421 $ 3,478 1.7%
Cost of Sales 2,232 2,265
SG&A Expenses 724 734
Operating Profit (Non-GAAP) $ 465 $ 479 3.2%
% to Sales (Non-GAAP) 13.6% 13.8%
Other Deductions, Net 2 74
Interest Expense, Net 58 57
Pre-Tax Earnings $ 405 $ 348 (14.0%)
% to Sales 11.8% 10.0%
Second-Quarter EPS Excluding Gains
From Divestitures
EPS, Reported $ 0.65 $ 0.56 (13.8%)
After-Tax Divestiture Gains Per Share $ 0.15 -
EPS Excluding Gains (Non-GAAP) $ 0.50 $ 0.56 12.0%
Second-Quarter Cash Flow
Operating Cash Flow $ 438 $ 374 (14.7%)
Capital Expenditures 78 66
Free Cash Flow (Non-GAAP) $ 360 $ 308 (14.6%)
Year-To-Date Cash Flow
Operating Cash Flow $ 690 $ 681 (1.3%)
Capital Expenditures 172 131
Free Cash Flow (Non-GAAP) $ 518 $ 550 6.1%
FY2003 Target Cash Flow
Operating Cash Flow $ 1,700
Capital Expenditures 400
Free Cash Flow (Non-GAAP) $ 1,300
All amounts above are GAAP financial measures except as noted.
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