Business Context and Reporting Period
Company: Emerson Electric Co.
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended September 30, 2002
Headquarters: St. Louis, Missouri
Emerson is a global manufacturer of electrical, electromechanical, and electronic products and systems. The company operates through five primary segments: Process Control, Industrial Automation, Electronics and Telecommunications, Heating, Ventilating and Air Conditioning (HVAC), and Appliance and Tools. As of September 30, 2002, the company employed approximately 111,500 people and operated roughly 320 manufacturing locations worldwide.
Key Financial Metrics
| Metric | Fiscal 2002 | Fiscal 2001 |
|---|---|---|
| Net Sales | $13,824 million | $15,480 million |
| Net Earnings | $1,060 million | $1,032 million |
| Diluted EPS | $2.52 | $2.40 |
| Long-term Debt | $2,990 million | $2,256 million |
| Total Assets | $14,545 million | $15,046 million |
| Order Backlog | $2,072 million | $2,135 million |
| R&D Expenses | $530 million | $594 million |
Note: The filing text does not provide explicit values for operating cash flow, gross margins, or specific liquidity ratios (e.g., current ratio) in the provided excerpts.
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased by approximately 10.7% from $15.48 billion in 2001 to $13.82 billion in 2002.
- Earnings Increase: Despite lower sales, net earnings increased by 2.7% to $1.06 billion, driven by cost management and accounting adjustments.
- Debt Increase: Long-term debt rose significantly by $734 million (32.5%) to $2.99 billion.
- Backlog Reduction: Consolidated order backlog decreased by $63 million to $2.072 billion, with declines in Industrial Automation and Electronics segments offset by growth in Process Control and HVAC.
- International Sales: International sales dropped to $5.751 billion in 2002 from $6.189 billion in 2001.
Guidance, Outlook, and Unusual Items
Accounting Change: Fiscal 2002 net earnings exclude a cumulative effect of a change in accounting principle of $938 million ($2.24 per share). Including this charge, reported net earnings would have been $122 million ($0.29 per share). This adjustment significantly impacts year-over-year earnings comparisons.
Management Commentary: The filing incorporates by reference the "Results of Operations" and "Financial Position" sections of the 2002 Annual Report for detailed narrative. Management noted that compliance with environmental laws has not had a material effect on capital expenditures or earnings.
Risks and Contingencies:
- Legal Proceedings: The company is involved in various legal proceedings, but management does not believe any are material to the financial position.
- Competition: Emerson faces high competition on price, quality, and service. Competitors include companies with substantially greater sales and assets.
- Foreign Operations: Risks include currency fluctuations and restrictions on fund movements, though these have not materially affected the financial position to date.
Outlook: The filing text provided does not contain specific forward-looking guidance or numerical forecasts for future periods.
Investor Verification Checklist
- Accounting Impact: Verify the nature of the $938 million cumulative effect of accounting change to understand the true operational performance versus reported earnings.
- Debt Servicing: Analyze the 32.5% increase in long-term debt and its impact on interest coverage and future liquidity.
- Revenue Drivers: Investigate the specific causes of the 10.7% revenue decline across the five business segments.
- Backlog Quality: Confirm the composition of the $2.072 billion backlog and the expected timing of shipments.
- Segment Performance: Review Note 14 of the full Annual Report for detailed sales and earnings data by segment, as this is incorporated by reference.