Business Context and Reporting Period
Company: Emerson Electric Co.
Filing Type: Form 8-K (Current Report)
Date of Report: October 21, 2001 (Events reported Oct 21-22, 2001)
Reporting Period: Fiscal 2001 Outlook and Recent Corporate Actions
Emerson Electric Co. announced the acquisition of Avansys Power Co., Ltd., a subsidiary of Huawei Technologies, and provided an updated earnings outlook for fiscal 2001. The acquisition expands Emerson's presence in the Chinese network power market.
Key Financial Metrics
- Fiscal 2001 Earnings Per Share (EPS): Expected to be $3.01 excluding a one-time charge; approximately $2.40 including the charge.
- Restructuring Charge: An incremental pre-tax charge of approximately $375 million is expected in the fourth quarter.
- Net Earnings (Ex-Charge): Approximately $1.3 billion for fiscal 2001.
- Operating Cash Flow: Approximately $1.7 billion for fiscal 2001.
- Free Cash Flow: Expected to exceed $1.1 billion, showing positive growth from the prior year's $1.15 billion.
- Capital Spending: Reduced by 20 percent for fiscal 2001.
- Acquisition Cost: Approximately $750 million in cash for Avansys Power Co., Ltd.
- Historical Sales: Fiscal 2000 sales were $15.5 billion.
Material Changes and Strategic Actions
- Acquisition: Emerson acquired 100% equity of Avansys Power Co., Ltd. from Huawei Technologies for $750 million in cash. Avansys provides telecom and data network power conversion products in China.
- Consolidation: Avansys results will be consolidated into Emerson starting in the first quarter of fiscal 2002.
- Restructuring: The company is accelerating cost reductions through a $375 million charge, primarily non-cash, associated with facility dispositions, exiting non-strategic product areas, and inventory re-valuation.
- Market Performance: The Process business achieved organic growth of around 10 percent. The Scroll compressor technology sales approached $1 billion. Network and distributed power markets faced difficulties.
Guidance, Outlook, and Risks
Outlook for 2002: Management anticipates 2002 to be another challenging year due to difficult economic conditions. "Pay as you go" restructuring will remain above historical levels, and capital spending will be further reduced. Management remains optimistic that cost reduction efforts will enable solid earnings and cash flow generation.
Management Commentary: CEO David N. Farr noted that economic difficulties have expanded into a global downturn, exacerbated by the September 11 tragedies. However, Emerson maintains a strong balance sheet and is winning market share where customers are buying.
Risks and Contingencies: Forward-looking statements are subject to risks including economic and currency conditions, market demand, pricing, and competitive and technological factors.
Investor Verification Checklist
- Verify the final fiscal 2001 EPS figures when reported on November 6, 2001, to confirm the impact of the $375 million charge.
- Monitor the integration progress of Avansys Power Co., Ltd. and its contribution to fiscal 2002 earnings.
- Track the execution of the accelerated restructuring plan and the resulting impact on operating margins.
- Assess the continued reduction in capital spending and its effect on long-term growth capacity.
- Review the performance of the Process business versus the Network Power business in the context of the global economic downturn.