How strong was Emerson's fiscal 1995 growth, and how much came from acquisitions?

Net sales grew 16.3% to $10.0 billion. Growth came from strong demand, acquisitions (notably F.G. Wilson and Control Techniques), and favorable exchange rates. Excluding acquisitions and currency, international sales rose about 15% and domestic sales rose roughly $265 million. Pre-tax income excluding non-recurring items rose about 15%, and the acquisitions made only a small contribution to EPS.

Is Emerson's debt load becoming a concern for investors?

Leverage increased meaningfully. Total debt rose to about $1.6 billion from $1.2 billion, and the debt-to-capital ratio climbed to 24.7%. Coverage remains strong at 13.9x interest, and the company had $975 million in U.S. credit lines and a $1 billion shelf registration. Management also issued $250 million of 6.3% 10-year notes after year end to refinance commercial paper, which lengthens the maturity profile.

What non-recurring items affected 1995 and 1994 earnings?

In 1995, a $41 million preferential distribution from the S-B Power Tool joint venture was offset by other non-recurring items and a $21.3 million cumulative effect charge from adopting SFAS No. 112. In 1994, a $242 million pre-tax gain on the Rosemount Aerospace sale was largely offset by $50 million of restructuring costs and a $115.9 million cumulative effect charge from SFAS No. 106. Investors should focus on underlying results, which grew about 15%.

What major transactions are pending that could affect future results?

Caterpillar has agreed in principle to take an equity position in F.G. Wilson, subject to a definitive agreement and regulatory approval. Robert Bosch GmbH is expected to acquire Emerson's 50% interest in S-B Power Tool in late calendar 1996, with Emerson expecting a gain. Emerson also guarantees $370 million of debt for its Vermont American joint venture, of which $147 million would be indemnified by Bosch.

What are the main risks disclosed in the filing?

The filing notes that Emerson is party to several pending lawsuits seeking substantial damages, but management does not expect them to be material. Foreign operations carry risks such as nationalization, currency fluctuations, and restrictions on fund movements, though management says these have not materially affected the company to date. Competition is intense, and some rivals are larger. Goodwill totals $2.4 billion, and the company's higher leverage and rising working capital needs (receivables and inventories) are additional areas to monitor.

EMR 10-K FY1995 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed December 21, 1995. Cited figures are marked; the original filing is the authoritative source.

Emerson Electric's fiscal 1995 (year ended September 30, 1995) was a record year on nearly every measure.

Net sales rose 16.3% to $10.0 billion^a, net earnings grew 15.1% to $908 million, and earnings per share reached $4.06, up 15.3%. Return on average stockholders' equity improved to 19.7% from 19.1%. Growth was driven by strong international demand (international sales up 35% to $4.4 billion, about 44% of total sales), the acquisitions of F.G.

Wilson and Control Techniques, and new product sales of $2.6 billion^b, roughly 26% of revenue. Excluding acquisitions, currency, and non-recurring items, pre-tax income rose about 15%. Operating cash flow was a record $1,142 million, and the Board raised the quarterly dividend 14% to an annualized $1.96 per share.

The balance sheet became more leveraged. Total debt rose to about $1.6 billion^c from $1.2 billion, lifting the total debt-to-capital ratio to 24.7% from 21.7%, and short-term borrowings grew to $1.39 billion as acquisition financing matured. Interest coverage remained solid at 13.9 times, down from 15.0 times.

Goodwill climbed to $2.4 billion^d, now roughly a quarter of total assets, which is worth monitoring for future impairment or amortization drag. Capital expenditures rose 27% to $421 million, including plans to nearly double Copeland Compliant Scroll compressor capacity. Looking ahead, the filing flags a pending Caterpillar equity investment in F.G.

Wilson, a planned sale of Emerson's 50% interest in S-B Power Tool to Robert Bosch GmbH expected in late 1996 (with an expected gain), and a $370 million guarantee of Vermont American Corporation debt, of which $147 million is indemnified by Bosch. Management reports no material pending litigation or contingent liabilities.

02—Key points

Key Highlights

Record net sales of $10.0 billion, up 16.3% from $8.6 billion, with international sales reaching $4.4 billion (about 44% of total).
Net earnings of $907.7 million (up 15.1%) and EPS of $4.06 (up 15.3%); return on equity improved to 19.7%.
Commercial and Industrial segment sales rose 21.5% to $6.0 billion, with underlying growth of about 13% excluding acquisitions and divestitures.
Record operating cash flow of $1,142 million; capital expenditures rose 27% to $421 million.
Total debt increased to about $1.6 billion, and the total debt-to-capital ratio rose to 24.7% from 21.7%, reflecting the F.G. Wilson and Control Techniques acquisitions.
Quarterly dividend raised 14% to an annualized $1.96 per share, consistent with a 45-50% payout target; full-year dividends were $1.78.
Pending transactions include Caterpillar taking an equity stake in F.G. Wilson and Bosch acquiring Emerson's 50% interest in S-B Power Tool in late 1996, which is expected to generate a gain.

03—Questions

Frequently Asked Questions

How strong was Emerson's fiscal 1995 growth, and how much came from acquisitions?
Net sales grew 16.3% to $10.0 billion. Growth came from strong demand, acquisitions (notably F.G. Wilson and Control Techniques), and favorable exchange rates. Excluding acquisitions and currency, international sales rose about 15% and domestic sales rose roughly $265 million. Pre-tax income excluding non-recurring items rose about 15%, and the acquisitions made only a small contribution to EPS.
Is Emerson's debt load becoming a concern for investors?
Leverage increased meaningfully. Total debt rose to about $1.6 billion from $1.2 billion, and the debt-to-capital ratio climbed to 24.7%. Coverage remains strong at 13.9x interest, and the company had $975 million in U.S. credit lines and a $1 billion shelf registration. Management also issued $250 million of 6.3% 10-year notes after year end to refinance commercial paper, which lengthens the maturity profile.
What non-recurring items affected 1995 and 1994 earnings?
In 1995, a $41 million preferential distribution from the S-B Power Tool joint venture was offset by other non-recurring items and a $21.3 million cumulative effect charge from adopting SFAS No. 112. In 1994, a $242 million pre-tax gain on the Rosemount Aerospace sale was largely offset by $50 million of restructuring costs and a $115.9 million cumulative effect charge from SFAS No. 106. Investors should focus on underlying results, which grew about 15%.
What major transactions are pending that could affect future results?
Caterpillar has agreed in principle to take an equity position in F.G. Wilson, subject to a definitive agreement and regulatory approval. Robert Bosch GmbH is expected to acquire Emerson's 50% interest in S-B Power Tool in late calendar 1996, with Emerson expecting a gain. Emerson also guarantees $370 million of debt for its Vermont American joint venture, of which $147 million would be indemnified by Bosch.
What are the main risks disclosed in the filing?
The filing notes that Emerson is party to several pending lawsuits seeking substantial damages, but management does not expect them to be material. Foreign operations carry risks such as nationalization, currency fluctuations, and restrictions on fund movements, though management says these have not materially affected the company to date. Competition is intense, and some rivals are larger. Goodwill totals $2.4 billion, and the company's higher leverage and rising working capital needs (receivables and inventories) are additional areas to monitor.

04—Continue

← View all 10-K filings