How did Emerson's fiscal 1999 performance compare with 1998?

Emerson posted record net sales of $14.3 billion, up 6.1%, and record net earnings of $1.31 billion, up 6.9%. Diluted EPS rose 8.3% to $3.00, and return on average equity was steady at 21.9%. Growth was driven by acquisitions and by consumer-related and HVAC businesses, while capital goods businesses were flat.

Why did leverage increase, and is it a concern?

Total debt rose to $3.3 billion from $2.6 billion, largely to fund acquisitions (about $1.2 billion of cash paid) and share repurchases. The debt-to-capital ratio rose to 34.6% and interest coverage fell to 11.7x from 13.7x. Management describes the position as strong, citing $2.4 billion of credit lines and $2 billion of shelf capacity, but the trend warrants monitoring as acquisition spending continues.

Which business segments are performing well and which are struggling?

Electronics and Telecommunications was the standout, with sales up 32% and EBIT up 58%, driven by power protection, services and power supplies. HVAC grew 11% in sales on strength in China, U.S. weather and scroll technology. Process Control EBIT declined on weak oil prices, and Industrial Automation faced global capital spending weakness, with sales only slightly up due to acquisitions.

What is the significance of the pending Jordan Telecommunication Products acquisition?

Announced December 14, 1999, the deal would cost about $440 million in cash and assume roughly $540 million of debt and other liabilities. Jordan supplies fiber optic conduit, CATV components, power protection and cellular site structures, which would extend Emerson's exposure to the telecommunications infrastructure market. The transaction still requires regulatory approval and other customary conditions.

Are there material legal, environmental, or Year 2000 risks disclosed?

Emerson reported several pending lawsuits, some claiming substantial damages, but management does not believe any are material to the business or financial position. Environmental compliance has not materially affected capital expenditures, earnings or competitive position, and no material environmental capital spending is expected next year. Year 2000 remediation was completed, with compliance costs described as not material, though the filing notes no assurance that third-party failures would not have an adverse effect.

EMR 10-K FY1999 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed December 20, 1999. Cited figures are marked; the original filing is the authoritative source.

Emerson Electric's fiscal 1999 (year ended September 30, 1999) was a record year on the top and bottom lines.

Net sales rose 6.1% to a record $14.3 billion^a, driven by acquisitions and underlying growth in consumer-related and HVAC businesses, while capital goods businesses (Industrial Automation and Process Control) were flat to weak on soft oil prices and global capex. Net earnings grew 6.9% to a record $1.3 billion, diluted EPS reached $3.00 (up 8.3%), and return on average equity held at 21.9%. Operating cash flow was a record $1.8 billion, and the Company paid out $566 million in dividends while repurchasing $324 million of stock.

The balance sheet became more leveraged. Total debt rose to $3.3 billion^b, the debt-to-capital ratio climbed to 34.6% from 30.8%, and the interest coverage ratio fell to 11.7x from 13.7x, largely due to acquisition financing. Management nonetheless characterizes the company as financially strong, with $2.4 billion in credit lines and $2 billion of shelf capacity.

Goodwill grew to $4.3 billion^c, a significant share of total assets of $13.6 billion. Key 1999 acquisitions included Westinghouse Process Control, Daniel Industries, and MagneTek's alternator operations, and a definitive agreement was announced on December 14, 1999 to acquire Jordan Telecommunication Products for about $440 million in cash plus roughly $540 million of assumed debt and liabilities.

For investors, the key considerations are the strength of the Electronics and Telecommunications and HVAC segments versus the cyclical weakness in Process Control and Industrial Automation, the rising leverage tied to an acquisition-led growth strategy, and the pending Jordan transaction. Emerson also reported a 35% new-product sales share and about $510 million^d in R&D spending, and it disclosed no material pending legal proceedings or environmental capital expenditures.

02—Key points

Key Highlights

Record net sales of $14.3 billion (+6.1%), with acquisitions contributing alongside modest underlying growth; U.S. sales +6%, international +7%
Record net earnings of $1.31 billion (+6.9%); diluted EPS $3.00 (+8.3%); EPS excluding goodwill amortization $3.27 (+9.4%)
Electronics & Telecommunications sales +32% to $2.1 billion with segment EBIT up 58% to $237 million; HVAC EBIT up 14% to $361 million
Process Control EBIT fell to $313 million from $343 million on weak oil prices; Industrial Automation sales were roughly flat at $3.4 billion
Total debt rose to $3.3 billion; debt-to-capital ratio increased to 34.6% (from 30.8%) and interest coverage declined to 11.7x (from 13.7x)
Record operating cash flow of $1.8 billion; cash acquisitions of $1.2 billion, capital expenditures of $592 million, and dividends of $1.30 per share (quarterly rate raised 10% to $1.43 annualized)
Pending acquisition of Jordan Telecommunication Products for ~$440 million cash plus ~$540 million assumed liabilities; consolidated backlog of $2.16 billion (+3.7%)

03—Questions

Frequently Asked Questions

How did Emerson's fiscal 1999 performance compare with 1998?
Emerson posted record net sales of $14.3 billion, up 6.1%, and record net earnings of $1.31 billion, up 6.9%. Diluted EPS rose 8.3% to $3.00, and return on average equity was steady at 21.9%. Growth was driven by acquisitions and by consumer-related and HVAC businesses, while capital goods businesses were flat.
Why did leverage increase, and is it a concern?
Total debt rose to $3.3 billion from $2.6 billion, largely to fund acquisitions (about $1.2 billion of cash paid) and share repurchases. The debt-to-capital ratio rose to 34.6% and interest coverage fell to 11.7x from 13.7x. Management describes the position as strong, citing $2.4 billion of credit lines and $2 billion of shelf capacity, but the trend warrants monitoring as acquisition spending continues.
Which business segments are performing well and which are struggling?
Electronics and Telecommunications was the standout, with sales up 32% and EBIT up 58%, driven by power protection, services and power supplies. HVAC grew 11% in sales on strength in China, U.S. weather and scroll technology. Process Control EBIT declined on weak oil prices, and Industrial Automation faced global capital spending weakness, with sales only slightly up due to acquisitions.
What is the significance of the pending Jordan Telecommunication Products acquisition?
Announced December 14, 1999, the deal would cost about $440 million in cash and assume roughly $540 million of debt and other liabilities. Jordan supplies fiber optic conduit, CATV components, power protection and cellular site structures, which would extend Emerson's exposure to the telecommunications infrastructure market. The transaction still requires regulatory approval and other customary conditions.
Are there material legal, environmental, or Year 2000 risks disclosed?
Emerson reported several pending lawsuits, some claiming substantial damages, but management does not believe any are material to the business or financial position. Environmental compliance has not materially affected capital expenditures, earnings or competitive position, and no material environmental capital spending is expected next year. Year 2000 remediation was completed, with compliance costs described as not material, though the filing notes no assurance that third-party failures would not have an adverse effect.

04—Continue

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