What was the primary driver for the significant net earnings loss in the nine months ended June 30, 2002?

The primary driver for the net loss in the nine months ended June 30, 2002, was a substantial non-cash goodwill impairment charge of $938 million (after-tax) resulting from the adoption of SFAS No. 142. This charge reflects changes in accounting for goodwill and a decline in certain market segments.

How did the company's sales performance vary across its business segments?

Sales performance varied significantly. Process Control and Industrial Automation experienced sales declines, while Heating, Ventilating, and Air Conditioning (HVAC) and Appliance & Tools showed modest growth. The Electronics and Telecommunications segment faced significant underlying sales declines but showed sequential improvement from the prior quarter.

What is the impact of the adoption of SFAS No. 142 on Emerson's financial statements?

The adoption of SFAS No. 142 on October 1, 2001, eliminated the amortization of goodwill. This resulted in a large, one-time cumulative effect of change in accounting principle charge of $937.7 million (pre-tax, $938 million after-tax) in the first quarter of fiscal 2002. It also impacted the effective tax rate, as goodwill amortization was previously a deductible expense.

What is the outlook for Emerson's financial position and future performance?

The company views itself as being in a strong financial position with resources for reinvestment and capital structure management. Despite the current economic challenges, Emerson noted sequential improvements in sales and earnings, strong backlog in Process Control, and a significant increase in free cash flow. They expect solid cash generation to help decrease their debt position.

EMR 10-Q Quarterly Report Q3 FY2002 — Revenue, Net Income, EPS

Summary

Emerson Electric Co. reported its third-quarter results for the fiscal year ended June 30, 2002. The company experienced a notable decline in net sales, down 9% for the quarter and 13% for the nine-month period compared to the prior year, reflecting a challenging economic environment. This sales downturn impacted profitability, with earnings before income taxes decreasing significantly. A major event during this period was the adoption of SFAS No. 142, which led to a substantial non-cash charge of $938 million due to goodwill impairment, primarily impacting the Electronics and Telecommunications segment. Despite these headwinds, Emerson demonstrated sequential sales and earnings improvements across most segments from the second to the third quarter, with strong performance in HVAC and Appliance & Tools, and a stabilization noted in Industrial Automation and Electronics & Telecommunications. The company also highlighted its focus on cost control and working capital efficiency, which contributed to a significant increase in free cash flow.

Key Highlights

1Net sales declined by 9% for the three months ended June 30, 2002, and 13% for the nine months ended June 30, 2002, compared to the prior year, indicating a challenging market.
2A significant non-cash goodwill impairment charge of $938 million (after-tax) was recorded due to the adoption of SFAS No. 142, impacting the Electronics and Telecommunications segment the most.
3The company reported sequential sales and earnings increases across most business segments from the second quarter to the third quarter of fiscal 2002, signaling potential stabilization.
4Free cash flow for the first nine months of fiscal 2002 increased by 54% to $927.5 million, driven by improved operating cash flow and lower capital spending.
5Segment performance varied, with Process Control and Industrial Automation experiencing sales declines, while HVAC and Appliance & Tools showed modest growth.
6Emerson Electric completed several strategic acquisitions and divestitures, including the acquisition of Avansys Power Co., Ltd. and the divestiture of the Chromalox and Daniel Valve businesses.
7The effective income tax rate decreased to 33.1% for the third quarter of 2002, partly due to the non-deductible nature of goodwill amortization no longer being expensed.

EMERSON ELECTRIC CO Quarterly Report for Q3 Ended Jun 30, 2002

Summary

Key Highlights

Frequently Asked Questions