Emerson 2006 Annual Report Download - page 32

Financial Review
Particular strength in the tools, storage and hermetic motors
businesses was partially offset by softness in the appliance
component business. The hermetic motors business was very
strong due to the air-conditioning demand during the year. In
addition, the storage businesses showed strong growth driven
by the U.S. market. Strength in U.S. residential investment in
the rst half of 2006 and increased demand at major retailers
resulted in continued growth in the storage businesses. The
underlying sales increase reects an estimated 3 percent growth
from volume and an approximate 3 percent positive impact from
price and penetration gains. Geographically, underlying sales
increased 6 percent in the United States and 8 percent interna-
tionally. Earnings for 2006 were $550 million, an increase of
3 percent from 2005. The overall increase in prot was partially
offset by declines in certain tools, storage and motors busi-
nesses, reecting new product introduction costs in the disposer
business, foreign currency losses in the tools and residential
storage businesses and restructuring inefciencies, including
costs related to plant shutdown and ramp up of Mexican capacity
in the tools and motors businesses. Overall, increases in sales
prices were offset by higher raw material (particularly copper,
steel and plastics), wage and benet (pension) costs and nega-
tive product mix, diluting the prot margin.
 Appliance and Tools segment sales increased
7 percent to $4.0 billion for 2005. This increase reects a
3 percent growth in underlying sales, a 1 percent favorable
impact from foreign currency translation and a 3 percent
($101 million) positive impact from Do+Able and a smaller
acquisition. Geographically, underlying sales increased
3 percent in the United States and 3 percent internationally.
The underlying sales increase primarily reects an approximate
3 percent positive impact from higher sales prices. The results
were mixed across the segment with gains in most of the busi-
nesses, particularly strong growth in storage and hermetic
motors, and softness in the appliance motor and component
businesses. Strong growth in the storage businesses primarily
resulted from strength in new and existing home markets as
reected in U.S. residential investment in 2005, and increased
demand at major retailers. Earnings of the Appliance and Tools
segment for 2005 of $534 million were up 1 percent from
2004, primarily due to $23 million in lower rationalization costs
compared to 2004, partially offset by a $12 million negative
impact from a quality issue with an appliance component in
2005. Higher sales prices were more than offset by higher raw
material costs (particularly steel and copper in the motors busi-
ness), which together with acquisitions diluted the margin.

(dollarsinbillions)
Operating cash flow of $2.5 billion in 2006 enabled Emerson to pay
record dividends and buy back 10.7 million shares of common stock.


The Company continues to generate substantial cash from
operations and is in a strong nancial position with total assets
of $19 billion and stockholders’ equity of $8 billion, and has
the resources available for reinvestment in existing businesses,
strategic acquisitions and managing the capital structure on a
short- and long-term basis.
        
(dollarsinmillions)   2004 2005 2006
Operating Cash Flow $2,216 2,187 
Percent of sales 14.2% 12.6% 12.5%
Capital Expenditures $ 400 518 
Percent of sales 2.6% 3.0% 3.0%
Free Cash Flow (Operating Cash Flow
Less Capital Expenditures) $1,816 1,669 
Percent of sales 11.6% 9.6% 9.5%
Operating Working Capital $1,633 1,643 
Percent of sales 10.5% 9.5% 10.1%
Emerson generated operating cash ow of $2.5 billion in 2006,
a 15 percent increase from 2005. Higher net earnings were
partially offset by additional working capital necessary to support
the higher level of sales. Cash ow in 2006 reects continued
improvements in operating working capital management,
including a 2 percent increase in days payable outstanding.
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