Emerson 2005 Annual Report Download - page 31

E M E R S O N 2 0 0 5 1 9
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses for 2005 were $3.6 billion compared with $3.3 billion
for 2004. As a percent of net sales, SG&A expenses were 20.7 percent in 2005 and 21.0 percent in 2004.
Leverage on higher sales and the benefits realized from prior rationalization efforts were partially offset by
higher costs for wages and benefits.
SG&A expenses for 2004 were $3.3 billion compared with $2.9 billion for 2003, or 21.0 percent of net sales
in both years. Leverage on higher sales and the benefits realized from prior rationalization efforts that
improved the Company’s cost structure were offset by higher costs for wages and benefits.
Other Deductions, Net
Other deductions, net were $230 million in 2005 compared to $223 million in 2004. In 2005, ongoing costs
for the rationalization of operations were $110 million, down from $129 million in 2004, primarily reflecting
lower costs in the Process Management and Appliance and Tools segments. The decrease in rationalization
costs was more than offset by higher amortization of intangibles and several items in the current and prior
year, including a litigation settlement and a 2004 insurance recovery and interest refund.
Other deductions, net were $223 million for 2004, a $95 million decrease from $318 million in 2003,
primarily due to a $54 million goodwill impairment charge in 2003. In 2004, ongoing costs for the
rationalization of operations were $129 million, down from $141 million in 2003, primarily reflecting lower
costs in the Network Power segment. Higher equity income, an insurance recovery and interest refund in
2004 and several other items accounted for the remaining reduction in other deductions, net. See Notes 4
and 5 for further details regarding other deductions, net and rationalization costs.
Interest Expense, Net
Interest expense, net was $209 million, $210 million and $231 million in 2005, 2004 and 2003, respectively.
The decrease of $21 million from 2003 to 2004 was due to lower average borrowings. During 2004, the
Company swapped the $600 million of 7 7/8% notes due June 2005 to a floating rate based on three-month
LIBOR. During 2005, the Company issued $250 million of 4.75% ten-year notes due October 2015, and
$600 million of 7 7/8% notes matured.
Income Taxes
Income taxes for 2005 were $727 million compared to $595 million for 2004. The effective tax rate
increased from 32 percent in 2004 to approximately 34 percent in 2005. The change in the tax rate is
primarily due to a 3 percentage point increase resulting from a $63 million tax expense in 2005 related to the
one-time opportunity during 2005 to repatriate foreign earnings at a favorable rate under the American Jobs
Creation Act of 2004 (the Act). See Note 13 for further discussion regarding the impact of the Act.
Income taxes for 2004 were $595 million compared to $401 million for 2003. Income taxes were reduced
$68 million and the effective tax rate was reduced 4 percentage points in 2003 by the tax benefits from the
restructuring of the Emerson Telecommunication Products business (ETP) net of the impairment charge.
Excluding these items, the 2003 rate was comparable to the approximate 32 percent effective tax rate in 2004.
Earnings From Continuing Operations
Earnings from continuing operations were $1.4 billion and earnings per share were $3.40 for 2005, increases
of 13 percent and 14 percent, respectively, compared to $1.3 billion and $2.98 for 2004. These earnings
results reflect increases in four of the five business segments, with particular strength in the Network Power,
Process Management and Industrial Automation businesses. The higher earnings also reflect increased
volume and leverage from the higher sales, savings from cost reduction efforts, and higher sales prices,
partially offset by higher raw material costs, higher wage and benefit costs, the tax expense related to the
repatriation of foreign earnings, and other items.
Sales by Geographic
Destination
53%
United States
Europe
Asia
Other
22%
14%
11%
Process Management
Industrial Automation
Network Power
Climate Technologies
Appliance and Tools
24%
18%
19%
17%
22%