Emerson 2005 Annual Report Download - page 34

2 2 E M E R S O N 2 0 0 5
Network Power
‘03 - ‘04 ‘04 - ‘05
(dollars in millions) 2003 2004 2005 Change Change
Sales $2,316 2,692 3,317 16% 23%
Earnings $ 168 297 373 77% 26%
Margin 7.2% 11.0% 11.2%
Network Power segment sales increased 23 percent to $3.3 billion in 2005 compared to $2.7 billion in
2004, reflecting acquisitions and continued demand for power systems and precision cooling products,
as well as uninterruptible power supplies and original equipment manufacturers (OEM) embedded power
modules. Acquisitions added approximately 14 percent ($366 million) to the increase, currency had a
1 percent favorable impact, and underlying sales grew 8 percent. The underlying sales increase includes
higher volume of approximately 7 percent and estimated penetration gains of approximately 4 percent,
offset by an estimated 3 percent impact from lower sales prices. Geographically, underlying sales reflect
an 11 percent increase in the United States and a 14 percent increase in Asia (primarily China), offset by a
2 percent decrease in Europe. The growth in the United States reflects continued strong market demand
for communications and enterprise computer equipment in 2005. Growth in Asia was driven by increased
demand for communications and power equipment, supported by a robust economic environment.
Earnings increased 26 percent, or $76 million to $373 million, compared with $297 million in 2004, primarily
reflecting higher sales volume, leverage of approximately 2 percentage points and benefits from prior cost
reductions. The earnings increase and margin were impacted by negative price, partially offset by material
cost containment. In addition, negative product mix in the embedded power business, as well as integration
costs related to the Marconi acquisition, impacted profitability.
Network Power segment sales of $2.7 billion for 2004 increased 16 percent compared to 2003, as Emerson
benefited from favorable market dynamics that were driving demand for power systems and cooling, as well
as global services and embedded power modules. An underlying sales increase of 13 percent, primarily due
to volume, contributed to the increase in sales and a 77 percent increase in segment earnings. Underlying
sales exclude a 3 percent favorable impact from currency and a less than 0.5 percent net impact from
the 2003 Dura-Line divestiture and the 2004 Marconi acquisition. The underlying sales increase includes
penetration gains, particularly in the OEM power business, which are estimated to have contributed
approximately 4 percent of the sales growth, offset by an estimated 4 percent impact from lower prices, due
in part to the introduction of next generation products at lower price points. These results reflect increases
in all major geographic regions, led by a 22 percent increase in Asia, an 11 percent increase in the United
States and a 10 percent increase in Europe. The U.S. increase reflects the strong upturn in U.S. investment
in communication and non-residential computer equipment in 2004. Emerson continues to build upon its
Emerson Network Power China (Avansys) acquisition by increasing the Company’s penetration in China and
Asia, and leveraging its engineering resources to design next generation products. Improvements in capital
spending in nearly all of this segment’s served markets also helped drive increased sales in the climate and
power systems business. Earnings increased $129 million to $297 million, compared with $168 million
in 2003, primarily reflecting increased volume and leverage from higher sales. Earnings also reflect lower
material costs, benefits from prior cost reduction efforts, and a $13 million reduction in rationalization costs,
partially offset by the impact from lower sales prices. Rationalization costs during 2004 included severance
and lease termination costs related to certain power systems operations in Western Europe shifting to China
and Eastern Europe in order to leverage product platforms and lower production and engineering costs to
remain competitive on a global basis.
Sales by
Business Segment
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%