Emerson 2005 Annual Report Download - page 36

2 4 E M E R S O N 2 0 0 5
$2.0
$1.5
$1.0
$0.5
Appliance and Tools segment sales increased 7 percent to $4.0 billion for 2005. This increase reflects a
3 percent growth in underlying sales, a 1 percent favorable impact from 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
reflects an approximate 3 percent positive impact from higher sales prices. The results were mixed across the
segment with gains in most of the businesses, 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 continued strength in new and existing home markets as reflected 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 business), which together with acquisitions diluted the margin.
The Appliance and Tools segment sales increased almost 9 percent to $3.7 billion for 2004. Underlying
sales increased 8 percent, primarily due to volume, excluding a more than 2 percent favorable impact from
currency and a negative impact of more than 1 percent related to exiting the manufacturing of bench top
and stationary power tools. The improved underlying sales results reflect gains for all of the businesses
within the Appliance and Tools segment, particularly very strong growth in motors, residential storage
and disposers. The increase in motors was aided by penetration gains in European appliance motors and
underlying growth in hermetic motors. The residential storage and disposers increases resulted from
strength in new and existing home markets, as evidenced by the strong growth in U.S. residential investment
in 2004, and higher demand at major retailers during 2004. Earnings for 2004 of $530 million were up
11 percent from $479 million in 2003, primarily due to increased volume and leverage from higher sales and
savings from prior cost reduction efforts, which were impacted by higher commodity costs and sales price
pressure. Rationalization costs of $47 million during 2004 included severance and start-up and moving costs
related to shifting certain motor manufacturing primarily from the United States to Mexico and China in
order to consolidate facilities and improve profitability, and severance related to consolidating manufacturing
operations in the professional tools business for operational efficiency.
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY
The Company continues to generate substantial cash from operations and is in a strong financial position
with total assets of $17 billion and stockholders’ equity of $7 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.
Cash Flow
(dollars in millions) 2003 2004 2005
Operating Cash Flow $1,731 2,216 2,187
Percent of sales 12.4% 14.2% 12.6%
Capital Expenditures $ 337 400 518
Percent of sales 2.4% 2.6% 3.0%
Free Cash Flow $1,394 1,816 1,669
Percent of sales 10.0% 11.6% 9.6%
Operating Working Capital $1,778 1,633 1,643
Percent of sales 12.7% 10.5% 9.5%
00 0504030201
(dollars in billions)
Operating cash flow of $2.2 billion,
or 12.6 percent of sales, in 2005
enabled Emerson to pay record
dividends and buy back 10 million
shares of stock.
Operating Cash Flow
and as a Percent of Sales
20%
15%
10%
5%