Emerson 2005 Annual Report Download - page 37

E M E R S O N 2 0 0 5 2 5
16%
12%
8%
4%
Emerson generated operating cash flow of $2.2 billion in 2005, a 1 percent decrease from 2004. Higher net
earnings were more than offset by additional working capital necessary to support the higher level of sales
and the $140 million tax refund in 2004 related to the sale of Jordan stock including its Dura-Line operations
in 2003. Cash flow in 2005 reflects continued improvements in operating working capital management,
including a 4 percent increase in days payable outstanding. Operating cash flow was $2.2 billion in 2004,
an increase of 28 percent compared with $1.7 billion in 2003 primarily due to higher net earnings and the
tax refund, as discussed above, as well as improvement in operating working capital. At September 30,
2005, operating working capital as a percent of sales was 9.5 percent, compared with 10.5 percent and
12.7 percent in 2004 and 2003, respectively. Operating working capital as a percent of sales for 2003
was negatively impacted 1 percent by the $140 million of tax benefits received in cash in 2004 due to
the carryback of a capital loss against prior capital gains. Operating cash flow was decreased by pension
contributions of $124 million, $167 million and $308 million in 2005, 2004 and 2003, respectively. Pension
contributions are expected to be approximately $75 million to $150 million in 2006.
Free cash flow (operating cash flow less capital expenditures) was $1.7 billion in 2005, compared to
$1.8 billion and $1.4 billion in 2004 and 2003, respectively. The 8 percent decrease in 2005 compared to
2004 was primarily due to higher capital expenditures. The 30 percent increase in 2004 compared to 2003
was driven by higher net earnings, improved operating working capital and lower pension contributions,
which were partially offset by higher capital spending. Capital expenditures were $518 million, $400 million
and $337 million in 2005, 2004 and 2003, respectively. The increase in capital expenditures during 2005 was
primarily driven by unitary air-conditioning scroll compressor capacity expansion in the United States and
Asia. In 2006, the Company is targeting capital spending of approximately 3 percent of net sales. Cash paid
in connection with Emerson’s acquisitions was $366 million, $414 million and $6 million in 2005, 2004 and
2003, respectively.
Dividends were $694 million ($1.66 per share, up 4 percent) in 2005, compared with $675 million ($1.60 per
share) in 2004, and $661 million ($1.57 per share) in 2003. In November 2005, the Board of Directors voted
to increase the quarterly cash dividend to an annualized rate of $1.78 per share. In 2005, approximately
10,035,000 shares were repurchased under the 2002 Board of Directors’ authorization and in 2004,
approximately 2,630,000 shares were repurchased under the fiscal 1997 and 2002 Board of Directors’
authorizations; 27.6 million shares remain available for repurchase under the 2002 authorization and none
remain under the 1997 authorization. The Company did not repurchase any shares during 2003 under these
plans. Purchases of treasury stock totaled $671 million and $157 million in 2005 and 2004, respectively.
Leverage/Capitalization
(dollars in millions) 2003 2004 2005
Total Assets $15,194 16,361 17,227
Long-term Debt $ 3,733 3,136 3,128
Stockholders’ Equity $ 6,460 7,238 7,400
Total Debt-to-Capital Ratio 39.0% 35.8% 35.6%
Net Debt-to-Net Capital Ratio 34.5% 27.0% 27.7%
Operating Cash Flow-to-Debt Ratio 42.0% 54.9% 53.4%
Interest Coverage Ratio 6.7 8.9 9.8
00 0504030201
Operating working capital has
improved from 15 percent of sales
in 2000 to less than 10 percent
in 2005.
Operating Working Capital
as a Percent of Sales