Emerson 2006 Annual Report Download - page 28

Financial Review
                    
Interest expense, net was $207 million, $209 million and
$210 million in 2006, 2005 and 2004, respectively. During 2006,
$250 million of 6.3% notes matured. 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.
                           
Earnings before income taxes were $2.7 billion for 2006, an
increase of 25 percent, compared to $2.1 billion for 2005.
The earnings results reect increases in all ve business
segments, including $207 million in Process Management,
$111 million in Network Power and $105 million in Industrial
Automation. The higher earnings also reect leverage from
higher sales, benets realized from productivity improvements,
and higher sales prices, partially offset by higher raw material,
wage and benet costs.
Earnings before income taxes were $2.1 billion for 2005, an
increase of 16 percent, compared to $1.9 billion for 2004.
The earnings results reect increases in four of the ve busi-
ness segments, with particular strength in the Network Power,
Process Management and Industrial Automation businesses. The
higher earnings also reect 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 benet costs and other items.
           
Income taxes for 2006 were $839 million compared to
$727 million for 2005. The effective tax rate decreased from
34 percent in 2005 to approximately 31 percent in 2006. The
change in the tax rate is primarily due to a 3 percentage point
decrease 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).
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 the tax expense in 2005
related to the Act as discussed above. See Note 13 for further
discussion regarding the impact of the Act.
               
Emerson achieved a high level of return on average stockholders’
equity in 2006, reaching 23.7 percent for this important measure
of performance.
                                
Net earnings and earnings per share for 2006 increased
30 percent and 32 percent, respectively, to a record $1.8 billion
and a record $4.48 per share, compared to $1.4 billion and
$3.40 per share in 2005. Net earnings as a percent of net sales
were 9.2 percent in 2006 compared to 8.2 percent in 2005.
Net earnings for 2005 included a tax expense of $63 million, or
$0.15 per share, related to the one-time opportunity to repa-
triate foreign earnings. The 32 percent increase in earnings per
share also reects the purchase of treasury shares. Return on
average stockholders’ equity was 23.7 percent and 19.4 percent
for 2006 and 2005, respectively.
Net earnings and earnings per share for 2005 increased
13 percent and 14 percent, respectively, to $1.4 billion and
$3.40 per share, compared to $1.3 billion and $2.98 per share
in 2004. Net earnings as a percent of net sales were 8.2 percent
in 2005 compared to 8.1 percent in 2004. Net earnings for 2005
include a tax expense of $63 million, or $0.15 per share, related
to the one-time opportunity to repatriate foreign earnings.
The 14 percent increase in earnings per share also reects the
purchase of treasury shares. Return on average stockholders’
equity was 19.4 percent and 18.4 percent for 2005 and 2004,
respectively.
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