Emerson 2006 Annual Report Download - page 30

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Financial Review
 Sales in the Industrial Automation segment
increased 10 percent compared to 2004 to $3.2 billion in 2005,
with sales increases in all of the businesses and major geographic
areas, reecting the favorable economic environment for capital
goods. Underlying sales grew nearly 8 percent, excluding a nearly
3 percent ($78 million) favorable impact from foreign currency
translation. The underlying sales growth reects an 11 percent
increase in the United States and a 5 percent increase in interna-
tional sales, with 4 percent growth in Europe, 4 percent growth in
Asia and 25 percent growth in the Middle East. The results reect
solid improvements across all the businesses, with particular
strength in the power generating alternator and the power trans-
mission businesses, reecting increased global industrial demand
and an estimated 2 percent positive impact from higher sales
prices. Earnings increased 19 percent to $464 million for 2005,
compared with $391 million in 2004, due to higher sales volume
and leverage, while sales price increases nearly offset higher
material costs (particularly for steel and copper). The earnings
increase was aided by a $13 million payment received by the
power transmission business from dumping duties related to the
Offset Act in 2005, compared with a $2 million payment received
in 2004, partially offset by a litigation settlement related to the
electrical products business.
               
            
   changechange
(dollarsinmillions) 2004 2005 2006 ‘04-‘05 ‘05-‘06
Sales $2,692 3,317  23% 
Earnings $ 297 373  26% 
Margin 11.0% 11.2% 
 The Network Power segment sales increased
31 percent to $4.4 billion in 2006 compared to $3.3 billion
in 2005. End markets were strong across the segment with
particular strength in the computing and data-center markets,
which led to strong growth in the AC power system and precision
cooling businesses. The sales increase reects 21 percent growth
in underlying sales and a 10 percent ($341 million) contribution
from the Artesyn and Knürr acquisitions. The underlying sales
increase of 21 percent reects higher volume of approximately
23 percent, of which more than one-third is estimated to be
from market penetration gains. These increases were partially
offset by an estimated 2 percent impact from lower sales prices.
Geographically, underlying sales reect a 22 percent increase in
the United States, a 37 percent increase in Asia (primarily China)
and a 3 percent increase in Europe. The Company continues to
build upon its Emerson Network Power China division resulting in
market penetration in China and other Asian markets. Earnings
increased 30 percent, or $111 million, to $484 million, compared
with $373 million in 2005, primarily due to higher sales volume.
The margin was primarily diluted by the Artesyn acquisition and
declines in sales prices, partially offset by material cost containment.
Negative product mix in the embedded power business and higher
costs related to inventory and warranty in the North American
DC power business in the fourth quarter also diluted the margin.
Leverage on higher sales volume, savings from prior period cost
reduction efforts and a $16 million reduction in rationalization
costs versus the prior year mitigated the margin decline.
 Network Power segment sales increased
23 percent to $3.3 billion in 2005 compared to $2.7 billion in
2004, reecting acquisitions and continued demand for power
systems and precision cooling products, as well as uninterrup-
tible power supplies and original equipment manufacturers (OEM)
embedded power modules. Acquisitions added approximately
14 percent ($366 million) to the increase, foreign currency trans-
lation had a 1 percent favorable impact, and underlying sales
grew 8 percent. The underlying sales increase reects higher
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