Emerson 2009 Annual Report Download - page 15

Annual Report 13
was approximately $776 million (net of cash acquired of
approximately $31 million and debt assumed of approxi-
mately $230 million). Annualized sales for acquired
businesses were approximately $530 million in 2009.
During the rst quarter of scal 2010, the Company
entered into a denitive agreement and commenced
a tender offer to acquire Avocent Corporation for
approximately $1.2 billion in cash. Avocent is a leader in
delivering information technology operations manage-
ment solutions that reduce operating costs, simplify
management and increase availability of critical informa-
tion technology environments via integrated, centralized
software. Avocent products complement the Network
Power segment’s power systems, energy manage-
ment and precision cooling solutions. The transaction
is expected to be completed in December 2009 and is
subject to acceptance of the tender offer by a majority of
Avocent shareholders, customary closing conditions and
regulatory approvals.
The Company acquired Motorola Inc.’s Embedded
Computing business and several smaller businesses
during 2008. Embedded Computing provides commu-
nication platforms and enabling software used by
manufacturers of equipment for telecommunications,
medical imaging, defense and aerospace and industrial
automation markets. Total cash paid for these businesses
(net of cash and equivalents acquired of approximately
$2 million) was approximately $561 million.
In the rst quarter of scal 2008, the Company divested
its Brooks Instrument ow meters and ow controls unit,
which had sales for the rst quarter of 2008 of $21 million
and net earnings of $1 million. Proceeds from the sale of
Brooks were $100 million, resulting in a pretax gain of
$63 million ($42 million after-tax). The net gain on dives-
titure and Brooks’ results of operations for scal 2008 are
classied as discontinued operations; prior year results of
operations were inconsequential. Also in scal 2008, the
Company received approximately $101 million from the
divestiture of the European appliance motor and pump
business, resulting in a loss of $92 million. The European
appliance motor and pump business had total annual
sales of $453 million and $441 million in 2008 and 2007,
respectively and net earnings, excluding the divestiture loss,
of $7 million in both years. The divestiture loss and results
of operations are classied as discontinued operations.

Costs of sales for scal 2009 and 2008 were $13.2 billion
and $15.7 billion, respectively, while gross prot was
$7.7 billion in 2009 compared with $9.1 billion for 2008.
The decrease in gross prot primarily reects lower sales
volume and unfavorable foreign currency translation. As
a percent of net sales, cost of sales was 63.2 percent for
both 2009 and 2008, resulting in consistent gross margin
of 36.8 percent for both years. The level gross margin
compared with 2008 reects benets realized from ratio-
nalization actions and other productivity improvements,
materials cost containment and selective price increases,
which were offset by deleverage on lower sales volume,
inventory liquidation and unfavorable product mix. In
addition, due to the economic slowdown the Company’s
inventory obsolescence allowance increased approxi-
mately $40 million in 2009.
Costs of sales for scal 2007 were $14.1 billion and cost
of sales as a percent of net sales was 63.6 percent. Gross
prot was $8.1 billion for 2007, resulting in a gross prot
margin of 36.4 percent. The increase in the gross prot
margin in 2008 primarily reects leverage on higher sales
volume and benets realized from productivity improve-
ments, which were partially offset by negative product
mix. Higher sales prices, together with the benets
received from commodity hedging of approximately
$42 million, were more than offset by higher raw material
and wage costs. The increase in the gross prot amount
in 2008 primarily reects higher sales volume and foreign
currency translation, as well as acquisitions.
                   
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Selling, general and administrative (SG&A) expenses
for 2009 were $4.5 billion, or 21.7 percent of net sales,
compared with $5.1 billion, or 20.3 percent of net sales
for 2008. The $0.6 billion decrease in SG&A was primarily
due to lower sales volume, benets from rationalization,
favorable foreign currency translation and a $28 million
decrease in incentive stock compensation expense (see
Note 14). The increase in SG&A as a percent of sales was
primarily the result of deleverage on lower sales volume,
partially offset by cost reduction actions and the lower
incentive stock compensation expense.
SG&A expenses for 2008 were $5.1 billion, or
20.3 percent of net sales, compared with $4.6 billion,
or 20.6 percent of net sales for 2007. The increase of
approximately $0.5 billion in 2008 was primarily due to an
increase in variable costs on higher sales volume, acquisi-
tions and foreign currency translation, partially offset by
a $103 million decrease in incentive stock compensation
(see Note 14). The reduction in SG&A as a percent of sales
was primarily the result of lower incentive stock compen-
sation, leverage on higher sales and benets realized from
cost reduction actions, particularly in the Process Manage-
ment and Network Power businesses.