Emerson 2014 Annual Report Download - page 23

2014 Emerson > 19
Total cash paid for all businesses in 2014 was
$610 million, net of cash acquired, and the assumption
of debt of $76 million. Combined annualized sales for
all businesses acquired in 2014 were approximately
$376 million. See Note 3.
Additionally in 2014, the Company acquired the
remaining 44.5 percent noncontrolling interest in
Appleton Group, in Industrial Automation, for
$574 million. Sales for this electrical distribution
business were $542 million in 2014. Full ownership
of Appleton provides growth opportunities in oil and
gas and chemicals end markets by leveraging the
Company’s Process Management and international
distribution channels. The transaction does not
affect consolidated results of operations other than
eliminating the noncontrolling interest’s share of future
earnings and distributions from this business.
Early in the fourth quarter of 2014, the Company sold its
connectivity solutions business for $99 million in cash.
The Network Power segment includes sales in 2014 of
$63 million for this business through the closing date.
On November 22, 2013, the Company completed
the divestiture of a 51 percent controlling interest in
Artesyn and received proceeds of $264 million, net of
working capital adjustments. The Company retained an
interest with a fair value of approximately $60 million.
Consolidated operating results for 2014 include sales of
$146 million and a net loss of $9 million for this business
through the closing date. Prior to the divestiture, cash
of $376 million ($308 million, after tax provided for in
fiscal 2013) was repatriated from this business. In fiscal
2013, the Company initiated the purchase of $600 million
of Emerson common stock in anticipation of the sale
proceeds and the cash repatriation. The purchase of
shares was completed in the first quarter of 2014.
In connection with its longer-term strategy to divest
selected slower-growth businesses, management
is considering strategic alternatives for the power
transmission solutions business, and in the fourth
quarter of 2014 received several nonbinding indications
of interest. This business is a leader in the design and
manufacturing of couplings, bearings, conveying
components and gearing and drive components, and
provides supporting services and solutions. In 2014, this
business contributed sales of $605 million and earnings
of $87 million in Industrial Automation. The Company
expects to make a decision and announce plans for this
business within the next three months.
COST OF SALES
Cost of sales for 2014 were $14.4 billion, a decrease of
$338 million compared to $14.7 billion in 2013, largely
due to the Artesyn divestiture partially offset by higher
costs associated with increased volume, including
acquisitions. Gross profit was $10.2 billion in 2014
compared to $10.0 billion in 2013. Gross margin of
41.4 percent increased 1.1 percentage points versus
40.3 percent in 2013. The increase reflects a
0.7 percentage point favorable comparative impact
from the Artesyn divestiture, which had relatively lower
gross margin, as well as materials cost containment,
cost reduction savings and lower pension expense.
Lower price, unfavorable mix and other costs partially
offset the increase.
Cost of sales for 2013 and 2012 were $14.7 billion and
$14.6 billion, resulting in gross profit of $10.0 billion
or 40.3 percent of sales in 2013, and $9.8 billion or
40.0 percent of sales in 2012. The increases in gross
profit and gross margin primarily reflected higher
volume, particularly in Process Management, and
materials cost containment and cost reduction
actions across the businesses. Deleverage in Industrial
Automation and Network Power, product mix, and
pension and other costs were unfavorable.
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses
of $5.7 billion in 2014 increased $67 million
compared with 2013. The increase primarily reflects
costs associated with increased volume, including
acquisitions, partially offset by the Artesyn divestiture
and lower incentive stock compensation expense of
$78 million. SG&A as a percent of sales was 23.3 percent
in 2014, a 0.4 percentage point increase versus
22.9 percent in 2013. The Artesyn divestiture had
an unfavorable 0.3 percentage point impact on the
comparison, as this business had relatively lower SG&A
requirements. The benefit of cost containment actions
was more than offset by business investment spending
and other costs.
SG&A expenses of $5.6 billion in 2013 increased
$212 million compared with 2012. SG&A as a percent of
sales was 22.9 percent in 2013, a 0.6 percentage point
increase versus 22.3 percent in 2012. The increases
primarily reflected costs associated with higher volume,
$121 million of higher incentive stock compensation
expense from the overlap of two performance shares
programs and a higher stock price, as well as higher
pension and other costs. Cost containment and the
comparison effect of a $17 million charge in 2012
related to post-65 supplemental retiree medical
benefits had a favorable impact.