Emerson 2014 Annual Report Download - page 24

2014 Emerson > 20
GOODWILL IMPAIRMENT
The Network Power Europe business, which comprises
the 2010 Chloride acquisition and pre-existing
businesses, was the focus of the fourth quarter 2014
impairment review. The business has not been able to
meet its operating objectives due to a weak Western
Europe economy, which had less than 1 percent GDP
growth since the acquisition. The weak economic
recovery and intense
competitive/market
pressures have negatively
affected the profitability
of the combined Emerson
and Chloride European
network power business.
The economics for Europe
are uncertain for 2015 and
2016 and the goodwill from
the acquisition cannot be
supported. A $508 million,
$0.72 per share, noncash
impairment charge was
recognized in the fourth
quarter of 2014. The charge
was not deductible for tax
purposes. This business
provides uninterruptible
power supplies, thermal
management products,
and data center services and solutions for Europe, the
Middle East and Africa. See Note 6.
The Company had faced persistent challenges in the
Artesyn business due to protracted weak demand,
structural industry developments and increased
competition. These challenges, including weakness
in telecommunication and mobile device markets,
continued into 2013 and sales and earnings were below
expectations. In the third quarter of 2013 the Company
recorded a noncash goodwill impairment charge of
$503 million ($475 million after-tax, $0.65 per share).
Income tax charges of $70 million ($0.10 per share) for
the anticipated repatriation of non-U.S. earnings from
this business were also recorded in 2013. Additionally,
in the fourth quarter the Company’s goodwill
impairment testing indicated that the carrying value of
the connectivity solutions business in Network Power
exceeded its fair value due to operating results not
meeting forecasted expectations, resulting in a noncash
charge to earnings of $25 million ($21 million after-tax,
$0.03 per share).
In the fourth quarter of 2012, the Company incurred an
impairment charge for the Artesyn business and the DC
power systems business after its goodwill impairment
testing revealed that the carrying values of these
businesses exceeded the fair values. These businesses
had been unable to meet operating objectives and the
Company anticipated that growth in sales and earnings
would be slower than previously expected given the end
market circumstances noted above. The carrying value
of these businesses was reduced by a noncash charge to
earnings totaling $592 million ($528 million after-tax,
$0.72 per share).
OTHER DEDUCTIONS, NET
Other deductions, net were $393 million in 2014, a
$31 million increase from 2013 primarily due to a
$34 million loss from the Artesyn equity investment,
a $13 million China research incentive credit in 2013
and several other items, partially offset by a $23 million
reduction in rationalization expense in 2014 and
favorable foreign currency transactions of $20 million.
See Notes 4 and 5.
Other deductions, net were $362 million in 2013, a
$39 million decrease from 2012 primarily due to a
$41 million reduction in rationalization expense, lower
intangibles amortization expense of $21 million and
other items, partially offset by a gain of $43 million
in 2012 from the receipt of dumping duties from
U.S. Customs.
INTEREST EXPENSE, NET
Interest expense, net was $194 million, $218 million
and $224 million in 2014, 2013 and 2012, respectively.
The decrease of $24 million in 2014 primarily resulted
from the maturity of long-term debt with a relatively
higher interest rate in early fiscal 2014. The decrease of
$6 million in 2013 was primarily due to a long-term debt
issuance in 2013 replacing maturing debt at relatively
lower average interest rates.
INCOME TAXES
Income taxes were $1,164 million, $1,130 million and
$1,091 million for 2014, 2013 and 2012, respectively,
resulting in effective tax rates of 35 percent for all
periods presented. The relatively high effective tax
rates resulted from the low tax deductibility of impaired
goodwill in all years, as well as an income tax charge in
2013 for the repatriation of non-U.S. earnings related
to Artesyn. These items had unfavorable impacts on
the effective rate of 5 percentage points, 6 percentage
points and 4 percentage points, respectively.
14
13
12
11
10
NET EARNINGS
(Dollars in billions)
*Excludes charges of $508 million in 2014,
$566 million in 2013, $528 million in 2012
and $19 million in 2011.
$2.2
$2.5* $2.6* $2.5* $2.7*
$2.0$2.0 $2.1
$2.5