Emerson 2014 Annual Report Download - page 41

2014 Emerson > 37
INCOME TAXES
The provision for income taxes is based on pretax income reported in the consolidated statements of earnings and
tax rates currently enacted in each jurisdiction. Certain income and expense items are recognized in different time
periods for financial reporting and income tax filing purposes, and deferred income taxes are provided for the effect
of temporary differences. The Company also provides for U.S. federal income taxes, net of available foreign tax
credits, on earnings intended to be repatriated from non-U.S. locations. No provision has been made for U.S. income
taxes on approximately $7.1 billion of undistributed earnings of non-U.S. subsidiaries as of September 30, 2014, as
these earnings are considered permanently invested or otherwise indefinitely retained for continuing international
operations. Recognition of U.S. taxes on undistributed non-U.S. earnings would be triggered by a management
decision to repatriate those earnings, although there is no current intention to do so. Determination of the amount
of taxes that might be paid on these undistributed earnings if eventually remitted is not practicable. See Note 13.
(2) Weighted-Average Common Shares
Basic earnings per common share consider only the weighted-average of common shares outstanding while
diluted earnings per common share also consider the dilutive effects of stock options and incentive shares. Options
to purchase approximately 4.6 million, 0.6 million and 7.7 million shares of common stock were excluded from
the computation of diluted earnings per share in 2014, 2013 and 2012, respectively, as the effect would have
been antidilutive. Earnings allocated to participating securities were inconsequential for all years presented.
Reconciliations of weighted-average shares for basic and diluted earnings per common share follow:
(shares in millions) 2012 2013 2014
Basic shares outstanding 730.6 717.7 700.2
Dilutive shares 4.0 5.2 3.9
Diluted shares outstanding 734.6 722.9 704.1
(3) Acquisitions and Divestitures
The Company acquired 100 percent of Virgo Valves and Controls Limited and Enardo Holdings, both in the Process
Management final control business, during the first quarter of 2014. Virgo is a manufacturer of engineered valves
and automation systems and Enardo is a manufacturer of tank and terminal safety equipment. Total cash paid
for both businesses was approximately $506, net of cash acquired, and the Company also assumed $76 of debt.
Combined sales for Virgo and Enardo in 2014 were $321. Goodwill of $323 (largely nondeductible) and identifiable
intangible assets of $178, primarily customer relationships and patents and technology with weighted-average
lives of approximately 12 years, were recognized from these transactions. The Company also acquired four other
smaller businesses in 2014 for a total of approximately $104, net of cash acquired. Combined annual sales for these
four businesses were approximately $55. These smaller acquisitions were complementary to the existing business
portfolios. Valuations of certain acquired assets and liabilities are in-process and subject to refinement.
In the second quarter of 2014, the Company acquired the remaining 44.5 percent noncontrolling interest in
Appleton Group (formally EGS Electrical Group), which is reported in Industrial Automation, for $574. Full ownership
provides growth opportunities in the oil and gas and chemicals end markets by leveraging the Company’s Process
Management and international distribution channels. The transaction reduced noncontrolling interests $101
and common stockholders equity $343, and increased deferred tax assets $130. 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. Sales for this electrical distribution business were $542 in 2014.
On November 22, 2013, the Company completed the divestiture of a 51 percent controlling interest in Artesyn and
received proceeds of $264, net of working capital adjustment. The Company retained an interest with a fair value
of approximately $60, determined using a Level 3 option pricing model. A tax benefit of $20 was recognized on
completion of the transaction. Consolidated operating results for 2014 include sales of $146 and a net loss of $9 for
this business through the closing date. As the Company retained a noncontrolling interest in this business, it was not
classified as discontinued operations. Assets and liabilities held-for-sale at the closing date were: other current assets,
$367 (accounts receivable, inventories, other); other assets, $212 (property plant and equipment, goodwill, other
noncurrent assets); and accrued expenses, $255 (accounts payable and other liabilities). Prior to the divestiture,