Emerson 2014 Annual Report Download - page 44

2014 Emerson > 40
(6) Goodwill and Other Intangibles
Purchases of businesses are accounted for under the acquisition method, with substantially all goodwill assigned
to the reporting unit that acquires the business. Under an impairment test performed annually, if the carrying
amount of a reporting unit exceeds its estimated fair value, impairment is recognized to the extent that the carrying
amount of the unit’s goodwill exceeds the implied fair value of the goodwill. Fair values of reporting units are
Level 3 measures which are estimated generally using an income approach that discounts future cash flows using
risk-adjusted interest rates, as well as earnings multiples or other techniques as warranted. Fair values are subject
to changes in underlying economic conditions. See Note 3 for further discussion of changes in goodwill related to
acquisitions and divestitures.
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, $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.
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 ($475 after-tax, $0.65 per
share). Income tax charges of $70 ($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
($21 after-tax, $0.03 per share). The Company divested both of these businesses in 2014. See Note 3.
In the fourth quarter of 2012, the Company incurred an impairment charge for the Artesyn business and the DC
power systems business, after 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 ($528 after-tax, $0.72 per share).
The change in the carrying value of goodwill by business segment follows. Cumulative pretax impairment charges
in Network Power total $646 as of September 30, 2014.
commercial &
process industrial network climate residential
management automation power technologies solutions total
Balance, September 30, 2012 $2,379 1,338 3,367 501 441 8,026
Acquisitions 11 11
Divestitures (40) (2) (42)
Impairment (528) (528)
Foreign currency translation and other (7) 14 33 2 42
Balance, September 30, 2013 2,383 1,352 2,832 503 439 7,509
Acquisitions 356 22 378
Divestitures (70) (70)
Impairment (508) (508)
Foreign currency translation and other (38) (23) (58) (3) (5) (127)
Balance, September 30, 2014 $2,701 1,329 2,218 500 434 7,182