Emerson 2004 Annual Report Download - page 40

38 Emerson 2004
(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 consider the dilutive effects of stock options, incentive shares and convertible securities. Reconciliations of weighted average
common shares for basic earnings per common share and diluted earnings per common share follow (shares in millions):
2002 2003 2004
Basic 418.9 419.1 419.3
Dilutive shares 2.0 1.8 2.9
Diluted 420.9 420.9 422.2
(3) ACQUISITIONS AND DIVESTITURES
In the fourth quarter of 2004, the Company acquired the outside plant and power systems business of Marconi Corporation PLC, a leading
provider of DC power products and engineering and installation services to major telecommunication carriers throughout North America,
which is included in the Network Power segment. Marconi (renamed Emerson Network Power Energy Systems - North America) and
several smaller businesses acquired during 2004 for a total of $414 in cash (net of cash and equivalents acquired) had annualized sales
of approximately $430. Goodwill of $224 (substantially all of which is expected to be deductible for tax purposes) and intangible assets
of $120 (all of which is being amortized on a straight-line basis with a weighted-average life of 14 years) were recognized from these
transactions. Third-party valuations of assets are in-process; thus, the allocations of the purchase prices are subject to refinement.
Several small businesses were also acquired during 2003. Due to challenging market conditions, Emerson began evaluating strategies
during 2003 to maximize the value of the Jordan business (renamed Emerson Telecommunication Products, Inc. (“Jordan”)) acquired in
2000. In May 2003, the Board of Directors approved a plan to restructure Jordan in which all but one of its businesses would be retained by
Emerson (and will continue to do business as Emerson Telecommunication Products, LLC (“ETP”)), and the Dura-Line fiber-optic conduit
business would be sold. In June 2003, after the restructuring, the Jordan stock, including its Dura-Line operations, was sold for $6, resulting
in a pretax loss of $87, which is reported as discontinued operations. In addition, an appraisal of the retained ETP business was performed.
All of the businesses in the Network Power segment, including ETP, were reviewed for impairment and a goodwill impairment charge of $54
was recorded in the third quarter of 2003, the majority of which related to the ETP business. The restructuring and sale resulted in income
tax benefits of $238 as the tax basis in the stock of these businesses significantly exceeded the carrying value primarily due to a goodwill
impairment of $647 in 2002. Approximately $164 of the benefits were received in cash in 2004 due to the carryback of the capital loss
against prior capital gains and application to current year capital gains, with the remainder expected to be received in subsequent years as
the capital loss carryforward is utilized against future capital gains. The income tax benefits were recognized in the third quarter of 2003:
$170 was associated with discontinued operations and $68 was associated with the retained ETP business.
The tax benefits from the restructuring of the ETP business net of the impairment charge contributed $14 ($0.03 per share) to continuing
operations in 2003. The net gain of $83 from the sale of Jordan (including income tax benefit of $170) is reported as discontinued
operations in the Consolidated Statements of Earnings. The operating results of Dura-Line are also classified as discontinued operations for
2003 and 2002. Sales were $41 and $76, and net losses were $7 and $16 for the years ended September 30, 2003 and 2002, respectively.
Other businesses divested in 2003 represented total annual sales of approximately $80 in 2002.
During the first quarter of 2002, Emerson acquired Avansys Power Co., Ltd. (renamed Emerson Network Power China), a provider of
network power products to the telecommunications industry in China, for $750 in cash (approximately $710 net of cash acquired),
resulting in $624 of goodwill. Avansys and other smaller businesses acquired during 2002 had annualized sales of approximately $270.
In the first quarter of 2002, Emerson received $165 from the divestiture of the Chromalox industrial heating solutions business, resulting
in a pretax gain of $85. In the second quarter of 2002, Emerson exchanged its ENI semiconductor equipment business for an equity
interest in MKS Instruments, Inc. of 12 million common shares, resulting in a pretax gain of approximately $93. During the third quarter,
Emerson received $73 from the divestiture of the Daniel Valve business, resulting in a pretax gain of $42. Chromalox, ENI and Daniel Valve
represented total annual sales of approximately $300 in 2001.
The results of operations of these businesses have been included in the Company’s consolidated results of operations since the respective
dates of acquisition and prior to the respective dates of divestiture.