Emerson 2005 Annual Report Download - page 48

3 6 E M E R S O N 2 0 0 5
(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. Options to purchase approximately
2.6 million, 1.0 million and 5.9 million shares of common stock were excluded from the computation of diluted earnings per share in 2005,
2004 and 2003, respectively, because their effect would have been antidilutive. Reconciliations of weighted average common shares for
basic earnings per common share and diluted earnings per common share follow:
(shares in millions) 2003 2004 2005
Basic 419.1 419.3 414.9
Dilutive shares 1.8 2.9 4.0
Diluted 420.9 422.2 418.9
(3) ACQUISITIONS AND DIVESTITURES
The Company acquired Do+Able, a manufacturer of ready-to-assemble wood and steel home and garage organization and storage
products, which is included in the Appliance and Tools segment, in the second quarter of 2005 and Numatics, a manufacturer of pneumatic
and motion control products for industrial applications, which is included in the Industrial Automation segment, in the fourth quarter
of 2005. In addition to Do+Able and Numatics, the Company acquired several smaller businesses during 2005, mainly in the Process
Management and Appliance and Tools segments. Total cash paid (including assumed debt of approximately $100, which was repaid in
October 2005) and annualized sales for these businesses were approximately $466 and $430, respectively. Goodwill of $236 ($58 of which
is expected to be deductible for tax purposes) and identifiable intangible assets of $122, which are being amortized on a straight-line basis
over a weighted-average useful life of ten years, were recognized from these transactions in 2005. Third-party valuations of assets are in-
process; thus, the allocations of the purchase prices are subject to refinement.
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.
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. Sales were $41 and the net loss was $7 for the year ended September 30, 2003. Other businesses divested in 2003 represented total
annual sales of approximately $80 in 2002.
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.