Emerson 2012 Annual Report Download - page 44

42 | 2012 Annual Report
(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’s goodwill exceeds its estimated fair value, impairment is recognized to the extent that the carrying
amount exceeds the implied fair value of the goodwill. Fair values of reporting units are Level 3 measures, estimated
primarily with an income approach that discounts future cash flows using risk-adjusted interest rates, and are subject
to change due to changes in underlying economic conditions. See Note 3 for further discussion of changes in goodwill
related to acquisitions and divestitures.
In prior periods, the Company discussed certain businesses for which the estimated fair value did not significantly
exceed carrying value. Assumptions used in estimating fair value included successful execution of business plans and
recovery in served markets. In the fourth quarter of 2012, the Company’s annual goodwill impairment testing revealed
that carrying value exceeded fair value for the embedded computing and power business and the DC power systems
business, both in the Network Power segment. These businesses have been unable to meet their operating objectives
and the Company anticipates that growth in sales and earnings for these businesses will be slower than previously
expected, reflecting protracted weak demand and structural industry challenges in telecommunications and informa-
tion technology end markets, and increased competition. As a consequence, the carrying value of these businesses
was reduced by a noncash, pretax charge to earnings totaling $592 ($528 after-tax, or $0.72 per share). Management
and the Board of Directors have discussed the unique market and technology challenges facing the embedded computing
and power business and will pursue strategic alternatives, including a potential sale of this business with annual
revenue of $1.4 billion. In 2011, the Company recorded a $19 ($0.03 per share) noncash, pretax impairment charge
related to the Industrial Automation wind turbine pitch control business, reflecting a slowdown in investment for
alternative energy.
The change in the carrying value of goodwill by business segment follows:
process industrial network climate commercial &
management automation power technologies residential solutions total
Balance, September 30, 2010 $2,274 1,379 3,997 464 542 8,656
Acquisitions 110 15 125
Divestitures (1) (8) (6) (15)
Impairment (19) (19)
Foreign currency translation and other (16) 34 1 4 1 24
Balance, September 30, 2011 $2,368 1,393 3,990 483 537 8,771
Acquisitions 5 62 27 94
Divestitures (102) (102)
Impairment (592) (592)
Foreign currency translation and other 6 (55) (93) (9) 6 (145)
Balance, September 30, 2012 $2,379 1,338 3,367 501 441 8,026
The gross carrying amount and accumulated amortization of identifiable intangible assets by major class follow:
customer
relationships intellectual property capitalized soFtware total
2011 2012 2011 2012 2011 2012 2011 2012
Gross carrying amount $1,499 1,537 1,110 1,125 971 1,046 3,580 3,708
Less: Accumulated amortization 330 459 518 606 763 805 1,611 1,870
Net carrying amount $1,169 1,078 592 519 208 241 1,969 1,838
Total intangible asset amortization expense for 2012, 2011 and 2010 was $318, $345 and $254, respectively. Based on
intangible asset balances as of September 30, 2012, amortization expense is expected to approximate $308 in 2013,
$274 in 2014, $244 in 2015, $197 in 2016 and $175 in 2017.