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2015 Annual Report | 39
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 $6.4 billion of undistributed earnings of non-U.S. subsidiaries as of September 30,
2015, 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. 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 5.9 million, 4.6 million and 0.6 million shares of common stock were excluded from the
computation of diluted earnings per share in 2015, 2014 and 2013, 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) 2013 2014 2015
Basic shares outstanding 717.7 700.2 673.3
Dilutive shares 5.2 3.9 3.2
Diluted shares outstanding 722.9 704.1 676.5
(3) Acquisitions and Divestitures
The Company completed eight acquisitions in 2015, seven in Process Management and one in Commercial
& Residential Solutions, which had combined annualized sales of approximately $115. Total cash paid for all
businesses was $324, net of cash acquired. The Company recognized goodwill of $178 ($42 of which is expected to
be tax deductible) and other intangible assets of $128, primarily customer relationships and intellectual property
with a weighted-average life of approximately 10 years. These acquisitions complement the existing segment
portfolios and create incremental growth opportunities. Valuations of certain acquired assets and liabilities are
in-process and subject to refinement.
In June 2015, the Company announced plans to spin off its network power systems business through a tax-free
distribution to shareholders and to explore strategic alternatives, including potential sale, for its power generation
and motors, drives, and residential storage businesses. These businesses together represent approximately
29 percent of consolidated 2015 sales, 10 percent of pretax earnings and 20 percent of cash flow, or approximately
$6.4 billion, $400 and $500, respectively. In addition, the Company is bringing its corporate services and structure
into alignment with its smaller scale and sharper focus. The spinoff of the network power systems business will
create two independent publicly traded companies and is subject to certain conditions, including completion of the
Company’s due diligence processes, receipt of favorable opinions regarding the tax-free status of the transaction
for federal income tax purposes, local regulatory approvals, review of the Form 10 that will be filed with the SEC,
and final approval by Emerson’s Board of Directors.
In 2015, the Company incurred $42 in income tax expense and $10 in other fees related to the planned spinoff
(in total, $0.08 per share). The Company estimates it would incur costs throughout 2016 to effect the entire
portfolio repositioning as follows: approximately $100 to $200 of income taxes related to reorganizing the
ownership structures of these businesses; approximately $200 for investment banking, legal, consulting and
other costs; and approximately $100 in capitalized costs, including debt issuance costs, pension funding and
the separation of information technology systems. The strategic actions being contemplated are expected to be
substantially completed by the end of 2016. With regard to the evaluation of strategic alternatives for the power
generation and motors, drives, and residential storage businesses, there can be no assurance that the review
process will result in any transaction.