Emerson 2004 Annual Report Download - page 39

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Stock-Based Compensation
Effective October 1, 2002, Emerson adopted the fair value method provisions of Statement of Financial Accounting Standards No. 123,
“Accounting for Stock-Based Compensation” (FAS 123). Under the Standard’s prospective method of adoption, options granted, modified
or settled after September 30, 2002, are expensed based on their fair value at date of grant over the vesting period, generally three years.
Previously, the Company accounted for options pursuant to Accounting Principles Board Opinion No. 25, and no expense was recognized.
The following table illustrates the effect on net earnings and earnings per share if the fair value based method had been applied to all
outstanding and unvested awards in each period.
2002 2003 2004
Net earnings, as reported $ 122 1,089 1,257
Add: Stock-based employee compensation expense included in reported
net earnings, net of related tax effects 17 18 42
Deduct: Total stock-based employee compensation expense determined
under the fair value based method for all awards, net of related tax effects 34 25 48
Pro forma net earnings $ 105 1,082 1,251
Earnings per share:
Basic - as reported $0.29 2.60 3.00
Basic - pro forma $0.25 2.58 2.99
Diluted - as reported $0.29 2.59 2.98
Diluted - pro forma $0.25 2.57 2.97
Financial Instruments
All derivative instruments are reported on the balance sheet at fair value. For each derivative instrument designated as a cash flow hedge,
the gain or loss on the derivative is deferred in accumulated other comprehensive income until recognized in earnings with the underlying
hedged item. For each derivative instrument designated as a fair value hedge, the gain or loss on the derivative and the offsetting gain
or loss on the hedged item are recognized immediately in earnings. Currency fluctuations on non-U.S. dollar obligations that have been
designated as hedges on non-U.S. net asset exposures are included in accumulated other comprehensive income.
Income Taxes
No provision is made for U.S. income taxes on the undistributed earnings of non-U.S. subsidiaries (approximately $2,390 at September 30,
2004). These earnings are permanently invested or otherwise indefinitely retained for continuing international operations. In those cases in
which distributions have been made, additional income taxes have not been significant.
Comprehensive Income
Comprehensive income is primarily comprised of net earnings, foreign currency translation, minimum pension liability and cash flow
hedges. Accumulated other comprehensive income, after-tax, consists of a foreign currency translation credit of $83 and a charge of $181,
minimum pension liability charges of $160 and $192, and cash flow hedges and other charges of $11 and $13 at September 30, 2004 and
2003, respectively.
Financial Statement Presentation
The preparation of the financial statements in conformity with U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. Certain
prior year amounts have been reclassified to conform to the current year presentation.
Effective October 1, 2002, Emerson adopted Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment
or Disposal of Long-Lived Assets,” which addresses the impairment or disposal of long-lived assets and the reporting of discontinued
operations. The operating results of Dura-Line are classified as discontinued operations in the Consolidated Statements of Earnings for
2003 and 2002 (see Note 3).