Emerson 2006 Annual Report Download - page 53

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50 | 51
Although it is not possible to predict the ultimate outcome of the matters discussed above, historically, the Company has been
successful in defending itself against claims and suits that have been brought against it. The Company will continue to defend itself
vigorously in all such matters. While the Company believes a material adverse impact is unlikely, given the inherent uncertainty of
litigation, a remote possibility exists that a future adverse development could have a material adverse impact on the Company.
The Company enters into indemnication agreements in the ordinary course of business in which the indemnied party is held harm-
less and is reimbursed for losses incurred from claims by third parties. In connection with divestitures of certain assets or businesses,
the Company often provides indemnities to the buyer with respect to certain matters including, for example, environmental liabilities
and unidentied tax liabilities related to periods prior to the disposition. Due to the uncertain nature of the indemnities, the maximum
liability cannot be quantied. Liabilities for obligations are recorded when probable and when they can be reasonably estimated.
Historically, the Company has not made signicant payments for these obligations.
At September 30, 2006, there were no known contingent liabilities (including guarantees, pending litigation, taxes and other claims)
that management believes will be material in relation to the Company’s nancial statements, nor were there any material commit-
ments outside the normal course of business.

Earnings before income taxes consist of the following:
   2004 2005 2006
United States $1,022 1,157 1,518
Non-U.S. 830 992 1,166
Earnings before income taxes $1,852 2,149 2,684
The principal components of income tax expense follow:
   2004 2005 2006
Current:
Federal $132 458 394
State and local 26 42 57
Non-U.S. 229 272 316
Deferred:
Federal 185 (41) 73
State and local 5 (7) 8
Non-U.S. 18 3 (9)
Income tax expense $595 727 839