Emerson 2006 Annual Report Download - page 54

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Notes to Consolidated Financial Statements
The federal corporate statutory rate is reconciled to the Company’s effective income tax rate as follows:
2004  2005  2006
Federal corporate statutory rate 35.0% 35.0% 35.0%
State and local taxes, less federal tax benefit 1.1 1.0 1.6
Non-U.S. rate differential (2.1) (3.2) (3.4)
Non-U.S. tax holidays (1.7) (1.6) (1.6)
Export benefit (1.4) (1.1) (0.8)
U.S. manufacturing deduction – – (0.4)
Repatriation - American Jobs Creation Act – 3.0 –
Other 1.2 0.7 0.9
Effective income tax rate 32.1% 33.8% 31.3%
Non-U.S. tax holidays reduce the tax rate in certain foreign jurisdictions, the majority of which expire over the next ve years. The
American Jobs Creation Act of 2004 (the Act) was signed into law on October 22, 2004. The Act allows the repatriation of foreign earn-
ings at a reduced rate for one year, subject to certain limitations. During 2005, the Company repatriated approximately $1.4 billion
($1.8 billion in total) of cash from undistributed earnings of non-U.S. subsidiaries under the Act. As a result, the Company recorded
a tax expense of $63, or $0.15 per share, in 2005.
The principal items that gave rise to deferred income tax assets and liabilities follow:
    2005 2006
Deferred tax assets:
Accrued liabilities $ 176 218
Postretirement and postemployment benefits 153 160
Employee compensation and benefits 149 124
NOL and tax credits 256 254
Capital loss benefit 72 30
Other 141 126
Total $ 947 912
Valuation allowance $ (137) (183)
Deferred tax liabilities:
Property, plant and equipment $ (295) (316)
Leveraged leases (117) (110)
Pension (245) (308)
Intangibles (267) (346)
Other (82) (42)
Total $(1,006) (1,122)
Net deferred income tax liability $ (196) (393)
At September 30, 2006 and 2005, respectively, net current deferred tax assets were $269 and $315, and net noncurrent deferred
tax liabilities were $662 and $511. Total income taxes paid were approximately $820, $600 and $380 (net of the capital loss benet
received of $140) in 2006, 2005 and 2004, respectively. A majority of the $30 capital loss carryforward can be utilized through 2008.
The majority of the $231 net operating losses can be carried forward indenitely, while the remainders expire over varying periods.
In addition, a majority of the $23 of tax credits can be carried forward through 2015. The valuation allowance for deferred tax assets at
September 30, 2006, includes $55 related to acquisitions, which would reduce goodwill if the deferred tax assets are ultimately realized.