Emerson 2008 Annual Report Download - page 34

A Powerful Force for Innovation [ 27 ]
make appropriate provisions and dispose of obsolete
inventory on an ongoing basis. Various factors are consid-
ered in making this determination, including recent sales
history and predicted trends, industry market conditions
and general economic conditions.

Long-lived assets, which include primarily goodwill
and property, plant and equipment, are reviewed for
impairment whenever events or changes in business
circumstances indicate the carrying value of the assets
may not be recoverable, as well as annually for goodwill.
If the Company determines that the carrying value of
the long-lived asset may not be recoverable, a perma-
nent impairment charge is recorded for the amount by
which the carrying value of the long-lived asset exceeds
its fair value. Fair value is generally measured based on a
discounted cash ow method using a discount rate
determined by management to be commensurate with
the risk inherent in the Company’s current business
model. The estimates of cash ows and discount rate
are subject to change depending on the economic
environment, including such factors as interest rates,
expected market returns and volatility of markets served,
particularly if the current downturn continues for an
extended period of time. Management believes that the
estimates of future cash ows and fair value are reason-
able; however, changes in estimates could materially
affect the evaluations. The slowdown in consumer
appliance and residential end-markets over the past two
years, along with strategic decisions in connection with
two businesses, resulted in a $31 million impairment in
the North American appliance control business and a
$92 million loss on the divestiture of the European appli-
ance motor and pump business. See Notes 1, 3, 4 and 6.
               
The Company continues to focus on a prudent long-term
investment strategy. Dened benet plan expense and
obligations are dependent on assumptions used in calcu-
lating such amounts. These assumptions include discount
rate, rate of compensation increases and expected
return on plan assets. In accordance with U.S. generally
accepted accounting principles, actual results that differ
from the assumptions are accumulated and amortized
over future periods. While management believes that
the assumptions used are appropriate, differences in
actual experience or changes in assumptions may affect
the Company’s retirement plan obligations and future
expense. The discount rate for the U.S. retirement plans
was 6.50 percent as of June 30, 2008. As of June 30, 2008,
the U.S. retirement plans were overfunded by $331 million
and non-U.S. plans were underfunded by $224 million.
Unrecognized losses, which will be recognized in future
years, were $804 million as of June 30, 2008. Subse-
quent to the June 30 measurement date, asset values
have declined as a result of recent volatility in the capital
markets, while pension liabilities have decreased with
higher interest rates. The Company estimates that retire-
ment plans in total were underfunded by approximately
$400 million as of October 31, 2008. The Company
contributed $135 million to dened benet plans in 2008
and expects to contribute approximately $200 million in
2009. Dened benet pension plan expense is expected
to decline slightly in 2009.
Effective September 30, 2007, the Company adopted
the recognition and disclosure provisions of Statement
of Financial Accounting Standards No. 158, “Employers’
Accounting for Dened Benet Pension and Other
Postretirement Plans” (FAS 158). This statement requires
employers to recognize the funded status of dened
benet plans and other postretirement plans in the
balance sheet and to recognize changes in the funded
status through comprehensive income in the year in
which they occur. The incremental effect of adopting FAS
158 resulted in a pretax charge to accumulated other
comprehensive income of $522 million ($329 million
after-tax). Also see Notes 10 and 11 for additional disclo-
sures. Effective for scal year 2009, FAS 158 requires plan
assets and liabilities to be measured as of year-end, rather
than the June 30 measurement date that the Company
presently uses.

Income tax expense and deferred tax assets and liabilities
reect management’s assessment of actual future taxes
to be paid on items reected in the nancial statements.
Uncertainty exists regarding tax positions taken in
previously led tax returns still under examination and
positions expected to be taken in future returns. Deferred
tax assets and liabilities arise because of differences
between the consolidated nancial statement carrying
amounts of existing assets and liabilities and their
respective tax bases, and operating loss and tax credit
carryforwards. Deferred income taxes are measured
using enacted tax rates in effect for the year in which the
temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the period that
includes the enactment date. Generally, no provision is
made for U.S. income taxes on the undistributed earnings
of non-U.S. subsidiaries. These earnings are permanently
invested or otherwise indenitely retained for continuing
international operations. Determination of the amount of
taxes that might be paid on these undistributed earnings
if eventually remitted is not practicable. See Note 13.
Effective October 1, 2007, the Company adopted
the recognition and disclosure provisions of Financial
Accounting Standards Board Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes – an
Interpretation of FASB Statement 109” (FIN 48). FIN 48