Emerson 2009 Annual Report Download - page 32

Emerson 200930
obligations that have been designated as hedges of non-U.S. dollar net asset exposures are reported in stockholders’
equity. To the extent that any hedge is not fully effective at offsetting cash ow or fair value changes in the underlying
hedged item, there could be a net earnings impact. The Company also uses derivatives to hedge economic exposures
that do not receive deferral accounting under ASC 815. The underlying exposures for these hedges relate primarily to
purchases of commodity-based components used in the Company’s manufacturing processes, and the revaluation of
certain foreign-currency-denominated assets and liabilities. Gains or losses from the ineffective portion of any hedge,
as well as any gains or losses on derivative instruments not designated as hedges, are recognized in the income state-
ment immediately.
The majority of hedging gains and losses deferred as of September 30, 2009 are generally expected to be recognized
over the next 12 months as the underlying forecasted transactions occur. The amounts ultimately recognized may
differ, favorably or unfavorably, from those disclosed because until the positions are settled they remain subject to
ongoing market price uctuations. Derivatives receiving deferral accounting are highly effective, no amounts were
excluded from the assessment of hedge effectiveness, and hedge ineffectiveness was immaterial in 2009, 2008 and
2007, including gains or losses on derivatives that were discontinued because forecasted transactions were no longer
expected to occur. Effective January 1, 2009, the Company adopted the expanded disclosure provisions of ASC 815.
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No provision has been made for U.S. income taxes on approximately $4.3 billion of undistributed earnings of non-U.S.
subsidiaries as of September 30, 2009. These earnings are considered 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.
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Comprehensive income is primarily composed of net earnings plus changes in foreign currency translation, pension
and postretirement adjustments and the effective portion of changes in the fair value of cash ow hedges. Accu-
mulated other comprehensive income, net of tax, consists of foreign currency translation credits of $594 and $698,
pension and postretirement charges of $1,096 and $528 and cash ow hedges and other credits of $6 and charges of
$29, respectively, at September 30, 2009 and 2008.
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Effective September 30, 2009, the Company adopted the measurement provision of FAS 158, “Employers’ Accounting
for Dened Benet Pension and Other Postretirement Plans” (now part of ASC 715, Compensation – Retirement Bene-
ts). This provision requires employers to measure dened benet plan assets and obligations as of the Company’s
scal year end. The majority of the Company’s pension and postretirement plans previously used a June 30 measure-
ment date. To transition to the scal year-end measurement date pursuant to ASC 715, the Company measured its
dened benet plan assets and obligations as of September 30, 2009 and recorded a $14 after-tax adjustment to
ending retained earnings. Previously, as of September 30, 2007, the Company adopted the recognition and disclo-
sure provisions of ASC 715, which required employers to recognize the full funded status of dened benet pension
and other postretirement plans in the balance sheet and to recognize changes in the funded status in comprehensive
income in the year they occur. The incremental effect of adopting the recognition and disclosure provisions was a
reduction in other assets of $425, an increase in other liabilities of $97 and an after-tax charge to stockholders’
equity of $329.
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Basic earnings per common share consider only the weighted average of common shares outstanding while diluted
earnings per common share consider the dilutive effects of stock options and incentive shares. Options to purchase
approximately 7.6 million, 3.6 million and 1.1 million shares of common stock were excluded from the computation
of diluted earnings per share in 2009, 2008 and 2007, respectively, because their effect would have been antidilutive.
Reconciliations of weighted average shares for basic and diluted earnings per common share follow:
(s h A R e s in m i l l i o n s )    2007 2008 2009
Basic shares outstanding 793.8 780.3 753.7
Dilutive shares 10.1 9.1 5.0
Diluted shares outstanding 803.9 789.4 758.7