Emerson 2014 Annual Report Download - page 31

2014 Emerson > 27
period are allocated between inventories and cost of
sales. The Company’s businesses review inventory for
obsolescence, make appropriate provisions and dispose
of obsolete inventory on a regular basis. Various factors
are considered in these reviews, including sales history
and recent trends, industry conditions and general
economic conditions.
LONG-LIVED ASSETS
Long-lived assets, which include property, plant and
equipment, goodwill and identifiable intangible assets,
are reviewed for impairment whenever events or
changes in business circumstances indicate impairment
may exist. If the Company determines that the carrying
value of a long-lived asset may not be recoverable,
a permanent impairment charge is recorded for the
amount by which the carrying value of the long-lived
asset exceeds its estimated fair value. Reporting units
are also reviewed for possible goodwill impairment
at least annually, in the fourth quarter. If an initial
assessment indicates it is more likely than not an
impairment may exist, it is evaluated by comparing the
unit’s estimated fair value to its carrying value. Fair value
is generally estimated using an income approach that
discounts estimated future cash flows using discount
rates judged by management to be commensurate with
the applicable risk. Estimates of future sales, operating
results, cash flows and discount rates are subject to
changes in the economic environment, including such
factors as the general level of market interest rates,
expected equity market returns and the volatility
of markets served, particularly when recessionary
economic circumstances continue for an extended
period of time. Management believes the estimates
of future cash flows and fair values are reasonable;
however, changes in estimates due to variance from
assumptions could materially affect the evaluations.
RETIREMENT PLANS
The Company maintains a prudent long-term
investment strategy for its pension assets, consistent
with the duration of its pension obligations. The
determination of defined benefit plan expense and
liabilities is dependent on various assumptions,
including the expected annual rate of return on
plan assets, the discount rate and the rate of annual
compensation increases. Management believes that
the assumptions used are appropriate; however, actual
experience may differ. In accordance with U.S. generally
accepted accounting principles, actual results that differ
from the Company’s assumptions are accumulated
as deferred actuarial gains or losses and amortized to
expense in future periods.
As of September 30, 2014, the Company’s U.S. pension
plans were overfunded by $137 million and non-U.S.
plans were underfunded by $342 million. The U.S. funded
status includes unfunded plans totaling $182 million
and the non-U.S. status includes unfunded plans
totaling $218 million. The Company contributed a
total of $130 million to defined benefit plans in 2014
and expects to contribute approximately $60 million in
2015. At year-end 2014, the discount rate for U.S. plans
was 4.25 percent, and was 4.75 percent in 2013. The
assumed investment return on plan assets was
7.50 percent in 2014, 7.75 percent in both 2013 and
2012, and is expected to be 7.50 percent for 2015.
Deferred actuarial losses to be amortized to expense in
future years were $1.3 billion ($854 million after-tax) as
of September 30, 2014. Defined benefit pension plan
expense for 2015 is expected to be approximately
$165 million, compared with $153 million in 2014.
See Notes 10 and 11.
INCOME TAXES
Income tax expense and tax assets and liabilities
reflect management’s assessment of taxes paid or
expected to be paid (received) on items included in
the financial statements. Uncertainty exists regarding
tax positions taken in previously filed tax returns still
under examination and positions expected to be taken
in future returns. Deferred tax assets and liabilities
arise because of temporary differences between the
consolidated financial 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.
Valuation allowances are provided to reduce deferred
tax assets to the amount that will more likely than
not be realized.The impact on deferred tax assets
and liabilities of a change in tax rates is recognized
in the period that includes the enactment date. The
Company also pays U.S. federal income taxes, net
of available foreign tax credits, on cash repatriated
from non-U.S. locations. No provision is made for U.S.
income taxes on the undistributed earnings of non-U.S.
subsidiaries where these earnings are considered
permanently invested or otherwise indefinitely 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 Notes 1, 3 and 13.