Emerson 2014 Annual Report Download - page 51

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2014 Emerson > 47
Systems, Inc. v. Emerson Electric Co. and Micro Motion, Inc., USA. The complaint alleges infringement on Invensys
patents by Micro Motion’s Coriolis flowmeter “Enhanced Core Processors.” The Invensys suit seeks damages of $182
and an injunction preventing the Company and Micro Motion from engaging in future infringement. The Company
has filed a petition seeking a ruling that the Invensys patents are invalid. It is too early in the litigation to assess any
potential financial impact. The Company and Micro Motion believe that the Invensys claims are without merit and
that they have strong defenses to the claims, and intend to aggressively defend the suit.
The Company enters into certain indemnification agreements in the ordinary course of business in which the
indemnified party is held harmless and is reimbursed for losses incurred from claims by third parties, usually up to
a prespecified limit. In connection with divestitures of certain assets or businesses, the Company often provides
indemnities to the buyer with respect to certain matters including, as examples, environmental or unidentified
tax liabilities related to periods prior to the disposition. Because of the uncertain nature of the indemnities, the
maximum liability cannot be quantified. As such, contingent liabilities are recorded when they are both probable
and reasonably estimable. Historically, payments under indemnity arrangements have been inconsequential.
At September 30, 2014, 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 financial statements, nor
were there any material commitments outside the normal course of business.
(13) Income Taxes
Pretax earnings from continuing operations consist of the following:
2012 2013 2014
United States $1,742 1,724 2,096
Non-U.S. 1,373 1,472 1,252
Total pretax earnings from continuing operations $3,115 3,196 3,348
The principal components of income tax expense follow:
2012 2013 2014
Current:
Federal $ 750 704 742
State and local 61 60 59
Non-U.S. 466 480 516
Deferred:
Federal (129) (56) (129)
State and local (4) 2 (5)
Non-U.S. (53) (60) (19)
Income tax expense $1,091 1,130 1,164
Reconciliations of the U.S. federal statutory tax rate to the Company’s effective income tax rate follow:
2012 2013 2014
Federal statutory rate 35.0% 35.0% 35.0%
State and local taxes, net of federal tax benefit 1.3 1.3 1.0
Non-U.S. rate differential (4.0) (4.8) (4.2)
Non-U.S. tax holidays (1.7) (1.8) (1.1)
U.S. manufacturing deduction (1.4) (1.6) (1.5)
Goodwill impairment 4.6 4.8 5.3
Artesyn repatriation — 2.2 —
Other 1.2 0.2 0.3
Effective income tax rate 35.0% 35.3% 34.8%
Non-U.S. tax holidays reduce tax rates in certain foreign jurisdictions and are expected to expire over the next
three years.