Emerson 2004 Annual Report Download - page 47

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45
(12) CONTINGENT LIABILITIES AND COMMITMENTS
Emerson is a party to a number of pending legal proceedings and claims, including those involving general and product liability and other
matters, several of which claim substantial amounts of damages. The Company accrues for such liabilities when it is probable that future
costs will be incurred and such costs can be reasonably estimated. Such accruals are based on developments to date, management’s
estimates of the outcomes of these matters, its experience in contesting, litigating and settling other similar matters, and any related
insurance coverage.
Although it is not possible to predict the ultimate outcome of the matters discussed above, historically, the Company has been successful in
defending itself against claims and suits that have been brought against it. The Company will continue to defend itself vigorously in all such
matters. While the Company believes a material adverse impact is unlikely, given the inherent uncertainty of litigation, a remote possibility
exists that a future adverse development could have a material adverse impact on the Company.
The Company enters into 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. In connection with divestitures of certain assets or businesses, the
Company often provides indemnities to the buyer with respect to certain matters including, for example, environmental liabilities and
unidentified tax liabilities related to periods prior to the disposition. Due to the uncertain nature of the indemnities, the maximum liability
cannot be quantified. Liabilities for obligations are recorded when probable and when they can be reasonably estimated. Historically, the
Company has not made significant payments for these obligations.
At September 30, 2004, 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
Earnings from continuing operations before income taxes consist of the following:
2002 2003 2004
United States $1,124 790 1,022
Non-U.S. 466 624 830
Earnings from continuing operations before income taxes $1,590 1,414 1,852
The principal components of income tax expense follow:
2002 2003 2004
Current:
Federal $204 170 132
State and local 11 7 26
Non-U.S. 109 154 229
Deferred:
Federal 173 73 185
State and local 26 17 5
Non-U.S. (9) (20) 18
Income tax expense $514 401 595
The federal corporate statutory rate is reconciled to the Company’s effective income tax rate as follows:
2002 2003 2004
Federal corporate statutory rate 35.0% 35.0% 35.0%
State and local taxes, less federal tax benefit 1.4 1.1 1.1
Export benefit (1.7) (1.7) (1.4)
Foreign rate differential (3.0) (4.2) (3.8)
Goodwill – 1.3 –
Capital gains (losses) .4 (4.5) –
Other .2 1.3 1.2
Effective income tax rate 32.3% 28.3% 32.1%