Emerson 2008 Annual Report Download - page 42

A Powerful Force for Innovation [ 35 ]
tively determined fair value, and revenue is recognized individually for delivered items only if the delivered items have
value to the customer on a standalone basis and performance of the undelivered items is probable and substantially
in the Company’s control, or the undelivered items are inconsequential or perfunctory. Management believes that all
relevant criteria and conditions are considered when recognizing sales.
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All derivative instruments are reported on the balance sheet at fair value. The accounting for changes in fair value
of a derivative instrument depends on whether it has been designated and qualies as a hedge and on the type of
hedge. For each derivative instrument designated as a cash ow hedge, the effective portion of the gain or loss on the
derivative is deferred in accumulated other comprehensive income until recognized in earnings with the underlying
hedged item. For each derivative instrument designated as a fair value hedge, the gain or loss on the derivative and the
offsetting gain or loss on the hedged item are recognized immediately in earnings. Currency uctuations on non-U.S.
dollar obligations that have been designated as hedges on non-U.S. net asset exposures are included in accumulated
other comprehensive income. Regardless of type, a fully effective hedge will result in no net earnings impact while
the derivative is outstanding. To the extent that any hedge is ineffective at offsetting cash ow or fair value changes
in the underlying hedged item, there could be a net earnings impact. Gains and losses from the ineffective portion of
any hedge, as well as the gains and losses on derivative instruments not designated as a hedge, are recognized in the
income statement immediately.
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No provision has been made for U.S. income taxes on the undistributed earnings of non-U.S. subsidiaries of approxi-
mately $3.6 billion at September 30, 2008. 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 undistrib-
uted earnings if eventually remitted is not practicable.
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Comprehensive income is primarily comprised of net earnings and changes in foreign currency translation, pension and
postretirement adjustments and changes in cash ow hedges. Accumulated other comprehensive income, after-tax,
consists of foreign currency translation credits of $698 and $728, pension and postretirement charges of $528 and
$384, and cash ow hedges and other charges of $29 and credits of $38 at September 30, 2008 and 2007, respectively.
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The preparation of the nancial statements in conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results
could differ from those estimates.
On December 11, 2006, a two-for-one split of the Company’s common stock was effected in the form of a 100 percent
stock dividend (shares began trading on a post-split basis on December 12, 2006). This stock split resulted in the
issuance of approximately 476.7 million additional shares of common stock and was accounted for by the transfer of
approximately $161 from additional paid-in capital and $77 from retained earnings to common stock. All share and per
share data have been retroactively restated to reect this split.
Effective September 30, 2007, Emerson 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 over- or under-funded status of dened benet plans
and other postretirement plans in the balance sheet and to recognize changes in the funded status in the year in which
the changes occur through comprehensive income. The incremental effect of adopting FAS 158 was a reduction in
other assets of $425, an increase in other liabilities of $97 and an after-tax charge to accumulated other comprehensive
income of $329 (See Notes 10 and 11).
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 State-
ment 109” (FIN 48). FIN 48 addresses the accounting for uncertain tax positions that a company has taken or expects
to take on a tax return. As a result of adoption, the Company recorded a charge of $6 to beginning retained earnings
(See Note 13).
Certain prior year amounts have been reclassied to conform to the current year presentation. The operating results of
the European appliance motor and pump business are classied as discontinued operations for all periods presented.
The operating results of Brooks are classied as discontinued operations for 2008.