Emerson 2010 Annual Report Download - page 40

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All derivatives are associated with specific underlying exposures and the Company does not hold derivatives for trading
or speculative purposes. The duration of hedge positions is generally two years or less and amounts currently hedged
beyond 18 months are not significant.
All derivatives are accounted for under ASC 815, Derivatives and Hedging, and are recognized on the balance sheet at
fair value. For derivatives hedging variability in future cash flows, the effective portion of any gain or loss is deferred
in stockholders’ equity and recognized in earnings when the underlying hedged transaction impacts earnings. The
majority of the Company’s derivatives that are designated as hedges and qualify for deferral accounting are cash flow
hedges. For derivatives hedging the fair value of existing assets or liabilities, both the gain or loss on the derivative
and the offsetting loss or gain on the hedged item are recognized in earnings each period. Currency fluctuations on
non-U.S. dollar obligations that have been designated as hedges of non-U.S. dollar net asset exposures are reported in
equity. To the extent that any hedge is not fully effective at offsetting cash flow 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. See Note 7.
INCOME TAXES
The provision for income taxes is based on pretax income reported in the consolidated statements of earnings and
currently enacted tax rates for each jurisdiction. Certain income and expense items are recognized in different time
periods for financial reporting and income tax filing purposes, and deferred income taxes are provided for the effect of
temporary differences. No provision has been made for U.S. income taxes on approximately $5.2 billion of undistrib-
uted earnings of non-U.S. subsidiaries as of September 30, 2010. 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 Note 13.
COMPREHENSIVE INCOME
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 flow hedges. Accumulated
other comprehensive income, net of tax (a component of equity), consists of foreign currency translation credits of
$649 and $594, pension and postretirement charges of $1,108 and $1,096 and cash flow hedges and other credits of
$33 and $6, respectively, at September 30, 2010 and 2009. Accumulated other comprehensive income attributable to
noncontrolling interests in subsidiaries consists primarily of earnings and foreign currency translation.
RETIREMENT PLANS
Effective September 30, 2010, the Company adopted updates to ASC 715, Compensation - Retirement Benefits. These
updates expand disclosure about an entity’s investment policies and strategies for assets held by defined benefit
pension or postretirement plans, including information regarding major classes of plan assets, inputs and valuation
techniques used to measure the fair value of assets, and concentrations of risk within the plans. See Note 10.
Effective September 30, 2009, the Company adopted the measurement date provision of ASC 715, Compensation –
Retirement Benefits, which requires employers to measure defined benefit plan assets and obligations as of the
Company’s fiscal year end. The majority of the Company’s pension and postretirement plans previously used a June 30
measurement date. The Company transitioned to the fiscal year-end measurement date in 2009 and recorded a $14
after-tax adjustment to September 30, 2009 retained earnings.