Emerson 2015 Annual Report Download - page 32

30 | 2015 Annual Report
As of September 30, 2015, the Company’s U.S. pension
plans were underfunded by $335 million and non-U.S.
plans were underfunded by $313 million. The U.S. funded
status includes unfunded plans totaling $191 million
and the non-U.S. status includes unfunded plans totaling
$215 million. The Company contributed a total of
$53 million to defined benefit plans in 2015 and expects
to contribute at a similar level in 2016. At year-end 2015,
the discount rate for U.S. plans was 4.35 percent, and was
4.25 percent in 2014. The assumed investment return
on plan assets was 7.50 percent in both 2015 and 2014,
and was 7.75 percent in 2013, and is expected to be
7.50 percent for 2016. Deferred actuarial losses to be
amortized to expense in future years were $1,628 million
($1,052 million after-tax) as of September 30, 2015.
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 and 13.
Other Items
LEGAL MATTERS
At September 30, 2015, 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.
NEW ACCOUNTING PRONOUNCEMENTS
In May 2014, the FASB amended ASC 606, Revenue from
Contracts with Customers, to update and consolidate
revenue recognition guidance from multiple sources
into a single, comprehensive standard to be applied for
all contracts with customers. The fundamental principle
of the revised standard is to recognize revenue based
on the transfer of goods and services to customers at
an amount that the Company expects to be entitled to
in exchange for those goods and services. Also required
are additional disclosures regarding the nature, extent,
timing and uncertainty of revenues and associated cash
flows. Required adoption of the new standard has been
deferred by the FASB for one year and it is now effective
for the Company in the first quarter of fiscal 2019. The
new rules may be adopted on either a prospective or
retrospective basis. Early adoption is available to the
Company in the first quarter of fiscal 2018, the original
effective date. The Company is in the process of evaluating
the impact of the revised standard on its financial
statements and determining its method of adoption.
In May 2015, the FASB issued updates to ASC 820, Fair
Value Measurement, requiring investments measured
using the net asset value per share practical expedient to
be removed from the fair value hierarchy and separately
reported when making disclosures. The updates
have no impact on operations and do not change the
determination of fair value for any investments. These
updates are effective for the Company in fiscal 2017 and
must be adopted on a retrospective basis. Adoption will
affect disclosure only; there will be no impact on the
Company’s financial results.
FISCAL 2016 OUTLOOK
The Company expects difficult market conditions to
persist through the first six to nine months of fiscal 2016,
as headwinds in served markets from low oil prices and
the slowdown in industrial spending will reduce underlying
sales growth across the Company’s businesses. Net sales
for 2016 are expected to decline approximately 6 to
8 percent. Underlying sales are expected to be down
approximately 2 to 5 percent, excluding deductions from
negative currency translation and completed divestitures
of approximately 2 percent each. Profitability will be
negatively impacted by lower underlying growth but
supported by cost savings generated by the Company’s
restructuring programs. Adjusted earnings per share are
expected to be approximately $3.05 to $3.25 in 2016,
versus $3.17 in 2015. The Company currently estimates
it would incur expenses of $300 to $400 million
(approximately $0.40 to $0.55 per share) related to the
planned network power systems spinoff and potential
sales of the power generation and motors, and drives
businesses. Reported earnings per share in 2016 would
be approximately $2.50 to $2.85 including these costs,
compared with $3.99 in 2015.