Emerson 2009 Annual Report Download - page 23

Annual Report 21
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Preparation of the Company’s nancial statements
requires management to make judgments, assump-
tions and estimates regarding uncertainties that affect
reported revenue, expenses, assets, liabilities and
stockholders’ equity. Note 1 describes the signicant
accounting policies used in preparation of the Consoli-
dated Financial Statements. The most signicant areas
where management judgments and estimates impact
the primary nancial statements are described below.
Actual results in these areas could differ materially from
management’s estimates under different assumptions
or conditions.
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The Company recognizes nearly all of its revenues
through the sale of manufactured products and records
the sale when products are shipped or delivered and
title passes to the customer with collection reasonably
assured. In certain instances, revenue is recognized on
the percentage-of-completion method, when services are
rendered, or in accordance with FASB Accounting Stan-
dards Codication (ASC) Subtopic 985-605, Software:
Revenue Recognition. Sales sometimes involve delivering
multiple items, including services such as installation.
In these instances, the revenue assigned to each item is
based on that item’s objectively determined fair value,
and revenue is recognized individually for delivered items
only if the delivered items have value to the customer on
a stand-alone basis, and the performance of the undeliv-
ered 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.
          
Inventories are stated at the lower of cost or market. The
majority of inventory values are based on standard costs
that approximate average costs, while the remainder are
principally valued on a rst-in, rst-out basis. Standard
costs are revised at the beginning of each scal year. The
effects of resetting standards and operating variances
incurred during each period are allocated between inven-
tories and cost of sales. The Company’s divisions review
inventory for obsolescence, make appropriate provisions
and dispose of obsolete inventory on a regular basis.
Various factors are considered in these reviews, including
sales history and recent trends, industry conditions and
general economic conditions.

Long-lived assets, which include property, plant and
equipment, goodwill and identiable intangible assets
are reviewed for impairment whenever events or changes
in business circumstances indicate an impairment may
exist. If the Company determines that the carrying value
of the long-lived asset may not be recoverable, a perma-
nent impairment charge is recorded for the amount by
which the carrying value of the long-lived asset exceeds
its fair value. Reporting units are also reviewed for
possible goodwill impairment at least annually, in the
fourth quarter, by comparing the fair value of each unit to
its carrying value. Fair value is generally measured based
on a discounted future cash ow method using a discount
rate judged by management to be commensurate with
the applicable risk. Estimates of future sales and oper-
ating results, and therefore cash ows, as well as discount
rates, are subject to change depending on the economic
environment, including such factors as the general level
of interest rates in the credit markets, expected equity
market returns and volatility of markets served, particu-
larly if the current recessionary economic environment
continues for an extended period of time.
At the end of scal 2009, Emerson’s total market value
based on its exchange traded stock price was approxi-
mately $30 billion and stockholders’ equity was $8.6
billion. There are two units in the Network Power
segment with $367 million of goodwill, including recent
acquisitions, where estimated fair value exceeds carrying
value by approximately 7 percent. Assumptions used
in determining value include successful execution of
business plans, completion of integration and restruc-
turing actions, and economic recovery in served markets,
primarily network communications and connectivity.
There are two units in the Appliance and Tools segment
with $249 million of goodwill, where estimated fair
value exceeds carrying value by 35 percent and assumes
execution of business plan and recovery in residential and
construction-related markets. Management believes the
estimates of future cash ows and fair values are reason-
able; however, changes in estimates due to variance from
assumptions could materially affect the evaluations.
In 2008, the slowdown in consumer appliance and resi-
dential end-markets over the prior two years, along with
strategic decisions in connection with two businesses,
resulted in a $31 million impairment charge in the North
American appliance control business and a $92 million
loss on the divestiture of the European appliance motor
and pump business. See Notes 1, 3, 4 and 6.
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The Company continues to focus on a prudent long-term
investment strategy for its pension-related assets, and
the calculation of dened benet plan expense and obli-
gations are dependent on assumptions made regarding
these assets. These assumptions include the discount
rate, rate of annual compensation increases and expected
annual return on plan assets. In accordance with U.S.
generally accepted accounting principles, actual results
that differ from the assumptions are accumulated and