Emerson 2011 Annual Report Download - page 24

22 | 2011 Emerson
Emerson maintains a conservative financial structure
which provides the strength and flexibility necessary to
achieve its strategic objectives. The Company has been
successful in efficiently deploying cash where needed
worldwide to fund operations, complete acquisitions
and sustain long-term growth. Substantially all of the
Company’s cash is held outside the U.S., in Europe and
Asia, and is available for repatriation to the U.S. Under
current tax law, repatriated cash may be subject to
U.S. federal income taxes, net of available foreign tax
credits. The Company routinely repatriates a portion of
its non-U.S. cash from earnings each year, or otherwise
when it can be accomplished tax efficiently, and provides
for U.S. income taxes as appropriate. The Company has
been able to readily meet all its funding requirements and
currently believes that sufficient funds will be available
to meet the Company’s needs in the foreseeable future
through operating cash flow, existing resources, short-
and long-term debt capacity or backup credit lines.
CONTRACTUAL OBLIGATIONS
At September 30, 2011, the Company’s contractual obli-
gations, including estimated payments, are as follows:
AMOUNTS DUE BY PERIOD
LESS THAN MORE THAN
(DOLLARS IN MILLIONS) TOTAL 1 YEAR 1-3 YEARS 3-5 YEARS 5 YEARS
Long-term Debt
(including interest) $6,687 496 1,204 1,072 3,915
Operating Leases 806 245 297 132 132
Purchase Obligations 1,176 1,090 79 7 –
Total $8,669 1,831 1,580 1,211 4,047
Purchase obligations consist primarily of inventory
purchases made in the normal course of business to
meet operational requirements. The above table does
not include $2.5 billion of other noncurrent liabilities
recorded in the balance sheet and summarized in Note
17, which consist essentially of pension and postretire-
ment plan liabilities and deferred income taxes (including
unrecognized tax benefits), because it is not certain when
these amounts will become due. See Notes 10 and 11
for estimated future benefit payments and Note 13 for
additional information on deferred income taxes.
FINANCIAL INSTRUMENTS
The Company is exposed to market risk related to
changes in interest rates, commodity prices and foreign
currency exchange rates, and selectively uses derivative
financial instruments, including forwards, swaps and
purchased options, to manage these risks. The Company
does not hold derivatives for trading purposes. The value
of market risk sensitive derivative and other financial
instruments is subject to change as a result of move-
ments in market rates and prices. Sensitivity analysis
is one technique used to forecast the impact of these
movements. Based on a hypothetical 10 percent increase
in interest rates, a 10 percent decrease in commodity
prices or a 10 percent weakening in the U.S. dollar across
all currencies, the potential losses in future earnings, fair
value and cash flows are immaterial. Sensitivity analysis
has limitations; for example, a weaker U.S. dollar would
benefit future earnings through favorable translation of
non-U.S. operating results, and lower commodity prices
would benefit future earnings through lower cost of sales.
See Notes 1 and 7 through 9.
Critical Accounting Policies
Preparation of the Company’s financial statements
requires management to make judgments, assumptions
and estimates regarding uncertainties that could affect
reported revenue, expenses, assets, liabilities and equity.
Note 1 describes the significant accounting policies
used in preparation of the consolidated financial state-
ments. The most significant areas where management
judgments and estimates impact the primary financial
statements are described below. Actual results in these
areas could differ materially from management’s esti-
mates under different assumptions or conditions.
REVENUE RECOGNITION
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 reason-
ably assured. In certain limited circumstances, revenue
is recognized using the percentage-of-completion
DEBT AS A PERCENT OF CAPITAL AND
NET DEBT AS A PERCENT OF NET CAPITAL
Total debt was 33.3 percent of total capital and net debt was
23.2 percent of net capital at year-end 2011.
07
30.1%
11100908
33.1% 34.8% 34.1% 33.3%
23.6% 23.2%