Emerson 2011 Annual Report Download - page 32

Download and view the complete annual report

Please find page 32 of the 2011 Emerson annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 58

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58

30 | 2011 Emerson
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EMERSON ELECTRIC CO. & SUBSIDIARIES
Years ended September 30 | Dollars in millions, except per share amounts or where noted
(1) Summary of Significant Accounting Policies
FINANCIAL STATEMENT PRESENTATION
The preparation of the financial statements in conformity with U.S. generally accepted accounting principles
(U.S. GAAP) requires management to make estimates and assumptions that affect reported amounts and related
disclosures. Actual results could differ from these estimates. Certain operating results have been classified as
discontinued operations. See Note 3.
Emerson adopted updates to ASC 810, Consolidation, in the first quarter of 2010. The updates require an entity to
separately disclose noncontrolling interests in subsidiaries as a separate line item in the income statement and as a
separate component of equity in the balance sheet. Adoption did not have a material impact on the Company’s
financial statements. As required, certain prior year amounts were reclassified as this change was retrospectively
applied to prior periods.
Effective October 1, 2009, the Company adopted ASC 805, Business Combinations, which requires that assets acquired,
liabilities assumed and contractual contingencies be measured at fair value as of the acquisition date and all acquisition
costs be expensed as incurred. See Note 3 for a discussion of acquisition activity.
In the first quarter of 2010, the Company adopted updates to ASC 260, Earnings per Share, regarding the two-class
method of computing earnings per share (EPS). This method requires earnings to be allocated to participating securi-
ties (for Emerson, certain employee stock awards) in the EPS computation based on each security’s respective dividend
rate. This change had an inconsequential impact on EPS.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its controlled affiliates. Intercompany
transactions, profits and balances are eliminated in consolidation. Investments of 20 percent to 50 percent of the
voting shares of other entities are accounted for by the equity method. Investments in publicly-traded companies of
less than 20 percent are carried at fair value, with changes in fair value reflected in accumulated other comprehensive
income. Investments in nonpublicly traded companies of less than 20 percent are carried at cost.
FOREIGN CURRENCY TRANSLATION
The functional currency for most of the Company’s non-U.S. subsidiaries is the local currency. Adjustments resulting
from translating local currency financial statements into U.S. dollars are reflected in accumulated other comprehensive
income.
FAIR VALUE MEASUREMENTS
ASC 820, Fair Value Measurement, established a formal hierarchy and framework for measuring financial statement
items at fair value and expanded disclosure about fair value measurements and the reliability of valuation inputs.
Under ASC 820, measurement assumes the transaction to sell an asset or transfer a liability occurs in the principal or at
least the most advantageous market for that asset or liability. Within the hierarchy, Level 1 instruments use observ-
able market prices for the identical item in active markets and have the most reliable valuations. Level 2 instruments
are valued through broker/dealer quotation or through market-observable inputs for similar items in active markets,
including forward and spot prices, interest rates and volatilities. Level 3 instruments are valued using inputs not observ-
able in an active market, such as company-developed future cash flow estimates, and are considered the least reliable.
Valuations for all of Emerson’s financial instruments fall within Level 2. The fair value of the Company’s long-term debt
is estimated using current interest rates and pricing from financial institutions and other market sources for debt with
similar maturities and characteristics. In 2010, Emerson adopted the portions of ASC 820 related to nonfinancial assets
and liabilities, including goodwill and certain other intangible and long-lived assets. Adoption did not have a material
impact on the Company’s financial statements.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original maturities of three months or less.