Emerson 2013 Annual Report Download - page 30

28 Emerson > 2013 Annual Report
CONTRACTUAL OBLIGATIONS
At September 30, 2013, the Company’s contractual
obligations, 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) $6,102 460 1,157 800 3,685
Operating Leases 910 270 336 138 166
Purchase Obligations 1,087 959 99 23 6
Total $8,099 1,689 1,592 961 3,857
Purchase obligations consist primarily of inventory
purchases made in the normal course of business to meet
operational requirements. The table above does not include
$2.3 billion of other noncurrent liabilities recorded in the
balance sheet and summarized in Note 17, which consist
primarily of pension and postretirement 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 movements 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 or cash flows
are not material. 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 statements.
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 estimates 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 reasonably assured. In certain
limited circumstances, revenue is recognized using the
percentage-of-completion method as performance occurs,
or in accordance with ASC 985-605 related to software.
Sales arrangements sometimes involve delivering multiple
elements, including services such as installation. In these
instances, the revenue assigned to each element is based
on vendor-specific objective evidence, third-party evidence
or a management estimate of the relative selling price.
Revenue is recognized individually for delivered elements
only if they have value to the customer on a stand-alone
basis and the performance of the undelivered items is
probable and substantially in the Company’s control, or the
undelivered elements are inconsequential or perfunctory
and there are no unsatisfied contingencies related to
payment. Management believes that all relevant criteria
and conditions are considered when recognizing revenue.
INVENTORIES
Inventories are stated at the lower of cost or market. The
majority of inventory values are based on standard costs,
which approximate average costs, while the remainder are
principally valued on a first-in, first-out basis. Cost standards
are revised at the beginning of each year. The annual effect
of resetting standards plus any operating variances incurred
DEBT AS A PERCENT OF CAPITAL AND
NET DEBT AS A PERCENT OF NET CAPITAL
08
34.8% 34.1% 33.3% 34.0% 34.8%
25.7%
18.3%
09 13121110
35%
TOTAL DEBT OF
TOTAL CAPITAL AT
YEAR-END 2013