Emerson 2013 Annual Report Download - page 39

Emerson > 2013 Annual Report 37
PROPERTY, PLANT AND EQUIPMENT
The Company records investments in land, buildings, and machinery and equipment at cost. Depreciation is computed
principally using the straight-line method over estimated service lives, which for principal assets are 30 to 40 years for
buildings and 8 to 12 years for machinery and equipment. Long-lived tangible assets are reviewed for impairment whenever
events or changes in business circumstances indicate the carrying value of the assets may not be recoverable. Impairment
losses are recognized based on estimated fair values if the sum of expected future undiscounted cash flows of the related
assets is less than their carrying values. The components of property, plant and equipment as of September 30 follow:
2012 2013
Land $ 268 278
Buildings 2,103 1,965
Machinery and equipment 6,193 6,440
Construction in progress 370 409
Property, plant and equipment, at cost 8,934 9,092
Less: Accumulated depreciation 5,425 5,487
Property, plant and equipment, net $3,509 3,605
GOODWILL AND OTHER INTANGIBLE ASSETS
Assets and liabilities acquired in business combinations are accounted for using the acquisition method and recorded at
their respective fair values. Substantially all goodwill is assigned to the reporting unit that acquires a business. A reporting
unit is an operating segment as defined in ASC 280, Segment Reporting, or a business one level below an operating segment
if discrete financial information for that business unit is prepared and regularly reviewed by the segment manager. The
Company conducts annual impairment tests of goodwill in the fourth quarter. If an initial assessment indicates it is more
likely than not goodwill might be impaired, it is evaluated by comparing the reporting unit’s estimated fair value to its
carrying value. Goodwill is also tested for impairment between annual tests if events or circumstances indicate the fair
value of a unit may be less than its carrying value. If the carrying amount exceeds the estimated fair value, impairment is
recognized to the extent that recorded goodwill exceeds the implied fair value of that goodwill. Estimated fair values of
reporting units are Level 3 measures and are developed primarily under an income approach that discounts estimated
future cash flows using risk-adjusted interest rates.
All of the Company’s identifiable intangible assets are subject to amortization on a straight-line basis over their estimated
useful lives. Identifiable intangibles consist of intellectual property such as patents and trademarks, customer relationships
and capitalized software. Identifiable intangibles are also subject to evaluation for potential impairment if events or
circumstances indicate the carrying amount may not be recoverable. See Note 6.
PRODUCT WARRANTY
Warranties vary by product line and are competitive for the markets in which the Company operates. Warranties generally
extend for a period of one to two years from the date of sale or installation. Provisions for warranty are determined
primarily based on historical warranty cost as a percentage of sales or a fixed amount per unit sold based on failure rates,
adjusted for specific problems that may arise. Product warranty expense is less than one percent of sales.
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. Management believes that all relevant criteria and conditions are
considered when recognizing revenue.
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. Approximately ten percent of the Company’s revenues arise from
qualifying sales arrangements that include the delivery of multiple elements, principally in the Network Power and Process
Management segments. The vast majority of these deliverables are tangible products, with a small portion attributable
to installation, service or maintenance. Generally, contract duration is short-term and cancellation, termination or refund
provisions apply only in the event of contract breach, and have historically not been invoked.