Emerson 2014 Annual Report Download - page 30

2014 Emerson > 26
CONTRACTUAL OBLIGATIONS
At September 30, 2014, the Company’s contractual
obligations, including estimated payments, are as follows:
AMOUNTS DUE BY PERIOD
LESS MORE
THAN 1-3 3-5 THAN
(DOLLARS IN MILLIONS) TOTAL 1 YEAR YEARS YEARS 5 YEARS
Long-term Debt
(including Interest) $5,670 700 859 1,138 2,973
Operating Leases 895 270 324 134 167
Purchase Obligations 1,107 996 86 20 5
Total $7,672 1,966 1,269 1,292 3,145
Purchase obligations consist primarily of inventory
purchases made in the normal course of business to
meet operational requirements. The table above does
not include $2.0 billion of other noncurrent liabilities
recorded in the balance sheet and summarized in
Note 18, 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 revenue 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 performance related to 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 during each
14
13
12
11
10
DEBT AS A PERCENT
OF CAPITAL
34.1% 33.3% 34.8%
34.0%
37.3%
26.2%
22.1%
TOTAL DEBT
NET DEBT