Emerson 2014 Annual Report Download - page 39

2014 Emerson > 35
financial instruments fall within Level 2. The fair value of the Company’s long-term debt is Level 2, estimated
using current interest rates and pricing from financial institutions and other market sources for debt with similar
maturities and characteristics.
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:
2013 2014
Land $ 278 275
Buildings 1,965 2,355
Machinery and equipment 6,440 6,353
Construction in progress 409 428
Property, plant and equipment, at cost 9,092 9,411
Less: Accumulated depreciation 5,487 5,609
Property, plant and equipment, net $3,605 3,802
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 generally 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
1 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.