Emerson 2005 Annual Report Download - page 51

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E M E R S O N 2 0 0 5 3 9
The change in goodwill by business segment follows:
Process Industrial Network Climate Appliance
Management Automation Power Technologies and Tools Total
Balance, September 30, 2003 $1,603 836 1,543 378 582 4,942
Acquisitions 14 210 224
Impairment (3) (3)
Foreign currency translation and other 24 44 17 2 9 96
Balance, September 30, 2004 $1,638 880 1,770 380 591 5,259
Acquisitions 67 121 15 33 236
Foreign currency translation and other (6) (4) (5) (1) (16)
Balance, September 30, 2005 $1,699 997 1,780 380 623 5,479
(7) FINANCIAL INSTRUMENTS
The Company selectively uses derivative financial instruments to manage interest costs, commodity prices and currency exchange risk. The
Company does not hold derivatives for trading purposes. No credit loss is anticipated as the counterparties to these agreements are major
financial institutions with high credit ratings.
To efficiently manage interest costs, the Company utilizes interest rate swaps as cash flow hedges of variable rate debt or fair value hedges
of fixed rate debt. Also as part of its hedging strategy, the Company utilizes purchased option and forward exchange contracts and
commodity swaps as cash flow hedges to minimize the impact of currency and commodity price fluctuations on transactions, cash flows
and firm commitments. Substantially all of the contracts for the sale or purchase of European and other currencies and the purchase of
copper and other commodities mature within two years.
Notional transaction amounts and fair values for the Company’s outstanding derivatives, by risk category and instrument type, as of
September 30, 2004 and 2005, are summarized as follows. Fair values of the derivatives do not consider the offsetting underlying
hedged item.
2004 2005
Notional Fair Notional Fair
Amount Value Amount Value
Foreign currency:
Forwards $1,033 13 1,202 18
Options $ 22 — 81 6
Interest rate swaps $ 853 (7) 114 (7)
Commodity contracts $ 130 18 190 32
Fair values of the Company’s financial instruments are estimated by reference to quoted prices from market sources and financial
institutions, as well as other valuation techniques. The estimated fair value of long-term debt (including current maturities) exceeded the
related carrying value by $119 and $223 at September 30, 2005 and 2004, respectively. The estimated fair value of each of the Company’s
other classes of financial instruments approximated the related carrying value at September 30, 2005 and 2004.
(8) SHORT-TERM BORROWINGS AND LINES OF CREDIT
Short-term borrowings and current maturities of long-term debt are summarized as follows:
2004 2005
Current maturities of long-term debt $622 259
Commercial paper 118 114
Payable to banks 24 496
Other 138 101
Total $902 970
Weighted-average short-term borrowing interest rate at year end 2.4% 4.0%