Emerson 2006 Annual Report Download - page 48

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Notes to Consolidated Financial Statements

The Company selectively uses derivative nancial 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 agree-
ments are major nancial institutions with high credit ratings.
To efciently manage interest costs, the Company utilizes interest rate swaps as cash ow hedges of variable rate debt or fair value
hedges of xed rate debt. Also as part of its hedging strategy, the Company utilizes purchased option and forward exchange contracts
and commodity swaps as cash ow or fair value hedges to minimize the impact of currency and commodity price uctuations on
transactions, cash ows, fair values and rm commitments. At September 30, 2006, 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; contracts
with a fair value of approximately $130 mature in 2007.
Notional transaction amounts and fair values for the Company’s outstanding derivatives, by risk category and instrument type, as of
September 30, 2006 and 2005, are summarized as follows. Fair values of the derivatives do not consider the offsetting underlying
hedged item.
  2005 2006
  notional fair notionalfair
  amount value amountvalue
Foreign currency:
Forwards $1,202 18 1,310 11
Options $ 81 6 4 –
Interest rate swaps $ 114 (7) 110 (4)
Commodity contracts $ 190 32 457 130
Fair values of the Company’s nancial instruments are estimated by reference to quoted prices from market sources and nancial
institutions, as well as other valuation techniques. The estimated fair value of long-term debt (including current maturities) exceeded
the related carrying value by $40 and $119 at September 30, 2006 and 2005, respectively. The estimated fair value of each of the
Company’s other classes of nancial instruments approximated the related carrying value at September 30, 2006 and 2005.

Short-term borrowings and current maturities of long-term debt are summarized as follows:
    2005 2006
Current maturities of long-term debt $259 2
Commercial paper 114 819
Payable to banks 496 28
Other 101 49
Total $970 898
Weighted-average short-term borrowing interest rate at year-end 4.0% 4.9%
In 2000, the Company issued 13 billion Japanese yen of commercial paper and simultaneously entered into a ten-year interest rate
swap, which xed the rate at 2.2 percent.
At year-end 2006, the Company maintained a ve-year revolving credit facility effective until April 2011 amounting to $2.8 billion to
support short-term borrowings and to assure availability of funds at prevailing interest rates. The credit facility does not contain any
nancial covenants and is not subject to termination based on a change in credit ratings or a material adverse change. There were no
borrowings against U.S. lines of credit in the last three years.