Emerson 2008 Annual Report Download - page 33

[ 26 ] Emerson 2008

Total debt was 33 percent of total capital and net debt was
23 percent of net capital at year-end 2008.

At September 30, 2008, the Company’s contractual
obligations, including estimated payments due by period,
are as follows:
 p A y m e n t s d u e b y p e R i o d
 l e s s t h A n  m o R e t h A n 
(d o l l A R s inm i l l i o n s ) t o t A l 1y e A R 1-3y e A R s 3-5y e A R s 5y e A R s 
Long-term Debt
(including interest) $5,024 654 941 990 2,439
Operating Leases 649 194 231 108 116
Purchase Obligations 1,616 1,185 313 114 4
Total $7,289 2,033 1,485 1,212 2,559
Purchase obligations consist primarily of inventory
purchases made in the normal course of business to
meet operational requirements. The above table does
not include $2.1 billion of other noncurrent liabilities
recorded in the balance sheet, as summarized in Note 17,
which consist primarily of deferred income tax (including
unrecognized tax benets) and retirement and postretire-
ment plan liabilities, because it is not certain when these
liabilities will become due. See Notes 10, 11 and 13 for
additional information.

The Company is exposed to market risk related to
changes in interest rates, copper and other commodity
prices and European and other foreign currency exchange
rates, and selectively uses derivative nancial instru-
ments, 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 nancial instruments
is subject to change as a result of movements in market
rates and prices. Sensitivity analysis is one technique used
to evaluate these impacts. Based on a hypothetical ten-
percent increase in interest rates, ten-percent decrease in
commodity prices or ten-percent weakening in the U.S.
dollar across all currencies, the potential losses in future
earnings, fair value and cash ows are immaterial. This
method has limitations; for example, a weaker U.S. dollar
would benet future earnings through favorable transla-
tion of non-U.S. operating results and lower commodity
prices would benet future earnings through lower cost
of sales. See Notes 1, 7, 8 and 9.

Preparation of the Company’s nancial statements
requires management to make judgments, assump-
tions and estimates regarding uncertainties that affect
the reported amounts of assets, liabilities, stockholders’
equity, revenues and expenses. Note 1 of the Notes
to Consolidated Financial Statements describes the
signicant accounting policies used in preparation of the
Consolidated Financial Statements. The most signicant
areas involving management judgments and estimates
are described in the following paragraphs. Actual results
in these areas could differ materially from management’s
estimates under different assumptions or conditions.

The Company recognizes nearly all of its revenues
through the sale of manufactured products and records
the sale when products are shipped and title passes to the
customer and collection is reasonably assured. In certain
instances, revenue is recognized on the percentage-of-
completion method, when services are rendered, or in
accordance with AICPA Statement of Position No. 97-2,
“Software Revenue Recognition.” Sales sometimes
include multiple items including services such as instal-
lation. In such instances, revenue assigned to each item
is based on that item’s objectively determined fair value,
and revenue is recognized individually for delivered
items only if the delivered items have value to the
customer on a standalone basis and performance of the
undelivered items is probable and substantially in the
Company’s control, or the undelivered items are
inconsequential or perfunctory. Management believes
that all relevant criteria and conditions are considered
when recognizing sales.
          
Inventories are stated at the lower of cost or market.
The majority of inventory values are based upon stan-
dard costs that approximate average costs, while the
remainder are principally valued on a rst-in, rst-out
basis. Standard costs are revised at the beginning of each
scal year. The effects of resetting standards and oper-
ating variances incurred during each period are allocated
between inventories and cost of sales. The Company’s
divisions regularly review inventory for obsolescence,
2003 2008
40%
30%
20%
10%
0%