Emerson 2008 Annual Report Download - page 41

[ 34 ] Emerson 2008
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended September 30 | Dollars in millions, except per share amounts


The consolidated nancial statements include the accounts of the Company and its controlled afliates. Intercompany
transactions, prots and balances are eliminated in consolidation. Other investments of 20 percent to 50 percent are
accounted for by the equity method. Investments in nonpublicly-traded companies of less than 20 percent are carried
at cost. Investments in publicly-traded companies of less than 20 percent are carried at fair value, with changes in fair
value reected in accumulated other comprehensive income.

The functional currency of a vast majority of the Company’s non-U.S. subsidiaries is the local currency. Adjustments
resulting from the translation of nancial statements are reected in accumulated other comprehensive income.

Cash equivalents consist of highly liquid investments with original maturities of three months or less.

Inventories are stated at the lower of cost or market. The majority of inventory values are based upon standard 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 operating variances incurred
during each period are allocated between inventories and cost of sales.

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. Service lives for principal assets are 30 to 40 years
for buildings and 8 to 12 years for machinery and equipment. Long-lived assets are reviewed for impairment whenever
events or changes in business circumstances indicate the carrying value of the assets may not be recoverable. Impair-
ment losses are recognized based on fair value if expected future undiscounted cash ows of the related assets are less
than their carrying values.

Assets and liabilities acquired in business combinations are accounted for using the purchase 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 dened in Statement of Financial Accounting Standards No. 131, “Disclo-
sures about Segments of an Enterprise and Related Information,” or a business one level below an operating segment
if discrete nancial information is prepared and regularly reviewed by the segment manager. The Company conducts
a formal impairment test of goodwill on an annual basis and between annual tests if an event occurs or circumstances
change that would more likely than not reduce the fair value of a reporting unit below its carrying value. Under the
impairment test, if a reporting unit’s carrying amount exceeds its estimated fair value, a goodwill impairment is recog-
nized to the extent that the reporting unit’s carrying amount of goodwill exceeds the implied fair value of the goodwill.
Fair values of reporting units are estimated using discounted cash ows and market multiples.
All of the Company’s intangible assets (other than goodwill) are subject to amortization. Intangibles consist of intel-
lectual property (such as patents and trademarks), customer relationships and capitalized software and are amortized
on a straight-line basis. These intangibles are also subject to evaluation for potential impairment if an event occurs or
circumstances change that indicate the carrying amount may not be recoverable.

The Company’s product warranties vary by each of its product lines and are competitive for the markets in which it
operates. Warranty generally extends 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 xed amount per
unit sold based on failure rates, adjusted for specic problems that may arise. Product warranty expense is less than
1 percent of sales.

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 installation. In such instances, revenue assigned to each item is based on that item’s objec-