Emerson 2012 Annual Report Download - page 38

36 | 2012 Annual Report
EMERSON ELECTRIC CO. & SUBSIDIARIES
Years ended September 30 | Dollars in millions, except per share amounts or where noted
(1) Summary of Significant Accounting Policies
FINANCIAL STATEMENT PRESENTATION
The preparation of the financial statements in conformity with U.S. generally accepted accounting principles
(U.S. GAAP) requires management to make estimates and assumptions that affect reported amounts and related
disclosures. Actual results could differ from these estimates. Certain operating results have been classified as
discontinued operations. See Note 3.
In the fourth quarter of 2012, the Company adopted updates to ASC 715, Compensation - Retirement Benefits, which
require certain disclosures for entities participating in multiemployer benefit plans. The updates did not change
current measurement and recognition guidance for multiemployer plan expense, and adoption had no impact on
the Company’s results of operations. See Note 10.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its controlled affiliates. Intercompany
transactions, profits and balances are eliminated in consolidation. Investments of 20 percent to 50 percent of the
voting shares of other entities are accounted for by the equity method. Investments in publicly-traded companies of
less than 20 percent are carried at fair value, with changes in fair value reflected in accumulated other comprehensive
income. Investments in nonpublicly traded companies of less than 20 percent are carried at cost.
FOREIGN CURRENCY TRANSLATION
The functional currency for most of the Company’s non-U.S. subsidiaries is the local currency. Adjustments
resulting from translating local currency financial statements into U.S. dollars are reflected in accumulated other
comprehensive income.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original maturities of three months or less.
INVENTORIES
Inventories are stated at the lower of cost or market. The majority of inventory is valued based on standard costs
that approximate average costs, while the remainder is principally valued on a first-in, first-out basis. Cost standards
are revised at the beginning of each fiscal year. The annual effect of resetting standards plus any operating variances
incurred during each period are allocated between inventories and cost of sales.
FAIR VALUE MEASUREMENTS
ASC 820, Fair Value Measurement, established a formal hierarchy and framework for measuring certain financial
statement items at fair value, and expanded disclosures about fair value measurements and the reliability of valuation
inputs. Under ASC 820, measurement assumes the transaction to sell an asset or transfer a liability occurs in the
principal or at least the most advantageous market for that asset or liability. Within the hierarchy, Level 1 instruments
use observable market prices for the identical item in active markets and have the most reliable valuations. Level 2
instruments are valued through broker/dealer quotation or through market-observable inputs for similar items in
active markets, including forward and spot prices, interest rates and volatilities. Level 3 instruments are valued using
inputs not observable in an active market, such as company-developed future cash flow estimates, and are considered
the least reliable. Valuations for all of Emerson’s financial instruments fall within Level 2. The Company’s long-term
debt is Level 2, with the fair value estimated using current interest rates and pricing from financial institutions and
other market sources for debt with similar maturities and characteristics. In the second quarter of 2012, Emerson
adopted updates to ASC 820 which established common fair value measurement and disclosure requirements for U.S.
GAAP and International Financial Reporting Standards. Adoption had an inconsequential impact on the Company’s
financial statements.
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 recover-
able. 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS