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36 Emerson > 2013 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 prior year amounts have been reclassified to conform with current year
presentation. See Note 3 for operating results that have been classified as discontinued operations in 2011.
Effective October 1, 2012, the Company adopted updates to ASC 220, Comprehensive Income, and now presents
comprehensive income in a separate financial statement immediately following the statement of earnings. This update
does not change the items reported in other comprehensive income or when those items should be reclassified into
earnings. Effective first quarter 2014, additional disclosures will be required for comprehensive income, including
presenting reclassifications out of accumulated other comprehensive income by income statement line item.
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. Following are the components of inventory as of
September 30:
2012 2013
Finished products $ 747 678
Raw materials and work in process 1,378 1,217
Total inventories $2,125 1,895
FAIR VALUE MEASUREMENT
ASC 820, Fair Value Measurement, establishes a formal hierarchy and framework for measuring certain financial statement
items at fair value, and requires 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 other approaches using 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 fair value of the Company’s long-term debt is Level 2,
estimated using current interest rates and pricing from financial institutions and other market sources for debt with similar
maturities and characteristics.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS