Emerson 2015 Annual Report Download - page 30

28 | 2015 Annual Report
The total debt-to-capital ratio and the net debt-to-net
capital ratio (less cash and short-term investments)
increased primarily due to higher total debt from
the issuance of long-term debt and lower common
stockholders’ equity. The operating cash flow-to-debt
ratio decreased in 2015 on higher total debt and lower
operating cash flow. The interest coverage ratio is
computed as earnings before income taxes plus interest
expense, divided by interest expense. The increases in
interest coverage in 2015 and 2014 reflect higher pretax
earnings (including divestiture gains of $1,039 million in
2015) and lower interest expense in both years.
TOTAL DEBT AND NET DEBT AS A
PERCENT OF CAPITAL
131211 1514
33.3% 34.0% 37.3%
34.8%
23.2%
31.3%
TOTAL DEBT
NET DEBT
45.8%
In April 2014, the Company entered into a $3.5 billion
five-year revolving backup credit facility with various
banks, which replaced the December 2010 $2.75 billion
facility. The credit facility is maintained to support
general corporate purposes, including commercial
paper borrowing. The Company has not incurred any
borrowings under this or previous facilities. The credit
facility contains no financial covenants and is not subject
to termination based on a change of credit rating or
material adverse changes. The facility is unsecured
and may be accessed under various interest rate and
currency denomination alternatives at the Company’s
option. Fees to maintain the facility are immaterial. The
Company also maintains a universal shelf registration
statement on file with the SEC under which it can
issue debt securities, preferred stock, common stock,
warrants, share purchase contracts or share purchase
units without a predetermined limit. Securities can be
sold in one or more separate offerings with the size,
price and terms to be determined at the time of sale.
Emerson’s financial structure provides the flexibility
necessary to achieve its strategic objectives. The
Company has been successful in efficiently deploying
cash where needed worldwide to fund operations,
complete acquisitions and sustain long-term growth.
At September 30, 2015, $3.0 billion of the Company’s
cash was held outside the U.S., primarily in Europe and
Asia, and was generally available for repatriation to the
U.S. Under current tax law, repatriated cash may be
subject to U.S. federal income taxes, net of available
foreign tax credits. The Company routinely repatriates a
portion of its non-U.S. cash from earnings each year, or
otherwise when it can be accomplished tax efficiently,
and provides for U.S. income taxes as appropriate. The
Company has been able to readily meet all its funding
requirements and currently believes that sufficient
funds will be available to meet the Company’s needs
in the foreseeable future through operating cash flow,
existing resources, short- and long-term debt capacity
or backup credit lines.
CONTRACTUAL OBLIGATIONS
At September 30, 2015, the Company’s contractual
obligations, including estimated payments, are as follows:
AMOUNTS DUE BY PERIOD
LESS MORE
THAN 1-3 3-5 THAN
(DOLLARS IN MILLIONS) TOTAL 1 YEAR YEARS YEARS 5 YEARS
Long-term Debt
(including Interest) $6,169 477 871 1,388 3,433
Operating Leases 855 263 304 135 153
Purchase Obligations 1,021 873 104 36 8
Total $8,045 1,613 1,279 1,559 3,594
Purchase obligations consist primarily of inventory
purchases made in the normal course of business to
meet operational requirements. The table above does
not include $1.9 billion of other noncurrent liabilities
recorded in the balance sheet and summarized in
Note 18, which consist primarily of pension and
postretirement plan liabilities and deferred income
taxes (including unrecognized tax benefits), because it
is not certain when these amounts will become due. See
Notes 10 and 11 for estimated future benefit payments
and Note 13 for additional information on deferred
income taxes.
FINANCIAL INSTRUMENTS
The Company is exposed to market risk related to
changes in interest rates, commodity prices and foreign
currency exchange rates, and selectively uses derivative
financial instruments, including forwards, swaps and
purchased options to manage these risks. The Company
does not hold derivatives for trading purposes. The
value of derivatives and other financial instruments is
subject to change as a result of market movements in
rates and prices. Sensitivity analysis is one technique
used to forecast the impact of these movements.
Based on a hypothetical 10 percent increase in interest
rates, a 10 percent decrease in commodity prices or
a 10 percent weakening in the U.S. dollar across all
currencies, the potential losses in future earnings, fair