Emerson 2006 Annual Report Download - page 46

Notes to Consolidated Financial Statements
    2004 expense paid/utilized 2005
Severance and benefits $23 50 51 22
Lease/contract terminations 18 12 19 11
Fixed asset writedowns – 3 3 –
Vacant facility and other shutdown costs 3 13 16 –
Start-up and moving costs 2 32 34 –
$46 110 123 33
Rationalization of operations by segment is summarized as follows:
     2004  2005 2006
Process Management $ 31 20 14
Industrial Automation 14 15 12
Network Power 26 35 19
Climate Technologies 17 15 14
Appliance and Tools 47 24 25
Corporate (6) 1 –
Total $129 110 84
Rationalization of operations comprises expenses associated with the Company’s efforts to continuously improve operational ef-
ciency and to expand globally in order to remain competitive on a worldwide basis. These expenses result from numerous individual
actions implemented across the divisions on a routine basis and are not part of a large, company-wide program. Rationalization
of operations includes ongoing costs for moving facilities, starting up plants from relocation as well as business expansion, exiting
product lines, curtailing/downsizing operations due to changing economic conditions and other one-time items resulting from asset
redeployment decisions. Shutdown costs include severance, benets, stay bonuses, lease/contract terminations and asset write-
downs. Start-up and moving costs include employee training and relocation, movement of assets and other items. Vacant facility
costs include security, maintenance and utility costs associated with facilities that are no longer being utilized.
During 2006, rationalization of operations primarily related to the exit of approximately 10 production, distribution, or ofce facilities,
including the elimination of approximately 1,700 positions, as well as costs related to facilities exited in previous periods. Noteworthy
rationalization actions during 2006 are as follows. Process Management includes severance related to the shifting of certain regulator
production from Western Europe to Eastern Europe. Industrial Automation includes start-up and moving costs related to shifting
certain motor production in Western Europe to Eastern Europe, China and Mexico to leverage costs and remain competitive on a
global basis. Network Power includes severance related to the closure of certain power conversion facilities acquired with Artesyn,
severance, start-up and vacant facility costs related to the consolidation of certain power systems operations in North America and the
consolidation of administrative operations in Europe to obtain operational synergies. Climate Technologies includes severance related
to the movement of temperature sensors and controls production from Western Europe to China and start-up and moving costs
related to a new plant in Eastern Europe in order to improve protability. Appliance and Tools includes primarily severance and start-
up and moving costs related to the shifting of certain tool and motor manufacturing operations from the United States and Western
Europe to China and Mexico in order to consolidate facilities and improve protability. The Company expects rationalization expense
for 2007 to be approximately $100, including the costs to complete actions initiated before the end of 2006 and actions anticipated
to be approved and initiated during 2007.
During 2005, rationalization of operations primarily related to the exit of approximately 25 production, distribution, or ofce facilities,
including the elimination of approximately 2,100 positions, as well as costs related to facilities exited in previous periods. Noteworthy
rationalization actions during 2005 are as follows. Process Management included severance and plant closure costs related to consoli-
dation of instrumentation plants within Europe and consolidation of valve operations within North America, the movement of major
distribution facilities to Asia, as well as several other cost reduction actions. Network Power included severance and lease termination
costs related to certain power systems operations in Western Europe shifting to China and Eastern Europe in order to leverage product
platforms and lower production and engineering costs to remain competitive on a global basis. This segment also included severance
and start-up and moving costs related to the consolidation of North American power systems operations into the Marconi operations
acquired in 2004. Appliance and Tools included severance, plant closure costs and start-up and moving costs related to consolidating