Emerson 2013 Annual Report Download - page 43

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2011 expense paid / utilized 2012
Severance and benefits $24 58 59 23
Lease and other contract terminations 3 10 8 5
Fixed asset write-downs — 9 9 —
Vacant facility and other shutdown costs 2 12 11 3
Start-up and moving costs 1 30 30 1
Total $30 119 117 32
Rationalization of operations expense by segment is summarized as follows:
2011 2012 2013
Process Management $11 19 15
Industrial Automation 32 27 27
Network Power 20 53 25
Climate Technologies 11 11 3
Commercial & Residential Solutions 7 9 8
Total $81 119 78
Expenses incurred during 2013, 2012 and 2011 include actions to exit 13, 20 and 18 production, distribution or office
facilities, and eliminate approximately 3,100, 2,700 and 2,800 positions, respectively, as well as costs related to facilities
exited in previous periods. Costs have been concentrated in Network Power and Industrial Automation recently due to end
market softness for these segments, including embedded computing and power, and acquisition integration activity in
Network Power. The majority of costs have been incurred in Europe, North America and Asia.
(6) Goodwill and Other Intangibles
Purchases of businesses are accounted for under the acquisition method, with substantially all goodwill assigned to the
reporting unit that acquires the business. Under an impairment test performed annually, if the carrying amount of a
reporting unit exceeds its estimated fair value, impairment is recognized to the extent that the carrying amount of the
unit’s goodwill exceeds the implied fair value of the goodwill. Fair values of reporting units are Level 3 measures, estimated
primarily using an income approach that discounts future cash flows using risk-adjusted interest rates, and are subject to
change due to changes in underlying economic conditions. See Note 3 for further discussion of changes in goodwill related
to acquisitions and divestitures.
The Company has faced persistent challenges in the embedded computing and power business due to protracted
weak demand, structural industry developments and increased competition. These challenges, including weakness
in telecommunication and mobile device markets, continued into 2013 and sales and earnings were both below
expectations. In the third quarter of 2013, the Company recorded a noncash goodwill impairment charge of $503
($475 after-tax, $0.65 per share). Income tax charges of $70 ($0.10 per share) for the anticipated repatriation of non-U.S.
earnings from this business were also recorded in 2013. Additionally, in the fourth quarter the Company’s goodwill
impairment testing indicated that the carrying value of the connectivity solutions business in Network Power exceeded
its fair value due to operating results not meeting forecasted expectations, resulting in a noncash, pretax charge to
earnings of $25 ($21 after-tax, $0.03 per share). Management considered strategic alternatives for embedded computing
and power, and on July 31, 2013 the Company entered into an agreement to sell a 51 percent controlling interest in this
business. See Note 3 for additional information regarding the sale.
In the fourth quarter of 2012, the Company incurred an impairment charge for the embedded computing and power
business and the DC power systems business, after goodwill impairment testing revealed that the carrying values of
these businesses exceeded the fair values. These businesses had been unable to meet operating objectives and the
Company anticipated that growth in sales and earnings would be slower than previously expected given the end market
circumstances noted previously. The carrying value of these businesses was reduced by a noncash, pretax charge to
earnings totaling $592 ($528 after-tax, $0.72 per share). In 2011, the Company recorded a $19 ($0.03 per share) pretax
impairment charge related to the Industrial Automation wind turbine pitch control business, reflecting a slowdown in
investment for renewable energy.