Emerson 2004 Annual Report Download - page 42

40 Emerson 2004
During 2004, rationalization of operations primarily related to the exit of approximately 20 production, distribution or office facilities
including the elimination of more than 2,000 positions, as well as costs related to facilities exited in previous periods. Noteworthy
rationalization actions during 2004 are as follows. Process Management segment includes severance and plant closure costs related to
the closing of a valve plant due to consolidating operations within North America in response to weak market demand, severance costs
related to the consolidation of European measurement operations in order to obtain operational synergies, and several other reduction and
consolidation actions. Network Power segment includes 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. Climate Technologies segment includes severance costs related to workforce reductions in
the European temperature sensors and controls operations due to weakness in market demand. Appliance and Tools segment includes
severance and start-up and moving costs related to shifting certain motor manufacturing primarily from the United States to Mexico and
China in order to consolidate facilities and improve profitability, and severance related to consolidating manufacturing operations in the
professional tools business for operational efficiency. The Company expects rationalization expense for 2005 to be comparable to 2004
(approximately $130), including the costs to complete actions initiated before the end of 2004 and actions anticipated to be approved and
initiated during 2005.
Rationalization actions, including the following, were implemented during 2003 to expand in global markets and to increase overall
profitability by obtaining synergies and increasing operational efficiency. Process Management segment includes plant closure and
severance costs related to several reduction and consolidation actions primarily in North America and Europe. Network Power segment
includes severance costs related to European power systems operations. Appliance and Tools segment includes plant closure and start-up
and moving costs related to relocating certain industrial motor manufacturing primarily from the United States to Mexico and China and
fixed asset writedowns related to consolidating manufacturing operations in the jobsite and truck storage business.
Rationalization actions implemented during 2002 to increase overall profitability by obtaining synergies and increasing operational
efficiency include the following. Industrial Automation segment includes severance, vacant facility costs and start-up and moving costs
related to relocating certain EGS Electrical Group manufacturing primarily from the United States to Mexico, and severance and start-up
and moving costs related to consolidating operations in the power transmission business. Network Power segment includes severance
related to North American power systems operations and the European uninterruptible power supply business. Appliance and Tools
segment includes severance, start-up and moving costs and fixed asset writedowns related to consolidating motor manufacturing
operations and relocating commercial storage operations within North America.
(6) GOODWILL
Effective October 1, 2001, Emerson adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible
Assets.” The statement requires, among other things, the discontinuation of goodwill amortization for business combinations before
July 1, 2001, assignment of goodwill to reporting units, and completion of a transitional goodwill impairment test. Substantially all goodwill
was assigned to the reporting unit that acquired the business. Under the impairment test, if a reporting unit’s carrying amount exceeds its
estimated fair value, a goodwill impairment is recognized to the extent that the reporting unit’s carrying amount of goodwill exceeds the
implied fair value of the goodwill. Fair value of reporting units were estimated using discounted cash flows and market multiples.
Emerson completed the transitional impairment test and recorded a non-cash, after-tax charge of $938 (net of $17 tax benefit), as a
cumulative effect of a change in accounting principle in 2002. The primary factors resulting in the impairment charge were the change in
the goodwill impairment criteria from an undiscounted to a discounted cash flow method and the sharp decline in the telecommunication
and computing equipment markets. The after-tax charge by segment was Network Power $831, Industrial Automation $59, and Process
Management $48.
The change in goodwill by business segment follows:
Process Industrial Network Climate Appliance
Management Automation Power Technologies and Tools Total
Balance, September 30, 2002 $1,591 788 1,590 377 564 4,910
Acquisitions 1 1
Dispositions (24) (46) (70)
Impairment (54) (54)
Foreign exchange and other 36 48 53 1 17 155
Balance, September 30, 2003 $1,603 836 1,543 378 582 4,942
Acquisitions 14 210 224
Impairment (3) (3)
Foreign exchange and other 24 44 17 2 9 96
Balance, September 30, 2004 $1,638 880 1,770 380 591 5,259