Emerson 2005 Annual Report Download - page 50

3 8 E M E R S O N 2 0 0 5
Rationalization of operations comprises expenses associated with the Company’s efforts to continuously improve operational efficiency
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, benefits, stay bonuses, lease/contract terminations and asset writedowns. Start-up
and moving costs include employee training and relocation, moving of assets and other items. Vacant facility costs include security,
maintenance and utility costs associated with facilities that are no longer being utilized.
During 2005, rationalization of operations primarily related to the exit of approximately 25 production, distribution or office 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 segment includes severance and plant closure costs related to
consolidation 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 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. This segment also includes
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 segment includes severance, plant closure costs and start-up and moving costs related
to consolidating various industrial and hermetic motor manufacturing facilities for operational efficiency. Severance costs in this segment
also relate to shifting certain appliance control operations from the United States to Mexico and China in order to consolidate facilities and
improve profitability. The Company expects rationalization expense for 2006 to be similar to 2005 (approximately $100), including the
costs to complete actions initiated before the end of 2005 and actions anticipated to be approved and initiated during 2006.
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. Rationalization
actions during 2004 include the following. 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.
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.
(6) GOODWILL
Acquisitions are accounted for under the purchase method, with substantially all goodwill assigned to the reporting unit that acquires the
business. Under the annual 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 values of
reporting units are estimated using discounted cash flows and market multiples.