NOTE 8: RESTRUCTURING AND RATIONALIZATION LIABILITIES

The Company recognizes the need to continually rationalize its workforce and streamline its operations in the face of ongoing business and economic changes. Charges for restructuring and ongoing rationalization initiatives are recorded in the period in which the Company commits to a formalized restructuring or ongoing rationalization plan, or executes the specific actions contemplated by the plans and all criteria for liability recognition under the applicable accounting guidance have been met.

Restructuring and Ongoing Rationalization Reserve Activity

The activity in the accrued balances and the non-cash charges and credits incurred in relation to restructuring initiatives and ongoing rationalization activities for the three and six months ended June 30, 2011 were as follows:

							Long-lived Asset
				Exit			Impairments and
	Severance			Costs			Inventory			Accelerated
(in millions)	Reserve			Reserve			Write-downs			Depreciation			Total

Balance as of December 31, 2010	$	22		$	20		$	-		$	-			42

Q1 2011 charges		30			2			1			2			35
Q1 2011 utilization/cash payments		(14	)		(3	)		(1	)		(2	)		(20	)
Q1 2011 other adjustments & reclasses (1)		(11	)		1			-			-			(10	)
Balance as of March 31, 2011		27			20			-			-			47

Q2 2011 charges		22			7			1			6			36
Q2 2011 utilization/cash payments		(17	)		(2	)		(1	)		(6	)		(26	)
Q2 2011 other adjustments & reclasses (2)		(5	)		-			-			-			(5	)
Balance as of June 30, 2011	$	27		$	25		$	-		$	-		$	52

(1)

The $(10) million includes $(12) million for severance-related charges for pension plan curtailments, settlements, and special termination benefits, which are reflected in Pension and other postretirement liabilities and Other long-term assets in the Consolidated Statement of Financial Position. The remaining $2 million reflects foreign currency translation adjustments.

(2)

The $(5) million includes $(6) million for severance-related charges for pension plan curtailments, settlements, and special termination benefits, which are reflected in Pension and other postretirement liabilities and Other long-term assets in the Consolidated Statement of Financial Position. The remaining $1 million reflects foreign currency translation adjustments.

For the three months ended June 30, 2011, the $36 million of charges include $6 million of charges for accelerated depreciation and $1 million of charges for inventory write-downs, which were reported in Cost of sales in the accompanying Consolidated Statement of Operations. The remaining costs incurred of $29 million were reported as Restructuring costs, rationalization and other in the accompanying Consolidated Statement of Operations for the three months ended June 30, 2011. The severance and exit costs reserves require the outlay of cash, while long-lived asset impairments, accelerated depreciation and inventory write-downs represent non-cash items.

The second quarter 2011 severance costs related to the elimination of approximately 300 positions, including approximately 175 manufacturing/service positions, 100 administrative positions, and 25 research and development positions. The geographic composition of these positions includes approximately150 in the United States and Canada, and 150 throughout the rest of the world.

The charges of $36 million recorded in the second quarter of 2011 included $18 million applicable to FPEG, $1 million applicable to CDG, $6 million applicable to GCG, and $11 million that was applicable to manufacturing, research and development, and administrative functions, which are shared across all segments.

For the six months ended June 30, 2011, the $71 million of charges include $8 million of charges for accelerated depreciation and $1 million of charges for inventory write-downs, which were reported in Cost of sales in the accompanying Consolidated Statement of Operations. The remaining costs incurred of $62 million were reported as Restructuring costs, rationalization and other in the accompanying Consolidated Statement of Operations for the six months ended June 30, 2011. The severance and exit costs reserves require the outlay of cash, while long-lived asset impairments, accelerated depreciation and inventory write-downs represent non-cash items.

The severance costs for the six months ended June 30, 2011 related to the elimination of approximately 775 positions, including approximately 425 manufacturing/service positions, 275 administrative positions, and 75 research and development positions. The geographic composition of these positions includes approximately 500 in the United States and Canada, and 275 throughout the rest of the world.

The charges of $71 million recorded in the first half of 2011 included $29 million applicable to FPEG, $4 million applicable to CDG, $15 million applicable to GCG, and $23 million that was applicable to manufacturing, research and development, and administrative functions, which are shared across all segments.

As a result of these initiatives, severance payments will be paid during periods through the end of the second quarter of 2012 since, in some instances, the employees whose positions were eliminated can elect or are required to receive their payments over an extended period of time. In addition, certain exit costs, such as long-term lease payments, will be paid over periods throughout 2012 and beyond.