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Tim Chen May 8, 2007

EMC Motor Lamination. Tim Chen May 8, 2007. Agenda. Spend Overview Outsourcing Objective and Industry Analysis EMC Lam Program Review and Outlook Tempel Overview Global Sourcing Paragould Washer and Dryer ECMC Lam Updates. Spend Overview. EMC Global Lamination Overview.

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Tim Chen May 8, 2007

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  1. EMC Motor Lamination Tim Chen May 8, 2007

  2. Agenda • Spend Overview • Outsourcing Objective and Industry Analysis • EMC Lam Program Review and Outlook • Tempel Overview • Global Sourcing • Paragould Washer and Dryer • ECMC Lam Updates Spend Overview

  3. EMC Global Lamination Overview IHP Business and Asia Operations are Primarily Outsourced

  4. EMC Lamination Global SpendBy Divisions

  5. EMC Lamination Global Spend Region by suppliers

  6. EMC Lamination Global SpendDemand & Supply Europe $29.2 m Asia $15.3m NA ( US, MX) $25.6m Demand Supply Local demand and sourcing are well balanced!

  7. Agenda • Spend Overview • Outsourcing Objective and Industry Analysis • EMC Lam Program Review and Outlook • Tempel Overview • Global Sourcing • Paragould Washer and Dryer LAM Outsourcing • ECMC Lam Updates Outsourcing Objective and Industry analysis

  8. Lam Outsourcing Business Objective • Strategic Objectives • Reduce Capital Structure of the Motor Business • Increase ROTC and Improve Business Flexibility • Focus on Emerson Motor Business Core Competency • Improve/Maintain Our Competitive Cost Position • Tactical Objectives • Facilitate Plant Rationalization Plan • Avoid Capital Cost for Capacity Expansion • Reduce Working Capital • Ideally OP Neutral or Better ROTC, Flexibility and Facilitate Plant Rationalization Were the Drivers !

  9. Lamination Industry 5 Forces Analysis

  10. Key Supplier AnalysisTempel Overview

  11. Key Supplier AnalysisEurotransiatura Overview

  12. Key Supplier AnalysisCHUNYUAN Overview

  13. Agenda • Spend Overview • Outsourcing Objective and Industry Analysis • EMC Lam Program Review and Outlook • Tempel Overview • Global Sourcing • Paragould Washer and Dryer Lam Outsourcing • ECMC Lam Updates Tempel Overview

  14. Progressive Lams 140 Frame thru 360 (6.3” to 15”) Motores/Mena Notching 180 Frame thru 440 Motores (Up to 17”) /Mena (to 15”) Notching Motores/ 18.5”+ (FP - SP) Progressive .Lams 3.7 and 6.1 MMM/KEN/HAWK Annual Steel Req.(tons) S85/S29 –11,000 (CR) G10 – 5,500 (SP) Annual Steel Req. G29 (S85) – 830 (CR) G10 (M47) –1,650(SP) Annual Steel Req. G10 (M47) –800 (SP) Annual Steel Req. S85 /S29 – 7,700 (CR) 178 p/n#’s ~160 p/n#’s ~106 p/n#’s 36 p/n#’s Annual Spend $14.2mm Annual Spend $4.2mm Annual Spend $1.94mm Annual Spend $3.0mm EMC Spend OverviewTempel / CIM Supply Process Map IHP FHP Old Philadelphia Business Old Sturgeon Bay Business

  15. EMC Spend OverviewTempel / CIM Supply Process Map

  16. Tempel Current Major Commercial Terms CRU Indexed Monthly Surcharge Mechanism • CRML • 75% CRU LA Slab + 25% CRU MW • Start Points is $87/ Ton • CRNO • 15% of AK Monthly Published Surcharge • SCRAP • Use ELAM Actual Scrap Revenue to calculate Scrap Credit • Houston AMM + $27 Adder • Part Number Base Pricing Down $55/ Ton • $55 / Net Weight Ton price down across the board on CRML lamination • This equals to 3% down on total lamination acquisition cost

  17. Tempel MPA Mechanism Tempel Surcharge (MPA) Tied to a Quarterly CRU / Slab Weighted Average Index Mechanism

  18. Tempel ’07 MPA and YoY inflation 07 Inflation: $270k

  19. Tempel Spend Analysis – CRML * 350 *Monterrey Actual Scrap Price

  20. Agenda • Spend Overview • Outsourcing Objective and Industry Analysis • EMC Lam Program Review and Outlook • Tempel Overview • Global Sourcing • Paragould Washer and Dryer LAM Outsourcing • ECMC / Asia Lam Updates Global Sourcing

  21. Asia Lam Sourcing Project Schedule • 08/05/06 Sourcing Strategy Formation • 09/15/06 Supplier Interest Identification and Order Sample • 10/15/06 Identified Target Business for Outsourcing • 11/30/06 Samples Received • 12/15/06 Sample Inspection – Rust Concern Addressed • 12/20/06 Asia vs. NA Steel Specs Evaluation • 1/24/06 Quoate on 180 and 210 Frame • 2/20/06Preliminary Cost Comparison • 3/15/07 ROTC Evaluation • 4/20/07 Global RA Event Preparation • 5/10/07 Global Bidding Event • 5/30/07 Bid Award • 6/30/07 Tempel ‘08 Overall Pricing Negotiation

  22. Asia Lam Sourcing Project Team • Project Objectives • Mitigate Risk • Leverage Tempel • Develop Asia Supplier Base • Global Steel Price Arbitrage

  23. Asia Lam Sourcing Economics Analysis Cost Comparison Sensitivity Analysis Global Steel Price Unfav Change & China VAT Rebate Deduction Discount the Project Value

  24. Global Lam Sourcing Event • $2.5 mm Business • EMC Provide Steel • Conversion Cost • 3 Dies • High Vol. • Loose Lam, No • Interlock Reqd Global Bid to Tension Tempel to Provide Material Transparency and Lower Conversion Cost

  25. Major Action Items Going into FY’08 140, 180, and 210 Frame Global RA event award – May to June • Material transparency; Processing Only • Lower Conversion Cost • ELAM Pull Back??? ’08 Overall Pricing Review / Negotiation – May to July • Bidding Result Will Influence the Pricing Negotiations • Base Price Reduction • Transparency on Material Cost; • Straightforward Indexed Mechanism 17” Notching Move Back to Mena – Start from Oct. 1st • Transition Plan between TDM and Mena • In Bound Supply Chain from Mena to Motores

  26. Agenda • Spend Overview • Outsourcing Objective and Industry Analysis • EMC Lam Program Review and Outlook • Tempel Overview • Global Sourcing • Paragould Washer and Dryer • ECMC Lam Updates Paragould Washer and Dryer

  27. Paragould Washer and Dryer Project • Euro: • High Pricing Expectation • 5 Yrs ROI timeline • Tempel: • No Material Transparency • High Price • Orchid: • Aggressively Pursue the • Business Opportunity • Lowest Quote Price • Weak Track Record • Financial & Management Issue • Planning RA Events? Make/Buy Decision to be Made on Supplier Comprehensive Evaluation

  28. Agenda • Spend Overview • Outsourcing Objective and Industry Analysis • EMC Lam Program Review and Outlook • Tempel Overview • Global Sourcing • Paragould Washer and Dryer • ECMC Lam Updates ECMC / Asia Lam Updates

  29. Asia ‘07 Lam Strategy and Issues -- Lamination Steels (FP / SP CR) • Align ECMC requirement with Anshan FP • Develop Tier 2 Chinese cold mills for SP,( Yi Chang; Maashan ) • Approve Sources and Grades From Tier 2 Suppliers • CHUNYUAN’ New Facility in Huangtao bring 50K Tons of Capacity on line • ECMC Lamination transition plan ( From Shanghai to Huangdao) • Keep ChunYuan engaged on NA lam outsourcing opportunities

  30. Key Message • Continue to monitor ’07 inflation plan amid a softening NA CRU forecast • Develop Global Alternatives Supplier Base to • Tackle Tempel’s relative high conversion cost • Provide Readily Supplying base for Pending Paragould Outsourcing • Qualify Asian Still Supplier for CRNGO to reduce the total acquisition cost of Laminations and increase the flexibility

  31. Backup

  32. Lam Outsourcing Program Review - Motores • The 17" and below piece was at a -12% savings. • Savings generated from the upgrade in process (Tempel progressive and Schuler vs. Motores manual notch). • The 18.5+ piece was at a 30% higher than Motores (no progressive upgrade). • Combined the package was at a +0.5% increase to Motores (not included tooling amortization costs); • Needing the floor space and wanting to divest of the notching, decision was made to outsource. Outsourcing Decision were justified by OP Neutral and Focus on Core Competency

  33. Lam Outsourcing Program Example - Mena

  34. Lam Outsourcing Program Example - Mena • Tempel's "should be" cost is relatively close to Mena's internal cost, assuming the same steel pricing from mills; • Tempel's current quote on both 17" and 18 1/2" semi-process are approximately 35% higher than Mena Internal Cost • 18.5" FP lam could not be economically justified for outsourcing if not being replaced by SP and/or progressive process; Tempel’s quote is 67% higher than Mena’s internal cost • Process Upgrade (Notching to Progressive ) would be the key for Tempel to provide a better quote and justify the business opportunities Process Upgrade and/or FP/SP material conversion are the Key !!

  35. Outsourcing Program Review – Motores vs. Mena • Motores’ notching was all manual V & O’s. Mena had more high speed equipment: Twin Cell Schuler. • Mena’s make v.s buy was at a greater delta than 30%. • Mena’s cost / operational efficiency improved since then ( Schuler rebuild, 2 new posi-tecs) • Revisiting Motores’ requirement at Mena’s current cost, the Delta is more than 30% • Mena is comfortable to take extra 10-15%; 525 Ton, Take top 10 PNs

  36. ’05 vs. 06 Yr over Yr Saving Summary 06 Savings: $1.5M

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