Income taxes Provisions for federal, state and foreign income taxes are calculated on reported financial statement pre-tax income based on current tax law and also include, in the current period, the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Such provisions differ from the amounts currently payable because certain items of income and expense are recognized in different time periods for financial reporting purposes than for income tax purposes.

Postretirement plans The Company sponsors various pension plans covering substantially all employees. The Company also provides postretirement benefit plans other than pensions, consisting principally of health care coverage, to eligible retirees and qualifying dependents. The liabilities and annual income or expense of the Company’s pension and other postretirement plans are determined using methodologies that involve several actuarial assumptions, the most significant of which are the discount rate, the long-term rate of asset return, and medical trend (rate of growth for medical costs). Not all net periodic pension income or expense is recognized in net earnings in the year incurred because it is allocated to production as product costs, and a portion remains in inventory at the end of a reporting period.

The Company’s funding policy for pension plans is to contribute, at a minimum, the statutorily required amount to an irrevocable trust. Benefits under the plans are generally based on age at retirement, the employee’s annual earnings indexed at the U.S. Treasury 30-year bond rate, and years of service. The actuarial cost method used in determining the net periodic pension cost is the projected unit credit method.

Cash and cash equivalents Cash and cash equivalents consist of highly liquid instruments, such as certificates of deposit, time deposits, treasury notes and other money market instruments, which generally have maturities of less than three months. The Company has adopted the “Net Bank Method” as described in Financial Accounting Standards Board (FASB) Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts, in determining the cash accruals for each month. The “Net Bank Method” nets the current cash balances by bank and totals all negative balances to determine the Company’s overdraft position. This accrual is included in accounts payable.

Long-lived assets As of January 1, 2002, the Company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Long-lived assets deemed held for sale are stated at the lower of cost or fair value. Long-lived assets held for use are subject to an impairment assessment if the carrying value is no longer recoverable based upon the undiscounted future cash flows of the asset. The amount of the impairment is the difference between the carrying amount and the fair value of the asset.

Property, plant and equipment Property, plant and equipment are recorded at cost, including applicable construction-period interest, and depreciated principally over the following estimated useful lives: new buildings and land improvements, from 20 to 45 years; and machinery and equipment, from 3 to 18 years. The principal methods of depreciation are as follows: buildings and land improvements, 150% declining balance; and machinery and equipment, sum-of-the-years’ digits. The Company periodically evaluates the appropriateness of remaining depreciable lives assigned to long-lived assets subject to a management plan for disposition.

Investments Investments are classified as ‘Other assets’ on the Consolidated Statements of Financial Position. The Company classifies investments as either operating or non-operating. Operating investments are strategic in nature, which means they are integral components of the Company’s operations. Nonoperating investments are those the Company holds for nonstrategic purposes. Earnings from operating investments, including the Company’s share of income or loss from certain equity method investments, income from cost method investments, impairment charges on investments, and any gain/loss on the disposition of investments, are recorded in ‘Income/(loss) from operating investments, net.’ Earnings from non-operating investments are included in ‘Other income/(expense), net’ on the Consolidated Statements of Operations.

Certain investments are accounted for under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. Available-for-sale securities are recorded at their fair values and unrealized gains and losses are reported as part of ‘Accumulated other comprehensive income’ on the Consolidated Statements of Financial Position. Held-to-maturity securities include enhanced equipment trust certificates and debentures for which the Company has the positive intent and ability to hold to maturity. Held-to-maturity securities are reported at amortized cost. Debt and equity securities are continually assessed for impairment. Other than temporary losses on operating investments are recorded in ‘Income/(loss) from operating investments, net’ and other than temporary losses on non-operating investments are recorded in ‘Other income/(expense), net.’

Goodwill and acquired intangibles As of January 1, 2002, upon the adoption of SFAS No. 142, Goodwill and Other Intangible Assets, goodwill, which now includes assembled workforce, and indefinite-lived intangible assets are no longer amortized. Prior to the adoption of SFAS No. 142, goodwill was amortized on a straight-line method over 20 to 30 years. Assembled workforce was amortized on a straight-line method over 5 to 15 years. The Company’s indefinite-lived intangible asset, a tradename, was amortized on a straight-line method over 20 years.

The Company’s finite-lived acquired intangible assets are amortized on a straight-line method and include the following: developed technology, 5 to 15 years; product know-how, 30 years; customer base, 10 to 15 years; and data repositories, 10 to 20 years.

Derivatives The Company accounts for derivatives pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. All derivative instruments are recognized in the financial statements and measured at fair value regardless of the purpose or intent for holding them. Changes in the fair value of derivative instruments are either recognized periodically in income or shareholders’ equity (as a component of accumulated other comprehensive income), depending on their use and designation.