A M P H E N O L C O R P O R A T I O N 2 0 0 4 A N N U A L R E P O R T  impact of this standard but does not  believe that it will have a material impact  on the Company’s Consolidated Financial Statements.  The Company and its domestic  subsidiaries have a defined benefit  pension plan ("Plan") covering substantially all U.S. employees. Plan  benefits are generally based on years of  service and compensation and are generally noncontributory. Certain foreign subsidiaries also have defined  benefit plans covering their employees.  The pension expense for all pension  plans approximated $10.1 million, $6.5  million and $0.7 million in 2004, 2003  and 2002, respectively, and is calculated  based upon a number of actuarial  assumptions established on January 1 of  the applicable year, including an expected long-term rate of return on Plan  assets. In developing the expected long- term rate of return assumption for U.S.  plans, we evaluated input from our  actuaries and investment consultants as  well as long-term inflation assumptions.  Projected returns by such consultants are  based on broad equity and bond indices. We also considered our historical fifteen- year compounded return of 10.1%, which  has been in excess of these broad equity  and bond benchmark indices. Our expected long-term rate of return on Plan  assets is based on an asset allocation  assumption of 60% with equity managers, with an expected long-term  rate of return of 11%; 25% with fixed  income managers, with an expected long- term rate of return of 6.75% and 15%  with high yield bond managers, with an  expected rate of return of 8.5%. As of  December 31, 2004, our asset allocation  was 65% with equity managers and 35%  with fixed income managers, including  high yield managers. We believe that our  long-term asset allocation on average will  approximate 60% with equity managers  and 40% with fixed income managers.  We regularly review our actual asset  allocation and periodically rebalance our  investments to our targeted allocation  when considered appropriate. Based on  this methodology the Company’s expected long-term rate of return assumption is 9.5% for both 2004 and  2003. The discount rate used by the  Company for valuing pension liabilities  is based on a review of high quality  corporate bond yields with maturities  approximating the remaining life of the  projected benefit obligations. The discount rate on this basis has decreased  from 6.15% at December 31, 2003 to  5.75% at December 31, 2004. This will  have the effect of increasing pension  expense in 2005 by approximately $1.9  million. Although future changes to the  discount rate are unknown, had the  discount rate increased or decreased 50  basis points, the pension liability would  have decreased $13.2 million or increased $14.5 million, respectively. The Company made cash contributions to the U.S. pension plans of  $20 million and $10 million in 2004 and  2003, respectively. The liability for  accrued pension and post employment  benefit obligations increased modestly in  2004 to $102.1 million from $100.3  million in 2003, due to the negative  impact on accumulated liabilities of the  reduction in the discount rate and the  foreign currency translation effect for  non-U.S. plans. The Company estimates  that, based on current actuarial calculations, it will make a cash contribution to the pension plan in 2005  of approximately $10 million. Cash  contributions in subsequent years will  depend on a number of factors including  the investment performance of Plan  assets. The preparation of consolidated  financial statements in conformity with  accounting principles generally accepted  in the United States of America requires  management to make estimates and  assumptions that affect the reported  amounts of assets and liabilities and  disclosure of contingent assets and  liabilities at the date of the consolidated  financial statements and the reported  amounts of revenues and expenses during  the reporting period. Actual results could  differ from those estimates. Estimates  are adjusted as new information becomes  available. The Company's significant  accounting policies are set forth below. Revenue Recognition - Sales and  related cost of sales are recognized upon  shipment of products. Allowances for  estimated uncollectible accounts, discounts, returns and allowances are  provided based upon historical experience, current trends and specific  information which indicates that an  allowance is appropriate. Inventories - Inventories are stated at  the lower of standard cost, which  approximates average cost, or market.  Provisions for slow moving and obsolete  inventory are provided based on historical experience and product demand. Should future product demand  change, existing inventory could become  slow moving or obsolete and provisions  would be increased accordingly.  Depreciable Assets - Property, plant  and equipment are carried at cost less  accumulated depreciation. The appropriateness and the recoverability of  the carrying value of such assets are  periodically reviewed taking into consideration current and expected business conditions. Historically, the  Company has not had any significant  impairments.  Goodwill - The Company performs  its annual evaluation for the impairment  of goodwill for the Company's reporting  units, in accordance with FAS No. 142,  as of each June 30. Goodwill impairment  for each reporting unit is evaluated using  a two-step approach requiring the Company to determine the fair value of  the reporting unit and compare that to the  carrying value including goodwill. If the  carrying value exceeded the fair value,  the goodwill of the reporting unit would  be potentially impaired and a second step  of additional testing would be performed  to measure the impairment loss. Historically, the Company has not had  any impairments.  The significant accounting policies  are more fully described in Note 1 to the  Company's Consolidated Financial Statements.  Critical Accounting Policies and  Estimates  Pensions  33