Notes to Consolidated Financial Statements (In thousands of dollars except per share amounts) Derivatives: We recognize derivatives, which are used to hedge risks associated with interest rates, as assets or liabilities at fair value. These derivatives are designated as hedges of our exposure to changes in the fair value of long-term debt or as hedges of our exposure to variable cash flows of future interest payments. The gain or loss in the value of a derivative designated as a fair value hedge is recognized in earnings in the period of change together with an offsetting loss or gain on long-term debt. The effective portion of a gain or loss in the value of a derivative designated as a cash flow hedge is initially reported as a component of other comprehensive earnings and is subsequently reclassified into earnings when the future interest payments affect earnings. The ineffective portion of the gain or loss in the value of a derivative designated as a cash flow hedge is reported in earnings immediately. New Accounting Standards:  In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long- Lived Assets,” which established a single accounting model to be used to account for the impairment of long- lived assets to be disposed of by sale and which broadened the presentation of discontinued operations to include more disposal transactions. The standard also resolved various implementation issues related to Statement No. 121, which it superseded. We began applying the provisions of Statement No. 144 in 2002, and it had no impact on our financial statements. Had we not elected early adoption, we would have been required to adopt the standard at the beginning of 2003. Reclassifications: Certain reclassifications were made to the 2000 and 2001 financial statements to conform to the 2002 presentation. In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” Under this new standard, a liability for a cost associated with an exit or disposal activity is to be recognized at its fair value when the liability is incurred. We began applying the provisions of Statement No. 146 in 2002, and it had no material impact on our financial statements. Had we not elected early adoption, we would have been required to adopt the standard for exit or disposal activities initiated after December 31, 2002. Cumulative Effect of Accounting Change:  We adopted Statement No. 142, “Goodwill and Other Intangible Assets,” and the transition provisions of Statement No. 141, “Business Combinations,” on October 1, 2001. As a result of adopting these new standards, we completed the transitional goodwill impairment reviews required by the new standards and recognized an aftertax loss of $2,489 as a cumulative effect of an accounting change. In performing our impairment reviews, we estimated the fair values of the various reporting units using a present value method that discounted future cash flows as we expect marketplace participants would, and we further assessed the reasonableness of the estimates by using valuation methods based on market multiples. The resulting loss, which was related to an Industrial Controls’ reporting unit, was incurred to reduce goodwill to its implied fair value. Adoption of these new standards also resulted in the reclassification of $4,426 from other intangibles to goodwill on October 1, 2001. This amount was related to an assembled workforce. Based on goodwill that existed at September 30, 2001, these new standards reduced amortization expense in 2002 by approximately $4,900. In January 2002, we acquired the capital stock of Leonhard-Reglerbau Dr.-Ing. Adolf Leonhard GmbH, and in March 2002, we acquired certain assets and assumed certain liabilities of Nolff’s Carburetion, Inc. Leonhard-Reglerbau specializes in the design, manufacture, and sale of control, protection, and monitoring devices for power generation equipment. Nolff’s manufactures and sells natural gas and propane fuel systems for small industrial engines. Our cost for these acquisitions totaled $25,313, of which $17,484 was recognized as goodwill, $1,000 was recognized as customer relationships, and $4,227 was recognized as other intangibles, all in the Industrial Controls segment. We are using weighted-average amortization periods of five years for customer relationships, six years for other intangibles, and six years in the aggregate. The amount of goodwill expected to be fully deductible for income tax purposes is $11,391. If we had completed the acquisitions on October 1, 2001, net sales and net earnings for 2002 would not have been materially different from amounts reported in the statements of consolidated earnings. 34 B. Business acquisitions and sale: