NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers and relatively small account balances within the majority of the Company’s customer base and their dispersion across different businesses. The Com- pany periodically evaluates the financial strength of its customers and believes that its credit risk exposure is limited. Inventories Inventories consist of the following: Topic 350, “Intangibles – Goodwill and Other” (“ASC 350”) as it relates to the accounting for goodwill in the Consolidated Financial Statements. These provisions require that the Company, on at least an annual basis, evaluate the fair value of the reporting units to which goodwill is assigned and attributed and compare that fair value to the carrying value of the reporting unit to determine if an impairment has occurred. The Company performs its annual impairment testing during the fourth quarter. Impairment testing takes place more often than annually if events or circumstances indicate a change in status that would indicate a potential impairment. The Company believes that there have been no events or circumstances which would more likely than not reduce the fair value for its reporting units below its carrying value. A reporting unit is an operating segment unless dis- crete financial information is prepared and reviewed by segment management for businesses one level below that operating segment (a “component”), in which case the component would be the report- ing unit. In certain instances, the Company has aggregated compo- nents of an operating segment into a single reporting unit based on similar economic characteristics. At December 31, 2012, the Com- pany had eleven reporting units. Inventories include the costs of material, labor and overhead and are stated at the lower of cost or market. Domestic inventories are stated at either the lower of cost or market using the last-in, first- out (“LIFO”) method or the lower of cost or market using the first- in, first-out (“FIFO”) method. The Company uses LIFO for certain domestic locations, which is allowable under U.S. GAAP, primarily because this method was elected for tax purposes and thus required for financial statement reporting purposes. Inventories held in foreign locations are primarily stated at the lower of cost or market using the FIFO method. The LIFO method is not being used at the Company’s foreign locations as such a method is not allowable for tax purposes. Changes in the levels of LIFO inventories have increased costs of sales by $3.1 million and reduced cost of sales by $0.8 million and $4.6 million for the years ended December 31, 2012, 2011 and 2010, respectively. The portion of inventories costed using the LIFO method was 29% and 35% of consolidated inventories at December 31, 2012 and 2011, respectively. If inventories that were valued using the LIFO method had been val- ued under the FIFO method, they would have been higher by $15.4 million and $12.3 million at December 31, 2012 and 2011, respectively. Property, Plant and Equipment, net Property, plant and equip- ment, net consist of the following: When performing its annual impairment assessment, the Company compares the fair value of each of its reporting units to its respective carrying value. Goodwill is considered to be potentially impaired when the net book value of the reporting unit exceeds its estimated fair value. Fair values are established primarily by dis- counting estimated future cash flows at an estimated cost of capital which varies for each reporting unit and which, as of the Company’s most recent annual impairment assessment, ranged between 9.5% and 17% (a weighted average of 11%), reflecting the respective inherent business risk of each of the reporting units tested. This methodology for valuing the Company’s reporting units (commonly referred to as the Income Method) has not changed since the adop- tion of the provisions under ASC 350. The determination of dis- counted cash flows is based on the businesses’ strategic plans and long-range planning forecasts, which change from year to year. The revenue growth rates included in the forecasts represent best estimates based on current and forecasted market conditions. Profit margin assumptions are projected by each reporting unit based on the current cost structure and anticipated net cost increases/reductions. There are inherent uncertainties related to these assumptions, including changes in market conditions, and management’s judgment in applying them to the analysis of good- will impairment. In addition to the foregoing, for each reporting unit, market multiples are used to corroborate its discounted cash flow results where fair value is estimated based on earnings multi- ples determined by available public information of comparable businesses. While the Company believes it has made reasonable estimates and assumptions to calculate the fair value of its reporting units, it is possible a material change could occur. If actual results are not consistent with management’s estimates and assumptions, goodwill and other intangible assets may then be determined to be overstated and a charge would need to be taken against net earn- ings. Furthermore, in order to evaluate the sensitivity of the fair value calculations on the goodwill impairment test performed dur- ing the fourth quarter of 2012, the Company applied a hypothetical, reasonably possible 10% decrease to the fair values of each report- ing unit. The effects of this hypothetical 10% decrease would still result in the fair value calculation exceeding the carrying value for each reporting unit. Property, plant and equipment are stated at cost and depreciation is calculated by the straight-line method over the estimated useful lives of the respective assets, which range from ten to twenty-five years for buildings and improvements and three to ten years for machinery and equipment. Depreciation expense was $40.4 mil- lion, $39.9 million and $41.0 million for the years ended December 31, 2012, 2011 and 2010, respectively. Goodwill and Intangible Assets The Company’s business acquis- itions have typically resulted in the recognition of goodwill and other intangible assets. The Company follows the provisions under ASC 40 (in thousands) December 31, 2012 2011 Land $ 69,385 $ 68,404 Buildings and improvements 180,909 191,821 Machinery and equipment 546,083 541,832 Gross property, plant and equipment 796,377 802,057 Less: accumulated depreciation 528,094 517,911 Property, plant and equipment, net $268,283 $284,146 (in thousands) December 31, 2012 2011 Finished goods $ 113,872 $105,442 Finished parts and subassemblies 37,517 35,100 Work in process 59,277 74,608 Raw materials 142,059 145,539 Total inventories $352,725 $360,689