employee stock options, as required under GAAP, using the Black- Scholes-Merton option-pricing model. We believe that it is difficult to accurately measure the value of an employee stock option (see “Estimates and Assumptions” above). Our estimates of employee stock option values rely on estimates of factors we input into the model. The key factors involve an estimate of future uncertain events. The key factors influencing the estimation process, among others, are the expected term of the option, the expected stock price volatility factor and the expected dividend yield.

In the first quarter of 2005, we changed our method of estimating expected dividend yield from historical patterns of dividend payments to a method that reflects a constant dividend yield during the expected term of the option. In the first quarter of 2004, we began using quoted implied volatility to determine the expected stock price volatility factor. We believe that these market-based inputs provide a better estimate of our future stock price movements and are consistent with emerging employee stock option valuation considerations. Also, of significance, is our expected term until exercise factor. We continue to use historical exercise patterns as our best estimate of future exercise patterns. Once employee stock option values are determined, current accounting practices do not permit them to be changed, even if the estimates used are different from actual.

The pro forma effect on net income and diluted earnings per common share for the years ended 2005, 2004 and 2003 is set forth in Notes to the Consolidated Financial Statements—see Note 1P, Significant Accounting Policies: Share-Based Payments. Additionally, see our discussion in the “Recently Issued Accounting Standards” section of this Financial Review.

Beginning in 2006, we will report the value of stock options in our income statement. See our discussion in “Recently Issued Accounting Standards” section of this Financial Review.

Benefit Plans

We provide defined benefit pension plans and defined contribution plans for the majority of our employees worldwide. In the U.S., we have both qualified and supplemental (non- qualified) defined benefit plans and defined contribution plans, as well as other postretirement benefit plans, consisting primarily of healthcare and life insurance for retirees.

A U.S. qualified plan meets the requirements of certain sections of the Internal Revenue Code and, generally, contributions to qualified plans are tax deductible. It typically provides benefits to a broad group of employees and may not discriminate in favor of highly compensated employees in its coverage, benefits or contributions.

We also provide benefits through non-qualified U.S. retirement plans to certain employees. These supplemental plans, which generally are not funded, will provide, out of our general assets, an amount substantially equal to the amounts that would have been payable under the defined benefit qualified pension plans, in the absence of legislation limiting pension benefits and earnings that may be considered in calculating pension benefits. In addition, we provide medical and life insurance benefits