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Income Taxes Deferred tax assets and liabilities are recog- nized for the expected future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respec- tive tax basis. Deferred tax assets and liabilities are mea- sured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. 

Comprehensive Income The company adopted Statement of Financial Accounting Standards (SFAS) 130, “Reporting Comprehensive Income,” in the first quarter of fiscal 1999. 

Comprehensive income consists of net income, foreign cur- rency translation adjustments, additional minimum pension liability and net gain or loss on cash flow hedging deriva- tives, and is presented in the Consolidated Statements of Changes in Shareholders’ Equity. Accumulated other comprehensive income consists of accumulated foreign currency translation adjustment, accumulated additional minimum liability related to pension and accumulated net gain or loss on cash flow hedging derivatives. The adop- tion of SFAS 130 had no impact on the company’s results of operations or shareholders’ equity. 

Earnings Per Share The company follows SFAS 128, “Earnings per Share,” to present earnings per share calculations. 

The company’s basic net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares. The company’s diluted net earnings per share is computed by dividing net earn- ings by the weighted average number of outstanding com- mon shares and dilutive shares relating to stock options. 

The following table presents information necessary to calculate basic and diluted earnings per share: 

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Treasury Stock Repurchased Common Stock is stated at cost and is presented as a separate reduction of sharehold- ers’ equity. 

Research and Development All expenditures for research and development are charged against earnings in the year incurred. 

Stock-Based Compensation SFAS 123, “Accounting for Stock-Based Compensation,” encourages, but does not require, companies to record compensation cost for stock- based employee compensation plans at fair value. The company has chosen to continue to account for stock- based compensation using the intrinsic value method pre- scribed in Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the company’s stock at the date of the grant over the amount an employee must pay to acquire the stock. Compensation cost for performance equity units is recorded based on the quoted market price of the company’s stock at the end of the period. 

Revenue Recognition Revenue is recognized when product is shipped and invoiced or performance of services is complete. 

Product Warranties The company provides for estimated warranty costs and accrues for specific items at the time their existence is known and the amounts are determinable. 

Derivative Instruments and Hedging Activities The company adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities – an amendment of FASB Statement No. 133,” effective beginning fiscal 2001. 

SFAS 133 and SFAS 138 require the company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the hedged assets, liabilities or firm commitments are recognized through earnings or in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value will be imme- diately recognized in earnings. The company enters into foreign exchange contracts and other hedging activities to mitigate potential foreign currency gains and losses relative to local currencies in the markets to which it sells. 

