Document 828v9Ejp51RnX3Xj28MownGok

COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles ofConsolidation: The Consolidated Financial Statements mclude the accounts of Cooper and its majontyowned subsidiaries Affiliated companies are accounted for on the equity method where Cooper owns 20% to 50% of the affiliate unless significant economic, political or contractual considerations mdicate that the cost method is appropriate Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses during the reporting period Actual results could differ from those estimates Cash Equivalents: For purposes of the consolidated statements of cash flows, Cooper considers all investments purchased with original maturities of three months or less to be cash equivalents Inventories: Inventories are earned at cost or, if lower, net realizable value On the basis of current costs, 61% and 64% of inventones at December 31, 2001 and 2000, respectively were earned on the last-in, first-out (LIFO) method The remammg inventones are earned on the first-in, first-out (FIFO) method Property, Plant and Equipment: Property, plant and equipment are stated at cost Depreciation is provided over the estimated useful lives of the related assets using pnmanly the straight-lme method This method is applied to group asset accounts, which m general have the following lives buildings -- 10 to 40 years, machinery and equipment -- 3 to 18 years, and toolmg, dies, patterns and other -- 3 to 10 years Goodwill: With minor exceptions, goodwill is amortized over 40 years from the respective acquisition dates At each balance sheet date presented, management reviews the carrying value of long-lived assets and goodwill at the lowest level feasible whenever events or changes m circumstances mdicate that the carrying amount may not be recoverable If this review indicates that the carrying amount will not be recoverable, as determined based on undiscounted cash flows over the remaining amortization periods, an impairment loss is recognized The impairment loss equals the excess of the carrying amount over the fair value of the asset The fair value of the asset is based on prices for similar assets, if available, or discounted cash flows Revenue Recognition: Cooper recognizes revenues m accordance with invoice terms, typically when products are shipped Accruals for sales returns and other allowances are provided at the tune of shipment based upon experience Shippmg and handling costs of $125 5 million, $124 6 million and $96 2 million in 2001, 2000 and 1999, respectively, are reported as a reduction of revenues m the consolidated mcome statements Research and Development Expenditures: Research and development expenditures are charged to earnings as incurred Research and development expenses were $55 8 million, $57 7 million and $54 0 million m 2001, 2000 and 1999, respectively Common Stock Based Compensation: Cooper follows the intrinsic value method of accountmg for stock based compensation plans as prescribed by Accountmg Principles Board Opmion No 25, Accountmgfor Stock Issued to Employees Impact ofNew Accounting Standards: In June 2001, the Financial Accountmg Standards Board issued Statements ofFinancial Accounting Standards No 141, Business Combinations ("SFAS No 141") and No 142, Goodwill and Other Intangible Assets ("SFAS No 142 ") SFAS 141 requires the use of the purchase method of accounting for all business combinations initiated after June 30, 2001 The adoption of this statement had no impact on Cooper's F-7