Notes to Financial Statements

NOTE 3—Summary of Significant Accounting Policies
Principles of Consolidation—The financial statements contain the accounts of the Company and all majority-owned subsidiaries. Intercompany accounts and transactions are eliminated.

Cash and Cash Equivalents—Cash and cash equivalents consist primarily of highly liquid investments with insignificant interest rate risk and original maturities of three months or less at the date of acquisition.

Inventories—Inventories are valued at the lower of cost or market, cost being determined principally by the last-in, first-out ("LIFO") method for the majority of the subsidiaries included in the domestic distribution segment and by the first-in, first-out ("FIFO") method for all other subsidiaries.

Property, Plant and Equipment—Property, plant and equipment is recorded at cost and is generally depreciated based upon the following estimated useful lives: buildings and improvements 5 to 33 years and machinery, equipment and other 3 to 12 years. Depreciation is computed principally using the straight-line method.

Goodwill—Goodwill is being amortized on a straight-line basis over 5 to 40 years. The amounts presented are net of accumulated amortization of $83.1 million and $73.0 million at December 31, 2000 and 1999, respectively.

Intangible Assets—Net intangible assets of $24.6 million and $21.3 million at December 31, 2000 and 1999, respectively, are being amortized on a straight-line basis over their estimated useful lives, ranging up to 20 years, are included in Other Assets and are stated net of accumulated amortization of $21.3 million and $19.0 million at December 31, 2000 and 1999, respectively. During 2000, 1999, and 1998, the Company recorded amortization expense of $3.0 million, $3.2 million, and $3.7 million, respectively.

Impairment of Long-Lived Assets—Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the quoted market price, if available, or the anticipated undiscounted operating cash flow generated by those assets are less than the assets’ carrying value. An impairment charge is recorded for the difference between the fair value and carrying value of the asset.

Revenue Recognition—The Company recognizes revenue from product sales consistent with the related shipping terms, generally at the time products are shipped.

Deferred Debt Issue Costs—Deferred debt issue costs of $27.6 million and $32.3 million at December 31, 2000 and 1999, respectively, relate to the Company’s 9% Notes, 71/8% Notes and Credit Facility debt. Deferred debt issue costs are included in Other Assets and are amortized using the effective interest rate method over the term of the related debt. During 2000, 1999, and 1998, the Company recorded amortization expense of $4.6 million, $4.4 million, and $4.8 million, respectively.

Other (income) expense, net represents interest income on cash and cash equivalents and other non-operating income and expense items.

Foreign Currency Translation—Assets and liabilities of the Company’s foreign subsidiaries, where the functional currency is the local currency, are translated into U.S. dollars using year-end exchange rates. Revenues and expenses of foreign subsidiaries are translated at the average exchange rates in effect during the year. Adjustments resulting from financial statement translations are included in a separate component of stockholders’ deficit. Gains and losses resulting from foreign currency transactions are reported on the income statement line item "other (income) expense, net," when recognized.

Financial Instruments—The Company enters into forward currency contracts to hedge exposure to fluctuations in foreign currency rates. Gains and losses on the Company’s forward currency contracts generally offset gains and losses on certain firm commitments of the Company. Gains and losses on these positions are deferred and included in the basis of the transaction when it is completed. At December 31, 2000, the outstanding forward currency contracts all had maturities of less than twelve months. Cash flows from forward currency contracts accounted for as hedges are classified in the Statement of Cash Flows in the same category as the item being hedged or on a basis consistent with the nature of the instrument.

The Company enters into interest-rate swap agreements in order to manage its exposure to interest-rate fluctuations. Net-interest differentials to be paid or received are included in interest expense. Any undesignated interest-rate swap agreements are immediately marked-to-market. In addition, the Company occasionally enters into option contracts to manage risks associated with fuel costs.

Accounting Pronouncements—The Company adopted the Financial Accounting Standards Board’s ("FASB") Emerging Issues Task Force consensus 00-10 "Accounting for Shipping and Handling Fees and Costs," in the fourth quarter of 2000. Application of this consensus resulted in the reclassification of prior period financial results to reflect shipping and handling fees as revenue, and shipping and handling costs as cost of sales. These amounts were previously recorded in selling, general and administrative expense. The reclassifications had no effect on operating or net income.

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes certain of the SEC’s views in applying generally accepted accounting principles to revenue recognition in financial statements. The adoption of SAB 101 in the fourth quarter of fiscal 2000 did not have a material effect on the Company’s financial position or results of operations.

In June 1998, the FASB issued Statement No. 133 Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), subsequently amended by SFAS No. 137 and SFAS No. 138 which will be effective for the Company beginning January 1, 2001. SFAS 133 requires the Company to record all derivatives on the balance sheet at fair value. Changes in derivative fair values will either be recognized in earnings as offsets to the changes in fair value of related hedged assets, liabilities and firm commitments or, for forecasted transactions, deferred and recorded as a component of other accumulated comprehensive income until the hedged transactions occur and are recognized in earnings. The ineffective portion of a hedging derivative’s change in fair value will be immediately recognized in earnings. The adoption of SFAS 133, as amended by SFAS 138, as of January 1, 2001 resulted in a transition adjustment of approximately $1 million as a reduction in other comprehensive income.

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.

Reclassifications—Certain prior year amounts have been reclassified to conform to their current presentation.