content_image/112578.jpg content_image/112579.jpg content_image/112580.jpg content_image/112581.jpg
anticipated inventory purchases, the Company uses futures and options with maturities generally less than one year and swap contracts with maturities up to five years. These market instruments are designated as cash flow hedges under SFAS No. 133. Accordingly, the mark-to-market gain or loss on qualifying hedges is reported in OCI and reclassified into cost of products sold in the same period or periods during which the hedged transaction affects earnings. Qualifying cash flow hedges currently recorded in OCI are not considered material. The mark-to-market gain or loss on non-qualifying, excluded and ineffective portions of hedges is immediately recognized in cost of products sold. Commodity hedging activity was not material to the Company’s financial statements for the years ended June 30, 2002 and 2001. 

## Note 8 Earnings Per Share and Stock Options 

## Net Earnings Per Common Share 

Net earnings less preferred dividends (net of related tax benefits) are divided by the weighted average number of common shares outstand- ing during the year to calculate basic net earnings per common share. Diluted net earnings per common share is calculated to give effect to stock options and convertible preferred stock. The dilutive effect of outstanding employee stock options is reflected by application of the treasury stock method under SFAS No. 128, “Earnings per Share.” 

Basic and diluted net earnings per common share are as follows: 

<img src='content_image/112578.jpg'>

<img src='content_image/112579.jpg'>

## Stock-Based Compensation 

The Company has stock-based compensation plans under which stock options are granted annually to key managers and directors at the market price on the date of grant. Grants were made under stock-based compensation plans approved by shareholders in 1992 and 2001. Grants issued since 1998 are fully exercisable after three years and have a fifteen-year life, while prior years’ grants are fully exercisable after one year and have a ten-year life. 

Pursuant to SFAS No. 123, “Accounting for Stock-Based Compensa- tion,” the Company has elected to account for its employee stock option plans under APB Opinion No. 25, “Accounting for Stock Issued to Employees,” which recognizes expense based on intrinsic value at date of grant. As stock options have been issued with exercise prices equal to grant date fair value, no compensation cost has resulted. Had compensation cost for the plans been determined based on the fair value at grant date consistent with SFAS No. 123, the Company’s net earnings and earnings per common share would have been as follows: 

<img src='content_image/112580.jpg'>

The fair value of grants issued in 2001 and 2000 was estimated using the binomial options-pricing model. For options granted in 2002, the Company has estimated the fair value of each grant using the more widely recognized Black-Scholes option-pricing model. Assumptions are evaluated annually and revised, as necessary, to reflect market condi- tions and additional experience. The following assumptions were used: 

<img src='content_image/112581.jpg'>

