If a person acquires 15 percent or more of the outstanding Common Stock of the company (subject to certain condi- tions and exceptions more fully described in the Rights Agreement), each Right will entitle the holder (other than the person who acquired 15 percent or more of the out- standing Common Stock) to purchase Common Stock of the company having a market value equal to twice the exercise price of a Right. The new Rights are redeemable under certain circumstances at $.01 per Right and will expire, unless earlier redeemed, on March 3, 2006. 

Employee Incentive Plans In November 1991, shareholders approved the 1991 Master Stock Compensation Plan. The Plan extends through December 2001 and allows for the granting of nonqualified stock options, incentive stock options, restricted stock, stock appreciation rights (SARs), dividend equivalents, dollar-denominated awards and other stock-based awards. The Plan allows for the granting of performance awards to a limited number of key executives. The awards are payable in Common Stock and are based on a formula which measures performance of the company over a three-year period. Performance award expense totaled $2.4 million and $1.7 million in 2001 and 2000, respectively. There was no performance award expense in 1999. Options under the Plan are granted to key employees at or above 100 percent of the market price at the date of grant. Options are exercisable for up to 10 years from the date of grant. 

Stock Options Stock options issued during fiscal 1999, 2000 and 2001 become exercisable for non-executives in each of the following three years, in an equal number of shares each year and become exercisable for executives immediately upon the date of grant. Stock options issued during fiscal 1997 and 1998 become exercisable in each of the following three years, in an equal number of shares each year, for both executives and non-executives. Stock options issued prior to fiscal l997 for non-executives and during fiscal 1996 for executives become exercisable in a four-year period in an equal number of shares each year. Prior to fiscal 1996, stock options vested immediately for executives. At July 31, 2001, options to purchase 3,464,159 shares are outstanding. 

In fiscal 1997, the company adopted the disclosure- only provisions of SFAS 123, “Accounting for Stock-Based Compensation.” SFAS 123 encourages entities to adopt a fair value-based method of accounting for employee stock compensation plans, but allows companies to continue to account for those plans using the accounting prescribed by APB Opinion 25, “Accounting for Stock Issued to Employees.” The company has elected to continue to account for stock-based compensation using APB 25, making pro forma disclosures of net earnings and earnings per share as if the fair value-based method had been applied. Accordingly, no compensation expense has been recorded for the stock option plan. Had compensation expense for the stock option plan been determined under SFAS 123 in fiscal 2001, 2000 and 1999, the company’s net income and diluted earnings per share would have been approximately $71.0 million and $1.56, and $67.7 million and $1.45, and $61.1 million and $1.28, respec- tively. The pro forma effect on net income and earnings per share is not representative of the pro forma net earn- ings in future years because it does not take into consider- ation pro forma compensation expense related to grants made prior to 1996. 

For purposes of computing compensation cost of stock options granted, the fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: risk free interest rate of 4.72 percent, 6.50 percent and 5.50 percent in 2001, 2000 and 1999, respec- tively; two or seven year lives in 2001 and 2000 and two, three, or seven year lives in 1999; expected volatility of 30.5 percent, 29.7 percent and 26.3 percent in 2001, 2000 and 1999, respectively; and 1 percent expected dividend yield in 2001, 2000 and 1999. Black-Scholes is a widely accepted stock option pricing model; however, the ultimate value of stock options granted will be determined by the actual lives of options granted and the actual future price levels of the company’s common stock. 

The weighted average fair value for options granted during fiscal 2001, 2000 and 1999 is $8.01, $7.49 and $5.62 per share, respectively. 

