The following table presents income adjusted to exclude goodwill amortization expense recognized in the prior periods: Derivatives: The Company has manufacturing, sales and distribution facilities around the world and thus makes investments and conducts business transactions denominated in various currencies. The Company is also exposed to fluctuations in interest rates and commodity price changes. These financial exposures are monitored and managed by the Company as an integral part of its risk management program. The Company uses financial instruments to hedge its exposure to fluctuations in interest rates and foreign currency exchange rates but does not use derivatives for speculative or trading purposes. The Company also does not use derivatives to manage commodity exposures or hedge its foreign currency net investment exposure.  The Company adopted SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, on January 1, 2001. The standard requires that all derivative instruments be recorded on the balance sheet at fair value. The accounting for changes in the fair value depends on how the derivative is used and designated. In accordance with the transition provisions of SFAS 133, the Company recorded a $400 gain on January 1, 2001, which was entirely offset by a loss recorded on the re-measurement of underlying balance sheet items. There was no transition adjustment to other non-owner changes to equity. Foreign currency contracts qualify as fair value hedges of unrecognized firm commitments, or cash flow hedges of recognized assets and liabilities or anticipated transactions. Gains and losses on derivatives are recorded directly to earnings or other non-owner changes to equity, depending on the designation. Amounts recorded to other non-owner changes to equity are reclassified to earnings in a manner that matches the earnings impact of the hedged transaction. Any ineffective portion is recorded directly to earnings. The Company’s policy for classifying cash flows from derivatives is to report the cash flows consistent with the underlying instrument.  At December 31, 2002, the fair value of derivatives held by the Company was a net liability of $1,833. During 2002, losses of $279 included in other non-owner changes to equity were reclassified to earnings. Amounts in other non-owner changes to equity expected to be reclassified to earnings within the next year are not material. During 2002, gains or losses related to hedge ineffectiveness were immaterial. Foreign currency transaction gains included in income were $1,172, $1,874 and $1,012 in 2002, 2001 and 2000, respectively, inclusive of gains and losses on foreign currency derivatives. Foreign currency translation: The majority of the Company’s foreign subsidiaries use the local currency as the functional currency. Assets and liabilities of foreign operations are translated at year-end rates of exchange; revenues and expenses are translated at average annual rates of exchange. The resulting translation gains and losses are reflected in accumulated other non-owner changes to equity within stockholders’ equity.  Back to Table of Contents PAGE 22 Net income, as reported  Add back: goodwill amortization, net of income taxes Adjusted net income Basic earnings per share, as reported Add back: goodwill amortization, net of income taxes Adjusted basic earnings per share Diluted earnings per share, as reported Add back: goodwill amortization, net of income taxes Adjusted diluted earnings per share 2002 $ 27,151 — $ 27,151 $ 1.45 — $ 1.45 $ 1.42 — $ 1.42 2001 $ 19,121 3,449 $ 22,570 $ 1.03 .19 $ 1.22 $ 1.01 .18 $ 1.19 2000 $ 35,665 2,899 $ 38,564 $ 1.92 .16 $ 2.08 $ 1.90 .15 $ 2.05 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BARNES GROUP INC.