Stock-Based Compensation: The Company has stock-based employee compensation  plans, which are described more fully in Note 15. The Company accounts for those plans under  the recognition and measurement principles of APB Opinion 25, “Accounting for Stock Issued to Employees,” and related Interpretations. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123, “ Accounting for Stock-Based Compensation,” to stock-based employee compensation. The fair value of each stock option grant on the date of grant has been estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions: The weighted-average grant date fair values of options granted during 2002, 2001 and 2000 were $5.37, $4.77 and $4.44, respectively. During the past three years, the Company has acquired a number of businesses, all of which were accounted for using the purchase method. Accordingly, the results of operations of the acquired companies have been included in the consolidated results from their respective acquisition dates. In May 2000, the Company purchased substantially all of the assets and liabilities of Curtis for $63,363. Curtis, a distributor of MRO supplies and high-quality security products, was combined with Bowman Distribution to form Barnes Distribution. This business combination created a broader product offering, enhanced service capabilities and increased sales penetration for the business segment. The combination also created significant cost savings opportunities, primarily through headquarters and distribution center consolidations and increased purchasing leverage. A majority  of these cost savings were realized in 2002. In connection with the Curtis acquisition, the Company incurred certain integration costs which are more fully discussed in Note 8. In September 2000, the Company purchased substantially all of the assets and liabilities  of Kratz-Wilde Machine Company and Apex Manufacturing Inc. (Kratz-Wilde/Apex) for $40,938. Kratz-Wilde/Apex fabricates and machines intricate aerospace components for jet engines and auxiliary power units. These businesses are included in the Barnes Aerospace segment. This PAGE 23 Back to Table of Contents 2. Acquisitions NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Net income, as reported Add: Stock-based employee compensation expense  included in reported net income, net of related tax effects Deduct: Stock-based employee compensation expense  determined under fair value based method for all awards, net of related tax effects Pro forma net income Earnings per share: Basic — as reported Basic — pro forma Diluted — as reported Diluted — pro forma 2002 $ 27,151 1,589 (5,970) $ 22,770 $ 1.45 1.21 1.42 1.18 2001 $ 19,121 1,227 (4,962) $^{$ }$15,386 $ 1.03 .83 1.01 .81 2000 $ 35,665 431 (3,108) $ 32,988 $ 1.92 1.78 1.90 1.76 Risk-free interest rate Expected life Expected volatility Expected dividend yield 2002 3.69% 4.0 years 35% 3.51% 2001 4.84% 4.3 years 35% 3.40% 2000 6.65% 5.0 years 30% 3.57% BARNES GROUP INC.