risk-free interest rate of 2.7% to 2.9% in 2003 and 4.8% in 2002; no expected dividend yield; expected lives of 4 to 8 years in 2003 and 7 years in 2002; and expected volatility of 55% to 65% in 2003 and 75% in 2002. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assump- tions, including the expected stock price volatility. Because the company’s options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing models do not necessarily provide a reliable single measure of the fair value of its options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The stock-based employee compensation expense, net of taxes, for fiscal year 2003 previously disclosed as $583,000 has been corrected to reflect the portion of a 2003 grant that vested immediately in 2003. The company’s pro forma net earnings and per share data utilizing a fair value based method is as follows: (P) EARNINGS PER SHARE  In accordance with SFAS No. 128 “Earnings Per Share”, “basic earnings per share” is calculated based upon the weighted average number of common shares actually outstanding, and “diluted earnings per share” is calcu- lated based upon the weighted average number of common shares outstanding, warrants and other dilutive securities. The company’s potentially dilutive securities consist of shares issuable on exercise of outstanding options computed using the treasury method and amounted to 731,000, 327,000 and 142,000 for fiscal 2004, 2003 and 2002, respectively. Stock options amounting to 5,000 at a price of $9.63 for fiscal 2002 were excluded from the common share equivalents, as they  were anti-dilutive. (Q) CONSOLIDATED STATEMENTS OF CASH FLOWS  Cash paid for interest was $2,627,000, $4,532,000 and $6,248,000 in fiscal 2004, 2003 and 2002, respectively. Cash payments totaling $16,890,000, $8,349,000 and $4,761,000 were made for  income taxes during fiscal 2004, 2003 and 2002, respectively. In 2004, net income included in the cash flows from opera- tions has a non-cash expense of $1,154,000 pretax related to  the early extinguishment of debt (see Note 3), $118,000 pretax related to a restricted stock grant (see Note 6) and $1,887,000 related to acquisition integration reserve adjustments (see  Note 10). In 2003, net income included in the cash flows from operations had a non-cash expense $567,000 pretax related to  an increase in the principal balance of debt associated with interest paid in kind. In 2002, net income included in the cash flows from operations had a non-cash expense of $8,807,000 pretax related to the early extinguishment of debt (see Note 4(r)) and $2,340,000 pretax related to an increase in the principal balance of debt associated with interest paid in kind. These  non-cash items have been added back as adjustments to reconcile net earnings to net cash provided by operating activities. (R) NEW ACCOUNTING PRONOUNCEMENTS In April 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS  No. 145, “Rescission of FASB Statements SFAS No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections”. SFAS No. 145 eliminates the previous requirement that gains and losses on debt extinguishment must be classified as extraordinary items in the income statement. Instead, such gains and losses are to be classified as extraordinary items only  if they are deemed to be unusual and infrequent. The changes related to debt extinguishment are effective for fiscal years  beginning after May 15, 2002, and the changes related to lease accounting are effective for transactions occurring after May 15, 2002. The company adopted this statement in fiscal 2003. As  a result, in the 2003 financial statements, the company made a reclassification in the presentation of a loss incurred pertaining  to the extinguishment of debt and its related tax benefit in the 2002 statement of earnings. In the 2002 financial statements, the company reported a $5.5 million extraordinary loss, comprised  of a $9.1 million debt extinguishment loss net of a $3.6 million tax benefit. In the 2003 financial statements, the $9.1 million  loss has been reclassified to debt extinguishment expense as a component of earnings before income taxes and the related $3.6 million tax benefit to the provision for income taxes. In June 2002, the FASB issued Statement No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This statement requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued 25 2004 2003 2002 Net income – as reported $ 23,588 $ 18,698 $ 6,102 Less: Stock-based employee compensation expense, net of taxes 442 3,574 264 Net income – pro forma $ 23,146 $ 15,124 $ 5,838 Earnings per share – as reported: Basic $ 2.56 $ 2.06 $ 0.68 Diluted 2.38 1.99 0.67 Earnings per share – pro forma: Basic $ 2.52 $ 1.67 $ 0.65 Diluted 2.33 1.61 0.64