Pro forma amounts if the company had used the fair value method in accounting for all employee stock options are as follows: process or completed at the end of a quarter or fiscal year. Promotional contract accruals are based on a review of the  unpaid outstanding contracts on which performance has taken place. Voluntary performance accruals are based on the historical spend rates by product lines. Estimates used to determine the  revenue reduction include the level of customer performance  and the historical spend rate versus contracted rates. Advertising Expenses: Advertising costs are expensed when incurred. Advertising expenses include all media advertising but exclude the costs associated with samples and market research. Advertising costs for fiscal 2004, 2003, and 2002 were $78.2 mil- lion, $83.5 million, and $89.4 million, respectively. Shipping and Handling Costs: Shipping and handling costs are recorded as selling and delivery expenses. Shipping and handling costs for fiscal 2004, 2003, and 2002 were $317.0 million, $284.2 million, and $267.1 million, respectively. Research and Development Expenses: Research and devel- opment costs are expensed as incurred and are included in administrative and general expenses. Research and development expenses incurred for fiscal 2004, 2003, and 2002 were $15.9 million, $13.2 million, and $12.1 million, respectively.  Earnings Per Share: Basic earnings per share are computed using the weighted-average common shares outstanding. Diluted earnings per share are computed using the weighted-average common shares outstanding after adjusting for potential common shares from stock options. For all years presented, the reported net earnings were used when computing basic and diluted  earnings per share. A reconciliation of the shares used in the computation is as follows: Income Taxes: The company records income taxes in accordance with the liability method of accounting. Deferred taxes are recog- nized for the estimated taxes ultimately payable or recoverable based on enacted tax law. Changes in enacted tax rates are reflected in the tax provision as they occur. Employee Stock Options: In the fourth quarter of fiscal 2003,  the company adopted the fair value method of accounting for employee stock options in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation” and SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” The company has elected to use the prospective method to recognize stock-based compensation expense. Accordingly, the company will continue to use the intrinsic value method prescribed by Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for employee stock options granted prior to fiscal 2003. Under the intrinsic value method, no com- pensation expense was recognized in years prior to fiscal 2003 because options were granted at current market prices.  Because employee stock options generally vest over four years and the company has elected to use the prospective method  in transitioning to fair value accounting, reported stock options expense will continue to increase through fiscal 2006. Additional information on employee stock options is presented in Note I. Accounting Changes and Recent Accounting Pronouncements: In December 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard  (SFAS) No. 132 (Revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” which improves financial statement disclosures for defined benefit plans. This Statement incorporates all of the original disclosure requirements from SFAS 132 and adds additional annual disclosures that will provide more information about pension plan assets, obligations, cash flows, and net benefit cost. It does not change the meas- urement of recognition of those plans required by SFAS 87, “Employers’ Accounting for Pensions,” SFAS 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” and SFAS 106, “Employers’ Accounting for Postretirement Benefits Other than Pensions.” The disclosure rules apply to annual financial state- ments for fiscal years ending after December 15, 2003, and for interim periods beginning after December 15, 2003. The year end disclosure provisions of the Statement are presented in Note F. 2004 Annual Report 37 (In Thousands) 2004 2003 2002 Basic weighted-average  shares outstanding 138,596 138,440 138,706 Dilutive potential common shares 1,583 1,270 1,586 Diluted weighted-average  shares outstanding 140,179 139,710 140,292 Year Ended October 30,  October 25, October 26, (In Thousands) 2004 2003 2002 Net earnings, as reported $231,663 $185,779 $189,322 Add: Stock-based compensation expense included in reported net earnings, net of related tax effects 2,568 1,188 – Deduct: Total stock-based  compensation expense determined  under fair value method for all awards,  net of related tax effects (4,821) (4,437) (3,564) Pro Forma Net Earnings $229,410 $182,530 $185,758 Earnings per share: Basic – as reported  $ 1.67 $ 1.34 $ 1.36 Basic – pro forma $ 1.66 $ 1.32 $ 1.34 Diluted – as reported $ 1.65 $ 1.33 $ 1.35 Diluted – pro forma $ 1.64 $ 1.31 $ 1.32