The Company's Certificate of Incorporation provides for 300 million shares of common stock and 2 million shares of undesignated preferred stock.

TREASURY STOCK. The Company authorized a stock buyback program in September 1996 whereby up to 2 million shares of the Company's common stock were purchased in the open market from time to time as market and business conditions warranted. This program was completed in November 1997. In December 1997 an additional program was authorized to buyback up to an additional 2 million shares. The Company has reissued treasury shares repurchased in response to Employee Stock Option exercises and Employee Qualified Stock Purchase Plan requirements. During fiscal 1998 and 1997, the Company repurchased a total of 2,330,000 and 877,500 shares of common stock for $93.8 million and $32.0 million, respectively. In fiscal 1998 and 1997, 921,000 and 837,000 shares were reissued, respectively. As a result, the Company was holding 1,449,500 treasury stock shares at March 31, 1998.

STOCKHOLDER RIGHTS PLAN. In October 1991, the Company adopted a stockholder rights plan and declared a dividend distribution of one common stock purchase right for each outstanding share of common stock. The rights become exercisable based upon the occurrence of certain conditions including acquisitions of Company stock, tender or exchange offers and certain business combination transactions of the Company. In the event one of the conditions is triggered, each right entitles the registered holder to purchase a number of shares of common stock of the Company or, under limited circumstances, of the acquirer. The rights are redeemable at the Company's option, under certain conditions, for $.01 per right and expire on October 4, 2001.

EMPLOYEE STOCK OPTION PLAN. Under existing stock option plans (Option Plan), options reserved for future issuance to employees and directors of the Company total 18,410,000 shares. Options to purchase shares of the Company's common stock under the Option Plan are granted at 100% of the fair market value of the stock on the date of grant. Options granted to date expire ten years from date of grant and vest at varying rates over four or five years.

A summary of the Company's Option Plan activity, and related information, follows:

The following table summarizes information relating to options outstanding and exercisable under the Option Plan at March 31, 1998:

At March 31, 1997, 5.7 million options were exercisable.

EMPLOYEE QUALIFIED STOCK PURCHASE PLAN. Under the Company's 1990 Employee Qualified Stock Purchase Plan (Stock Purchase Plan), qualified employees can elect to have up to 15 percent of their annual earnings withheld, up to a maximum of $21,250, to purchase the Company's common stock at the end of six-month enrollment periods. The purchase price of the stock is 85% of the lower of the fair market value at the beginning of the twenty-four month offering period or at the end of each six-month purchase period. Almost all employees are eligible to participate. Under this plan, 361,359 and 535,360 shares were issued during 1998 and 1997, respectively, and 815,331 shares were available for issuance at March 31, 1998.

STOCK-BASED COMPENSATION. As permitted under FASB Statement No. 123, "Accounting for Stock-Based Compensation" (FASB 123), the Company has elected to continue to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its stock-based awards to employees. Under APB 25, the Company generally recognizes no compensation expense with respect to such awards.

Pro forma information regarding net income and earnings per share is required by FASB 123 and has been determined as if the Company had accounted for awards to employees under the fair value method of FASB 123. The fair value of stock options and stock purchase plan rights under the Option Plan and Stock Purchase Plan was estimated as of the grant date using the Black-Scholes option pricing model. The Black-Scholes model was originally developed for use in estimating the fair value of traded options and requires the input of highly subjective assumptions including expected stock price volatility. The Company's stock options and stock purchase plan rights have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate. The fair value of stock options and stock purchase plan rights granted in fiscal years 1998, 1997 and 1996 was estimated at the date of grant assuming no expected dividends and the following weighted average assumptions.

For purposes of pro forma disclosures, the estimated fair value of stock-based awards is amortized against pro forma net income over the stock-based awards' vesting period. Because FASB 123 is applicable only to the Company's awards granted subsequent to March 31, 1995, its pro forma effect will not be fully reflected until approximately fiscal 2000. Had the Company accounted for stock-based awards to employees under FASB 123, the Company's net income would have been $95.6 million, $87.4 million and $86.2 million in 1998, 1997 and 1996, respectively. Basic net income per share would have been $1.30, $1.20 and $1.21 in 1998, 1997 and 1996, respectively, while diluted net income per share would have been $1.25, $1.12 and $1.10, respectively.

Calculated under FASB 123, the weighted-average fair value of the stock options granted during 1998, 1997 and 1996 was $21.38, $15.91 and $14.41 per share, respectively. The weighted-average fair value of stock purchase rights granted under the Stock Purchase Plan during 1998, 1997, and 1996 were $14.50, $14.47 and $16.68 per share, respectively.

Return to Notes to Consolidated Financial Statements