Energizer 2005 Annual Report Download - page 33

ENR 2005 Annual Report 31
8. Earnings Per Share
For each period presented below, basic earnings per share is based
on the average number of shares outstanding during the period.
Diluted earnings per share is based on the average number of
shares used for the basic earnings per share calculation, adjusted
for the dilutive effect of stock options and restricted stock equivalents.
The following table sets forth the computation of basic and diluted
earnings per share (shares in millions):
FOR THE YEAR ENDED SEPTEMBER 30, 2005 2004 2003
Numerator:
Net earnings for basic and
dilutive earnings per share $286.4 $267.4 $ 169.9
Denominator:
Weighted-average shares - basic 71.0 80.6 85.9
Effect of dilutive securities
Stock options 1.7 2.0 1.6
Restricted stock equivalents 0.8 0.8 0.7
Total dilutive securities 2.5 2.8 2.3
Weighted-average shares - diluted 73.5 83.4 88.2
Basic net earnings per share $4.03 $3.32 $1.98
Diluted net earnings per share $3.90 $3.21 $ 1.93
9. Share-Based Payments
The Company’s2000 Incentive Stock Plan (the Plan) was adopted
by the Boardof Directors in March 2000 and approved by share-
holders, with respect to future awards which may be granted under
the Plan, at the 2001 Annual Meeting of Shareholders. Under the
Plan, awards to purchase shares of the Company’s common stock
(ENR stock) may be granted to directors, officers and key employees.
Amaximum of 15.0 million shares of ENR stock was approved to
be issued under the Plan. At September 30, 2005, 2004 and 2003,
respectively, there were 3.8 million, 4.2 million and 4.9 million shares
available for future awards.
Options under the Plan have been granted at the market price on
the grant date and generally vest ratably over three to five years.
Awards have a maximum term of 10 years.
Restricted stock and restricted stock equivalent awards may also
be granted under the Plan. In fiscal 2005, the Board of Directors
approved grants of 132,230 restricted stock equivalents that
vest over four years and 10,000 restricted stock equivalents that
vest at the end of five years. In fiscal 2004 and 2003, the Board of
Directors also approved the grants of 74,000 and 272,000 restricted
stock equivalents, respectively, that vest over a seven and nine year
period, respectively, to a group of officers and key employees.
During fiscal 2004 and 2003, respectively, 20,000 and 10,000
restricted stock equivalents were granted to a group of officers and
directors upon their purchase of an equal number of shares of ENR
stock within a specified period. The restricted stock equivalents vest
three years from their respective dates of grant and convert into
unrestricted shares of ENR stock at that time, or, at the recipient’s
election, will convert at the time of the recipient’s retirement or other
termination of employment. The weighted-average fair value for
restricted stock equivalents granted in 2005, 2004 and 2003 was
$48.90, $38.77 and $28.52, respectively.
Under the terms of the Plan, option shares and prices, and restricted
stock and stock equivalent awards, are adjusted in conjunction with
stock splits and other recapitalizations so that the holder is in the
same economic position before and after these equity transactions.
The Company also permits deferrals of bonus and salary and,
for directors, retainers and fees, under the terms of its Deferred
Compensation Plan. Under this plan, employees or directors
deferring amounts into the Energizer Common Stock Unit Fund
arecredited with a number of stock equivalents based on the fair
value of ENR stock at the time of deferral. In addition, the partici-
pants werecredited with an additional number of stock equivalents,
equal to 25% for employees and 33 1/3% for directors, of the
amount deferred. This additional company match vests immedi-
ately for directors and three years from the date of initial crediting
for employees. Amounts deferred into the Energizer Common
Stock Unit Fund, and vested company matching deferrals, may
be transferred to other investment options offered under the plan.
At the time of termination of employment, or for directors, at the
time of termination of service on the Board, or at such other time
for distribution which may be elected in advance by the participant,
the number of equivalents then credited to the participant’s
account is determined and then an amount in cash equal to the
fair value of an equivalent number of shares of ENR stock is paid
to the participant.
Had the provisions of SFAS 123 been applied, the Company’s net
earnings and earnings per share would have been reduced to the
pro forma amounts indicated in Note 2. The weighted-average fair
value of options granted in fiscal 2005, 2004 and 2003 was $15.27,
$14.81 and $9.37 per option, respectively. This was estimated at
the grant date using the Black-Scholes option-pricing model with
the following weighted-average assumptions:
2005 2004 2003
Risk-free interest rate 3.86% 3.92% 3.47%
Expected life of option 6years 7.5 years 7.5 years
Expected volatility of ENR stock 22.2% 19.4% 19.5%
Expected dividend yield on ENR stock –– –