Energizer 2006 Annual Report Download - page 33

ENR 2006 ANNUAL REPORT 31
6. 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, 2006 2005 2004
Numerator:
Net earnings for basic and
dilutive earnings per share $ 260.9 $ 280.7 $ 261.0
Denominator:
Weighted-average shares - basic 61.2 71.0 80.6
Effect of dilutive securities
Stock options 1.4 1.7 2.0
Restricted stock equivalents 0.5 0.8 0.8
Total dilutive securities 1.9 2.5 2.8
Weighted-average shares - diluted 63.1 73.5 83.4
Basic net earnings per share $ 4.26 $ 3.95 $ 3.24
Diluted net earnings per share $ 4.14 $ 3.82 $ 3.13
7. Share-Based Payments
The Company's 2000 Incentive Stock Plan (the Plan) was adopted by
the Board of Directors in March 2000 and approved by shareholders,
with respect to future awards which may be granted under the Plan, at
the 2001 Annual Meeting of Shareholders. Under the Plan, awards of
restricted stock, restricted stock equivalents or options to purchase the
Company’s common stock (ENR stock) may be granted to directors,
officers and key employees. A maximum of 15.0 million shares of ENR
stock was approved to be issued under the Plan. At September 30,
2006, 2005 and 2004, respectively, there were 3.7 million, 3.8 million
and 4.2 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. These
awards have a maximum term of 10 years. Restricted stock and restricted
stock equivalent awards may also be granted under the Plan. 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 permits deferrals of bonus and salary and for direc-
tors, 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 are credited with a number of
stock equivalents based on the fair value of ENR stock at the time of
deferral. In addition, the participants were credited 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 immediately 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 distribu-
tion 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. This plan is
reflected in Other Liabilities on the Consolidated Balance Sheet.
On October 1, 2005, the Company adopted SFAS No. 123 (revised
2004), “Share-Based Payment” (SFAS 123R), using the “modified
retrospective” method. Accordingly, prior year results have been
adjusted to incorporate the effects of SFAS 123R. The impact to the
Company’s net earnings is consistent with the pro forma disclosures
provided in previous financial statements as found in Note 18. The
Consolidated Balance Sheets also reflect the adoption of SFAS 123R.
At September 30, 2005, the cumulative impact was $13.5 to total
deferred taxes, $45.8 to retained earnings and $73.2 to additional
paid-in capital, which also reflects the reclassification of unearned com-
pensation for restricted stock equivalents of $13.9. The Statements of
Cash Flows for fiscal years prior to 2006 was adjusted in accordance
with SFAS 123R to reflect excess tax benefits as an inflow from financing
activities as reflected in Note 19.
Beginning with new grants in fiscal 2006, the Company used the
straight-line method of recognizing compensation cost. In fiscal years
prior to 2006, the Company used the accelerated method of recognizing
compensation costs for awards with graded vesting. The accelerated
method treated tranches of a grant as separate awards, amortizing the
compensation costs over each vesting period within a grant.
Total compensation cost charged against income for the Company’s
share-based compensation arrangements was $16.0, $14.3 and
$13.0 for the years ended September 30, 2006, 2005 and 2004, respec-
tively, and was recorded in selling, general and administrative (SG&A)
expense. The total income tax benefit recognized in the Consolidated
Statement of Earnings for share-based compensation arrangements
was $5.9, $5.3 and $4.8 for the years ended September 30, 2006,
2005 and 2004, respectively. Restricted stock issuance and shares
issued for stock option exercises under the Company’s share-based
compensation program are generally issued from treasury shares.
Options
As of September 30, 2006, the aggregate intrinsic value of stock
options outstanding and stock options exercisable was $176.0 and
$140.8, respectively. The aggregate intrinsic value of stock options
exercised for the years ended September 30, 2006, 2005 and 2004
was $34.0, $78.2 and $28.2, respectively. When valuing new grants,
Energizer uses an implied volatility, which reflects the expected volatility
for a period equal to the expected life of the option. No new option
awards were granted in the year ended September 30, 2006. The
weighted-average fair value of options granted in fiscal 2005 and 2004