Rayovac 2006 Annual Report Download - page 83

SPECTRUM BRANDS | 2006 ANNUAL REPORT 71
(n) Shipping and Handling Costs
The Company incurred shipping and handling costs of
$216,153, $162,135 and $71,296 in 2006, 2005 and 2004,
respectively, which are included in Selling expenses. Shipping
and handling costs include costs incurred with third party carri-
ers to transport products to customers and salaries and overhead
costs related to activities to prepare the Company’s products for
shipment at the Company’s distribution facilities.
(o) Advertising Costs
The Company incurred expenses for advertising of $53,564,
$59,504 and $51,321 in 2006, 2005 and 2004, respectively, which
are included in Selling expenses.
(p) Research and Development Costs
Research and development costs are charged to expense in
the period they are incurred.
(q) Net Income Per Common Share
Basic net income per common share is computed by divid-
ing net income available to common shareholders by the
weighted-average number of common shares outstanding for
the period. Basic net income per common share does not con-
sider common stock equivalents. Diluted net income per com-
mon share refl ects the dilution that would occur if employee
stock options and restricted stock awards were exercised or
converted into common shares or resulted in the issuance of
common shares that then shared in the net income of the entity.
The computation of diluted net income per common share uses
the “if converted” and “treasury stock” methods to refl ect dilu-
tion. The difference between the basic and diluted number of
shares is due to the effects of restricted stock and assumed con-
version of employee stock options awards.
Net income per common share is calculated based upon the
following shares:
2006 2005 2004
Basic
49,459 43,716 33,433
Effect of restricted stock
and assumed conversion
of stock options – 1,915 1,187
Diluted
49,459 45,631 34,620
In 2006, the Company has not assumed the exercise of com-
mon stock equivalents, as the impact would be antidilutive. In
2004, approximately 57 stock options were excluded from the
calculation of diluted earnings per share because their effect
was antidilutive.
(r) Derivative Financial Instruments
Derivative fi nancial instruments are used by the Company
principally in the management of its interest rate, foreign currency
and raw material price exposures. The Company does not hold or
issue derivative fi nancial instruments for trading purposes. When
entered into, the Company formally designates the fi nancial instru-
ment as a hedge of a specifi c underlying exposure if such criteria
are met, and documents both the risk management objectives and
strategies for undertaking the hedge. The Company formally
assesses, both at the inception and at least quarterly thereafter,
whether the fi nancial instruments that are used in hedging transac-
tions are effective at offsetting changes in either the fair value or
cash fl ows of the related underlying exposure. Because of the high
degree of effectiveness between the hedging instrument and the
underlying exposure being hedged, fl uctuations in the value of the
derivative instruments are generally offset by changes in the fair
values or cash fl ows of the underlying exposures being hedged. Any
ineffective portion of a fi nancial instrument’s change in fair value is
immediately recognized in earnings.
The Company uses interest rate swaps to manage its interest
rate risk. The swaps are designated as cash fl ow hedges with the
changes in fair value recorded in AOCI and as a derivative hedge
asset or liability, as applicable. The swaps settle periodically in
arrears with the related amounts for the current settlement period
payable to, or receivable from, the counter-parties included in
accrued liabilities or receivables and recognized in earnings as an
adjustment to interest expense from the underlying debt to which
the swap is designated. During 2006 and 2005, $1,914 of pretax
derivative gains and $2,166 of pretax derivative losses, respec-
tively, from such hedges were recorded as an adjustment to Interest
expense. During 2006 and 2005, $431 of pretax derivative gains
and $140 of pretax derivative losses, respectively, were recorded as
adjustments to interest expense for ineffectiveness from such
hedges and included in the amounts above. At September 30, 2006,
the Company had a portfolio of USD-denominated interest rate
swaps outstanding which effectively fi xes the interest rates on fl oat-
ing rate debt, exclusive of lender spreads, at rates as follows: 4.81%
for a notional principal amount of $100,000 through April 2007,
4.15% for a notional principal amount of $175,000 through
September 2007 and 4.46% for a notional principal amount of
$170,000 through October 2008. In addition, the Company had a
portfolio of EUR-denominated interest rate swaps outstanding
which effectively fi xes the interest rates on fl oating rate debt,
exclusive of lender spreads, at rates as follows: 2.68% for a notional
principal amount of €60,000 through September 2007 and 2.68%
for a notional principal amount of €220,000 through September
2008. The derivative net gain on these contracts recorded in AOCI
at September 30, 2006 was $6,385, net of tax expense of $3,913.
The derivative net gain on these contracts recorded in AOCI at
September 30, 2005 was $1,671, net of tax expense of $940. At
September 30, 2006, the portion of derivative net gains estimated
to be reclassifi ed from AOCI into earnings over the next 12 months
is $3,451, net of tax.
2006 Form 10-K Annual Report
Spectrum Brands, Inc.