Rayovac 2006 Annual Report Download - page 86

74 SPECTRUM BRANDS | 2006 ANNUAL REPORT
(v) Comprehensive Income
Comprehensive income includes foreign currency translation
of assets and liabilities of foreign subsidiaries, effects of exchange
rate changes on intercompany balances of a long-term nature and
transactions designated as a hedge of net foreign investments,
derivative fi nancial instruments designated as cash fl ow hedges,
and additional minimum pension liabilities associated with the
Company’s pension plans. Except for the currency translation
impact of the Company’s intercompany debt of a long-term
nature, the Company does not provide income taxes on currency
translation adjustments, as earnings from international subsidiar-
ies are considered to be indefi nitely reinvested.
Amounts recorded in Accumulated Other Comprehensive
Income (Loss) on the Consolidated Statements of Shareholders’
Equity and Comprehensive Income (Loss) for the years ended
September 30, 2006, 2005 and 2004 are net of the following tax
expense (benefi t) amounts:
Pension Cash Flow Translation
Adjustment Hedges Adjustment Total
2006 $ 2,791 $4,971 $ 266 $ 8,028
2005 (5,968) 692 (559) (5,835)
2004 1,356 3,009 (2,378) 1,987
(w) Stock Compensation
On October 1, 2005 the Company adopted SFAS 123(R)
requiring the Company to recognize expense related to the fair
value of its employee stock option awards. The Company recog-
nizes the cost of all share-based awards on a straight-line basis
over the vesting period of the award. Total stock compensation
expense associated with both stock options and restricted stock
awards recognized by the Company during 2006 was $15,896, or
$10,650, net of taxes. The amounts before tax are included in
General and administrative expenses in the Consolidated
Statements of Operations. The Company expects that total stock
compensation expense for 2007 will be approximately $14,500
before the effect of income taxes. As of September 30, 2006,
there was $32,966 of unrecognized compensation cost related to
restricted stock that is expected to be recognized over a weighted-
average period of approximately three years.
The Company uses or has used two forms of stock based com-
pensation. Shares of restricted stock have been awarded to certain
employees and members of management since fi scal 2001. Prior to
the fourth quarter of fi scal 2004, the Company also issued stock
options to employees, some of which remained unvested at the
adoption date of SFAS 123(R). Restricted stock is now the only
form of stock based compensation used by the Company.
Stock options previously awarded generally vest under a combi-
nation of time-based and performance-based vesting criteria. Under
the time-based vesting, the stock options become exercisable pri-
marily in equal increments over a three year period, while under the
performance-based vesting such options become exercisable over
the same time period or one year after, if certain performance
criteria are not met. The exercise period for all stock options
does not exceed ten years from the date of grant.
Restricted stock shares granted through fi scal 2006 generally
have vesting periods of three to fi ve years. Approximately 50% of
the restricted stock shares are time-based and vest on a pro rata
basis over either a three- or four-year vesting period and the
remaining 50% are performance-based. Vesting of such perfor-
mance-based restricted stock will occur only upon achievement
of certain performance goals established by the Board of Directors
of the Company. Generally, performance targets consist of EPS
(“Earnings Per Share”), segment EBIT (“Earnings Before Interest
and Taxes”) and cash fl ow components. If such performance tar-
gets are not met, the performance component of a restricted
stock award will automatically vest one year after the originally
scheduled vesting date, effectively making the award time-based.
The Company recognizes amortization on the time-based compo-
nent on a straight-line basis over the vesting period. The Company
recognizes amortization on the performance-based component
over the vesting period, assuming performance targets will not be
met, unless and until it is probable that the performance targets
will be met. At the point in time when it is probable that the per-
formance target will be met, the recognition period is shortened
one year to account for the accelerated vesting requirement of the
performance-based component.
The Company currently has two active incentive plans under
which additional shares may be issued. In 1997, the Board
adopted the 1997 Rayovac Incentive Plan (“1997 Plan”). Up to
5,000 shares of Common stock may be issued under the 1997
Plan, which expires in August 2007. As of September 30, 2006,
there were options with respect to 1,531 shares of common
stock outstanding under the 1997 Plan. In 2004, the Board
adopted the 2004 Rayovac Incentive Plan (“2004 Plan”). The
2004 Plan supplements the 1997 Plan. Up to 3,500 shares of
common stock may be issued under the 2004 Plan, which expires
in July 2014. As of September 30, 2006, 2,207 restricted shares
had been granted under the 2004 Plan. No options have been
granted under the 2004 Plan.
2006 Form 10-K Annual Report
Spectrum Brands, Inc.