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SPECTRUM BRANDS | 2006 ANNUAL REPORT 75
The fair value of restricted stock is determined based on the
market price of the Company’s shares on the grant date. A sum-
mary of the status of the Company’s nonvested restricted stock as
of September 30, 2006, and changes during the year ended
September 30, 2006, is as follows:
Weighted-Average
Grant Date
Restricted Stock Shares Fair Value Fair Value
Restricted stock at
September 30, 2005 1,783 $26.87 $47,910
Granted 965 19.56 18,875
Vested (506) 16.57 (8,386)
Forfeited (196) 27.44 (5,378)
Restricted stock at
September 30, 2006 2,046 $25.91 $53,021
Prior to October 1, 2005, the Company accounted for its stock
option plans under the recognition and measurement provisions of
Accounting Principles Board (“APB”) Opinion No. 25, “Accounting
for Stock Issued to Employees” (“APB 25”) and related Interpretations,
as permitted by SFAS 123, “Accounting for Stock-Based Compensation”
(“SFAS 123”). No stock-option-based employee compensation cost
was recognized in the income statement prior to that date, as all
stock options granted under those plans had an exercise price equal
to the market value of the underlying common stock on the date of
grant. Effective October 1, 2005, the Company adopted the fair
value recognition provisions of SFAS 123(R), using the modifi ed-
prospective transition method. Under that transition method,
compensation cost recognized in fi scal 2006 includes: (i) compen-
sation cost for all share-based payments granted prior to, but not
yet vested as of October 1, 2005, based on the grant date fair value
estimated in accordance with the original provisions of SFAS 123,
and (ii) compensation cost for all share-based payments granted
subsequent to October 1, 2005, based on the grant-date fair value
estimated in accordance with the provisions of SFAS 123(R).
Results for prior periods have not been restated. As a result of
adopting SFAS 123(R) on October 1, 2005, the Company’s income
from continuing operations before income taxes and net income
during 2006 was $729 and $488 lower, respectively, than if the
Company had continued to account for share-based compensation
under APB 25.
Prior to the adoption of SFAS 123(R), the Company pre-
sented all tax benefi ts of deductions resulting from the exercise
of stock options as operating cash fl ows in the statement of cash
fl ows. Beginning on October 1, 2005, the Company changed its
cash fl ow presentation in accordance with SFAS 123(R) and FASB
Staff Position (“FSP”) FAS 123(R)-3, “Transition Election Related to
Accounting for Tax Effects of Share-Based Payment Awards” (“FSP FAS
123(R)-3”) which require the cash fl ows resulting from the tax
benefi ts for these options to be classifi ed as fi nancing cash fl ows.
The Company also elected to calculate its initial pool of excess
tax benefi ts under the alternative transition method described in
FSP FAS 123(R)-3.
The Company estimated the fair value of its previously
granted option awards using the Black-Scholes option-pricing
formula. The Black-Scholes option pricing model was used with
the following weighted-average assumptions for grants made in
the following years:
Black-Scholes Option
Valuation Assumptions 2006 2005 2004
Fair value of options granted
during the period $ – $ – $7.79
Expected term (in years) – – 6
Expected volatility – – 41.4%
Expected dividend yield – – –
Risk free rate – – 3.79%
The following table illustrates the effect on net income and
earnings per share if the Company had applied the fair value rec-
ognition provisions of SFAS 123(R) during 2005 to options
granted under the Company’s stock option plans. For purposes
of this pro forma disclosure, the value of the options is amortized
to expense on a straight-line basis over a three-year vesting period,
and forfeitures are recognized as they occur. The Company’s pro
forma information follows for 2005 and 2004:
2005 2004
Net income, as reported $46,832 $55,780
Add: Stock-based compensation
expense included in reported
net income, net of tax 5,801 3,228
Deduct: Total stock-based
compensation expense
determined under fair value
based method for all awards,
net of tax (7,562) (6,522)
Pro forma net income $45,071 $52,486
Basic earnings per share
as reported $ 1.07 $ 1.67
Basic earnings per share
pro forma $ 1.03 $ 1.57
Diluted earnings per share
as reported $ 1.03 $ 1.61
Diluted earnings per share
pro forma $ 0.99 $ 1.50
2006 Form 10-K Annual Report
Spectrum Brands, Inc.