Rayovac 2002 Annual Report Download - page 44

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31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Rayovac Corporation and Subsidiaries
(In thousands, except per share amounts)
(m) Foreign Currency Translation Assets and liabilities of the Company’s foreign subsidiaries are translated at the rate of exchange existing at year-end,
with revenues, expenses, and cash flows translated at the average of the monthly exchange rates. Adjustments resulting from translation of the financial
statements are recorded as a component of accumulated other comprehensive income. Also included are the effects of exchange rate changes on inter-
company balances of a long-term nature and transactions designated as hedges of net foreign investments. Currency devaluations in Argentina and
Venezuela, along with the weakening currency in Mexico, had significant impacts on these balances in 2002. The changes in accumulated foreign cur-
rency translation (gains) losses for 2001 and 2002, respectively, in these countries were: Argentina, ($1) and $2,616; Venezuela, ($32) and $3,411; and
Mexico, $220 and $955.
Exchange losses on foreign currency transactions aggregating $1,334, $2,091 and $2,412 for 2000, 2001 and 2002, respectively, are included in other
expense, net, in the Consolidated Statements of Operations.
(n) Shipping and Handling Costs The Company incurred shipping and handling costs of $26,086, $28,710 and $24,081 in 2000, 2001 and 2002,
respectively, which are included in selling expense.
(o) Advertising Costs The Company incurred expenses for advertising of $22,554, $19,367 and $10,317 in 2000, 2001 and 2002, respectively. The
Company expenses advertising production costs the first time the advertising takes place.
(p) Research and Development Costs Research and development costs are charged to expense in the year they are incurred.
(q) Net Income Per Common Share Basic net income per common share is computed by dividing 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 consider common stock equivalents.
Diluted net income per common share reflects the dilution that would occur if convertible debt securities and employee stock options 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 reflect dilution. The difference between the basic and diluted
number of shares is due to assumed conversion of employee stock options where the exercise price is less than the market price of the underlying stock.
Net income per common share is calculated based upon the following shares:
2000 2001 2002
Basic 27,504 28,746 31,775
Effect of restricted stock and assumed
conversion of stock options 1,565 956 639
Diluted 29,069 29,702 32,414
In 2000, 2001, and 2002, respectively, approximately 841, 1,031, and 2,998 stock options were excluded from the calculation of diluted earnings per
share because their effect was antidilutive.
(r) Derivative Financial Instruments Derivative financial 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 financial instruments for trading purposes.
The Company uses interest rate swaps to manage its interest rate risk. The swaps are designated as cash flow hedges with the fair value recorded as a
hedge asset or liability, as applicable, with changes in fair value recorded in Other Comprehensive Income (“OCI”). 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 accounts receivable and recognized in earnings as an adjustment to interest expense from the underlying debt to which the swap is designated.
During 2002, $5,133 of pretax derivative losses from such hedges were recorded as an adjustment to interest expense. At September 30, 2002, the
Company had a portfolio of interest rate swaps outstanding which effectively fixes the interest rates on floating rate debt at rates as follows: 6.403% for
a notional principal amount of $70,000 through October 2002, 4.458% for a notional principal amount of $70,000 from October 2002 through July
2004 and 3.769% for a notional principal amount of $100,000 through August 2004. The derivative net losses on these contracts recorded in OCI at
September 30, 2002 was an after-tax loss of $3,998.