Rayovac 2002 Annual Report Download - page 53

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Rayovac Corporation and Subsidiaries
(In thousands, except per share amounts)
The Company has adopted the provisions of Statement No. 123, Accounting for Stock-Based Compensation, and continues to apply Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its stock plans. Accordingly, the Company recognized $1,582 and $1,331, respec-
tively, of compensation cost, before tax, related to restricted stock in 2001 and 2002, respectively, and no compensation cost, before tax, related to
options for the stock plans. If the Company had elected to recognize compensation cost for all of the plans based upon the fair value at the grant dates
for awards under those plans, consistent with an alternative method prescribed by Statement No. 123, net income per common share would have been
reduced to the pro forma amounts indicated below:
2000 2001 2002
Net income reported $38,350 $11,534 $29,237
Pro forma net income $35,887 $ 7,932 $25,271
Pro forma basic net income
per common share $ 1.30 $ 0.28 $ 0.80
Pro forma diluted net income
per common share $ 1.23 $ 0.27 $ 0.78
The fair value of the Company’s stock options used to compute pro forma net income and basic and diluted net income per common share disclosures
is the estimated fair value at grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions:
2000 2001 2002
Assumptions used:
Volatility 28.6% 34.7% 37.6%
Risk-free interest rate 6.17% 4.48% 3.40%
Expected life 8 years 8 years 8 years
Dividend yield — — —
Weighted-average grant-date fair value of
options granted during period $10.49 $7.27 $6.89
The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility.
Because the Company’s options have characteristics significantly different from traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in the opinion of management, the existing models do not necessarily provide a reliable single value of its
options and may not be representative of the future effects on reported net income or the future stock price of the Company. For purposes of pro forma
disclosure, the estimated fair value of the options is amortized to expense over the option’s vesting period.