Rayovac 2003 Annual Report Download - page 40

Currency devaluations in Argentina and Venezuela, along with the weakening currency in Mexico had significant negative impacts
on OCI in 2002 and 2003. The strengthening of the Euro versus the U.S. Dollar currency had a significant positive impact on OCI in
2003, primarily related to the translation of our Euro denominated net assets associated with the acquisition of the VARTA business
in 2003.
As of September 30, 2002 and 2003, foreign currency translation adjustment balances of $(8,314) and $(561), respectively, were
reflected in the Consolidated Balance Sheets in Accumulated other comprehensive loss.
Exchange losses (gains) on foreign currency transactions aggregating $2,091, $2,412, and $(2,637) for 2001, 2002 and 2003, respectively,
are included in Other expense (income), net, in the Consolidated Statements of Operations.
(n) Shipping and Handling Costs The Company incurred shipping and handling costs of $28,710, $24,081 and $45,573 in 2001, 2002
and 2003, respectively, which are included in Selling expense. Shipping and handling costs include costs incurred with third-party
carriers 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 $19,367, $10,317 and $11,458 in 2001, 2002 and 2003, respec-
tively, which are included in Selling expense. 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 con-
vertible debt securities, 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 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:
2001 2002 2003
Basic 28,746 31,775 31,847
Effect of restricted stock and assumed
conversion of stock options 956 639 709
Diluted 29,702 32,414 32,556
In 2001, 2002, and 2003, respectively, approximately 1,031, 2,998 and 2,775 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 in Other Comprehensive Income (“OCI”) and as a 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 accounts receivable and recognized in earnings as an adjustment to interest expense from the underlying debt
to which the swap is designated. During 2003, $4,647 of pretax derivative losses from such hedges were recorded as an adjustment to
interest expense. At September 30, 2003, the Company had a portfolio of interest rate swaps outstanding which effectively fixes the
interest rates on floating rate debt at rates as follows: 4.458% for a notional principal amount of $70,000 through July 2004, 3.974%
for a notional principal amount of $70,000 from July 2004 through October 2005, 3.769% for a notional principal amount of $100,000
through August 2004 and 3.799% for a notional principal amount of $100,000 from August 2004 through November 2005. The deriva-
tive net losses on these contracts recorded in OCI at September 30, 2003 was an after-tax loss of $4,553.
Notes to Consolidated Financial Statements
Rayovac Corporation and Subsidiaries
(In thousands, except per share amounts)
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