Rayovac 2003 Annual Report Download - page 42

Amounts recorded in Other Comprehensive Income (Loss) on the Consolidated Statement of Shareholders’ Equity for the years
ended September 30, 2001, 2002 and 2003 are net of tax expense (benefit) in the amount of:
Pension Cash
Adjustment Flow Hedges Total
2001 $ — $(2,140) $(2,140)
2002 — (689) (689)
2003 (4,744) 76 (4,668)
In 2003, the Company recognized a deferred tax asset associated with its additional minimum pension liability. In years prior to 2003,
the tax benefit related to the minimum pension liability was inadvertently omitted from comprehensive income. The tax benefit
recorded in comprehensive income in 2003 related to prior years amounted to $2,656.
(w) Stock Compensation 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, $1,331 and $3,426, respectively, of compensation cost, before tax, related to restricted
stock in 2001, 2002, and 2003, 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:
2001 2002 2003
Reported net income $11,534 $29,237 $15,482
Add: Stock-based compensation expense included
in reported net income, net of tax 965 812 2,090
Deduct: Total stock-based compensation expense
determined under fair value based method for
all awards, net of tax (4,567) (4,778) (6,739)
Pro forma net income $ 7,932 $25,271 $10,833
Basic earnings per share:
As reported $ 0.40 $ 0.92 $ 0.49
Pro forma $ 0.28 $ 0.80 $ 0.34
Diluted earnings per share:
As reported $ 0.39 $ 0.90 $ 0.48
Pro forma $ 0.27 $ 0.78 $ 0.34
The fair value of the Company’s stock options used to compute pro forma net income and basic and diluted net income per com-
mon share disclosures is the estimated fair value at grant date using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
2001 2002 2003
Assumptions used:
Volatility 34.7% 37.6% 40.3%
Risk-free interest rate 4.48% 3.40% 3.36%
Expected life 8 years 8 years 8 years
Dividend yield —— —
Weighted-average grant-date fair value
of options granted during period $7.27 $6.89 $5.99
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 proforma disclosure, the
estimated fair value of the options is amortized to expense over the option’s vesting period.
Notes to Consolidated Financial Statements
Rayovac Corporation and Subsidiaries
(In thousands, except per share amounts)
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