Rayovac 2005 Annual Report Download - page 92

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per common share does not consider common stock
equivalents. Diluted net income per common share
refl ects the dilution that would occur if employee
stock options and restricted stock awards were exer-
cised 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
refl ect dilution. The difference between the basic
and diluted number of shares is due to the effects
of restricted stock and assumed conversion of
employee stock options awards.
Net income per common share is calculated
based upon the following shares:
2005 2004 2003
Basic
43,716 33,433 31,847
Effect of restricted stock
and assumed conversion
of stock options 1,915 1,187 709
Diluted 45,631 34,620 32,556
In 2004 and 2003, approximately 57 and 2,775,
respectively, of stock options were excluded from the
calculation of diluted earnings per share because
their effect was antidilutive.
(r) Derivative Financial Instruments
Derivative fi nancial instruments are used by the
Company principally in the management of its inter-
est rate, foreign currency and raw material price
exposures. The Company does not hold or issue
derivative fi nancial instruments for trading purposes.
When entered into, the Company formally designates
the fi nancial instrument as a hedge of a specifi c
underlying exposure if such criteria are met, and
documents both the risk management objectives
and strategies for undertaking the hedge. The
Company formally assesses, both at the inception
and at least quarterly thereafter, whether the fi nan-
cial instruments that are used in hedging transac-
tions are effective at offsetting changes in either
the fair value or cash fl ows of the related underlying
exposure. Because of the high degree of effec-
tiveness between the hedging instrument and the
underlying exposure being hedged, fl uctuations in
the value of the derivative instruments are generally
offset by changes in the fair values or cash fl ows of
the underlying exposures being hedged. Any ineffec-
tive portion of a fi nancial instrument’s change in fair
value is immediately recognized in earnings.
The Company uses interest rate swaps to man-
age its interest rate risk. The swaps are designated
as cash fl ow hedges with the changes in fair value
recorded in AOCI and as a derivative 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 receiv-
ables and recognized in earnings as an adjustment
to interest expense from the underlying debt to which
the swap is designated. During 2005 and 2004,
$2,166 and $4,858, respectively, of pretax derivative
losses from such hedges were recorded as an adjust-
ment to Interest expense. During 2005 and 2004
$140, and $0, respectively, were recorded as pretax
adjustments to Interest expense for ineffectiveness
from such hedges and included in the amounts
above. At September 30, 2005 the Company had a
portfolio of interest rate swaps outstanding which
effectively fi xes the interest rates on fl oating rate
debt at rates as follows: 3.974% for a notional prin-
cipal amount of $70,000 through October 2005,
3.799% for a notional principal amount of $100,000
through November 2005, 4.146% for a notional prin-
cipal amount of $175,000 through September 2007
and 4.146% for a notional principal amount of
$100,000 through September 2008. The derivative
net gain on these contracts recorded in AOCI at
September 30, 2005 was $1,671, net of tax
expense of $940. The derivative net loss on these
contracts recorded in AOCI at September 30, 2004
was $1,375, net of tax benefi t of $843. At Septem-
ber 30, 2005, the portion of derivative net gains
estimated to be reclassifi ed from AOCI into earnings
over the next 12 months is $522, net of tax.
2005 Form 10-K Annual Report
Spectrum Brands, Inc.
SPECTRUM BRANDS, INC.72