Rayovac 2005 Annual Report Download - page 95

The Company has adopted the disclosure-only
provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, “Accounting for Stock-
Based Compensation,” as amended by SFAS Statement
No. 148, “Accounting for Stock-Based Compensation–
Transition and Disclosure.” Had compensation cost
for stock options granted been determined based
on the fair value at the grant date for such awards
consistent with an alternative method prescribed by
SFAS 123, the Company’s net income and earnings
per share would have refl ected the pro forma
amounts indicated below:
2005 2004 2003
Reported net income $46,832 $55,780 $15,482
Add: Stock-based compensation
expense included in reported
net income, net of tax 5,801 3,228 2,090
Deduct: Total stock-based
compensation expense
determined under fair value
based method for all awards,
net of tax (7,562) (6,522) (6,739)
Pro forma net income $45,071 $52,486 $10,833
Basic earnings per share:
As reported $ 1.07 $ 1.67 $ 0.49
Pro forma $ 1.03 $ 1.57 $ 0.34
Diluted earnings per share:
As reported $ 1.03 $ 1.61 $ 0.48
Pro forma $ 0.99 $ 1.50 $ 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 common share disclosures
is the estimated fair value at grant date using the
Black-Scholes option-pricing model with the following
weighted average assumptions:
2005 2004 2003
Grants Grants Grants
Assumptions used:
Volatility – 41.4% 40.3%
Risk-free interest rate – 3.79% 3.36%
Expected life – 6 years 8 years
Dividend yield – – –
Weighted average grant-date
fair value of options granted
during period – $7.79 $5.99
The Black-Scholes option-pricing model was devel-
oped for use in estimating the fair value of traded
options that have no vesting restrictions and are
fully transferable. In addition, option valuation mod-
els require the input of highly subjective assumptions,
including the expected stock price volatility. Because
the Company’s options have characteristics signifi -
cantly different from traded options, and because
changes in the subjective input assumptions can
materially affect the fair value estimate, in the opin-
ion of management, the existing models do not nec-
essarily 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.
Beginning in the fourth quarter of fi scal 2004, the
Company ceased issuing stock options to employ-
ees. Restricted stock, the cost of which is required
to be recognized as expense, is now issued to
employees. As a result, the adoption of SFAS 123(R)
is not expected to have a signifi cant impact on the
Company’s overall results of operations or fi nancial
position. See, Note 2(y), Signifi cant Accounting Poli-
cies – Adoption of New Accounting Pronouncements,
for additional discussion of SFAS 123(R).
(x) Restructuring and Related Charges
The costs of plans to (a) exit an activity of an
acquired company, (b) involuntarily terminate employ-
ees of an acquired company, or (c) relocate employ-
ees of an acquired company are measured and
recorded in accordance with the provisions of EITF
95-3, “Recognition of Liabilities in Connection with a
Purchase Business Combination.” Under EITF 95-3,
if certain conditions are met, such costs are recog-
nized as a liability assumed as of the consummation
date of the purchase business combination and
included in the allocation of the acquisition cost.
Costs related to activities or employees of the
acquired company that do not meet the conditions
prescribed in EITF 95-3 are treated as restructuring
and related charges and expensed as incurred.
Restructuring and related charges are recognized
and measured according to the provisions of SFAS
146, “Accounting for Costs Associated with Exit or
Disposal Activities.” Under SFAS 146, restructuring
charges include, but are not limited to, termination
and related costs consisting primarily of severance
costs and retention bonuses, and contract termina-
tion costs consisting primarily of lease termination
costs. Related charges, as defi ned by the Company,
include, but are not limited to, other costs directly
associated with exit and integration activities,
including impairment of property and other assets,
2005 Form 10-K Annual Report
Spectrum Brands, Inc.
2005 ANNUAL REPORT 75