Sunbeam 2006 Annual Report Download - page 54

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Notes to Consolidated Financial Statements
Jarden Corporation 2006 Annual Report
Share-Based Compensation Cost
Effective October 1,2005,the Company adopted SFAS No. 123,“Share-Based Payment (Revised 2004),” (“SFAS 123r”)
which requires the measurement and recognition of all unvested outstanding stock-based payment awards made to employees
and directors based on estimated fair value at date of grant. Prior to this as permitted under SFAS No. 123,the Company
accounted for the issuance of stock options and restricted stock using the intrinsic value method in accordance with
Accounting Principles Opinion No. 25,Accounting for Stock Issued to Employees (“APB 25”) and related interpretations.
Under SFAS 123r, compensation cost is recognized on a straight-line basis in the Consolidated Statements of Income related
to stock options and restricted stock expected to vest as well as the Company’s employee stock purchase plans. Prior to this
under the aforementioned intrinsic value method, the Company did not recognize compensation cost related to stock options
in the Consolidated Statements of Income when the exercise price equaled the market price of the underlying stock on the
date of grant. However, the Company would recognize compensation cost in circumstances where the market price of the
underlying stock exceeds the exercise price of the Company’s stock options on the date of grant.
The fair value of stock options was determined using the Black-Scholes option-pricing model which was previously used
for disclosing the Company’s pro forma information under SFAS 123.The fair value of the market-based restricted stock
awards was determined using a Monte Carlo simulation embedded in a lattice model, and for all other restricted stock awards
were based on the closing price of the Company’s common stock on the date of grant. The determination of the fair value of
the Company’s stock option awards and restricted stock awards is based on a variety of factors including, but not limited to,
the Company’s common stock price, expected stock price volatility over the expected life of awards, and actual and projected
exercise behavior. Additionally pursuant to SFAS 123r, the Company has estimated forfeitures for options and restricted stock
awards at the dates of grant based on historical experience and will revise as necessary if actual forfeitures differ from these
estimates.
Had stock-based compensation costs been recognized using the fair value method, pro forma net income allocable to
shareholders and earnings per share would have been presented as follows (in millions, except per share data):
Years Ended December 31
2005 2004
Net income, as reported(1) $60.7$42.4
Paid-in-kind dividends on Series B and C preferred stock (9.7).—
Charges from beneficial conversions of Series B and C preferred Stock (38.9).—
Income available to common stockholders $12.1$42.4
Add: Total stock-based employee compensation expense
included in reported net income, net of related tax effects 38.132.5
Deduct: Total stock-based employee compensation expense
determined under the fair value based method for all awards, net of tax related effects(2) (32.5)(35.3)
Pro forma net income available to common stockholders $17.7$39.6
Basic earnings per share:
As reported $0.23 $1.03
Pro forma(3) $0.33 $0.97
Diluted earnings per share:
As reported $0.22 $0.99
Pro forma(3) $0.32 $0.93
(1) Net income and earnings per share prior to October 1,2005 does not include stock-based compensation expense related to stock options and employee stock
purchase plans.
(2) Stock-based compensation expense prior to October 1,2005 was calculated using pro forma guidance under SFAS 123.
(3) Pro forma net income and pro forma earnings per share prior to October 1,2005 were calculated using pro forma guidance under SFAS 123.