WeightWatchers 2004 Annual Report Download - page 74

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WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. Summary of Significant Accounting Policies (Continued)
The following table illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of SFAS No. 123 in each fiscal year:
January 1, January 3, December 28,
2005 2004 2002
Net income, as reported .................. $183,084 $143,941 $143,694
Deduct:
Total stock-based employee compensation
expense determined under the fair value
method for all stock options awards, net of
related tax effect .................... 4,223 2,036 696
Pro forma net income .................... $178,861 $141,905 $142,998
Earnings per share:
Basic—as reported ..................... $ 1.75 $ 1.35 $ 1.35
Basic—pro forma ...................... $ 1.71 $ 1.33 $ 1.35
Diluted—as reported ................... $ 1.71 $ 1.31 $ 1.31
Diluted—pro forma .................... $ 1.67 $ 1.29 $ 1.30
Included in ‘‘Total stock-based compensation expense determined under the fair value method for
all stock option awards, net of related tax effect’’ is $463 of expense related to WeightWatchers.com
options.
Recently Issued Accounting Standards
In December 2004, the Financial Accounting Standards Board issued Statement No. 123R, ‘‘Share-
Based Payment’’ (‘‘FAS 123R’’), which replaces FAS 123, ‘‘Accounting for Stock-Based Compensation’’
and supercedes Accounting Principles Board Opinion 25, ‘‘Accounting for Stock Issued to Employees.’’
FAS 123R eliminates the option of using the intrinsic value method to record compensation expense
related to stock-based awards to employees and instead requires companies to recognize the cost of
such awards based on their grant-date fair value over the related service period of such awards. The
Company will adopt the provisions of this standard beginning in the third quarter of fiscal 2005.
The Company has elected to apply the modified prospective transition method to all past awards
outstanding and unvested as of the date of adoption and will recognize the associated expense over the
remaining vesting period based on the fair values previously determined and disclosed as part of its
pro-forma disclosures. The Company will not restate the results of prior periods. Prior to the effective
date of FAS 123R, the Company will continue to provide the pro forma disclosures for past award
grants as required under FAS 123. The Company believes the pro forma disclosures in Note 2 provide
an appropriate short-term indicator of the level of expense that will be recognized in accordance with
FAS 123R. However, the total expense recorded in future periods will depend on several variables,
including the number of share-based payment awards that are granted in future periods and the fair
value of those awards.
F-12