WeightWatchers 2005 Annual Report Download - page 90

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WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Stock Based Compensation:
In December 2002, the FASB issued SFAS No. 148, ‘‘Accounting for Stock-Based Compensation—
Transition and Disclosure,’’ an amendment of SFAS No. 123, ‘‘Accounting for Stock-Based
Compensation.’’ SFAS No. 148 provides two additional alternative transition methods for recognizing
an entity’s voluntary decision to change its method of accounting for stock-based employee
compensation to the fair value method. In addition, SFAS No. 148 amends the disclosure requirements
of SFAS No. 123 so that entities following the intrinsic value method of Accounting Principles Board
Opinion No. 25, ‘‘Accounting for Stock Issued to Employees’’ (‘‘APB 25’’), will be required to disclose
the pro forma effect of using the fair value method for any period for which an income statement is
presented. The disclosures are required to be made in annual financial statements and in quarterly
information provided to shareholders without regard to whether the entity has adopted the fair value
recognition provisions of SFAS No. 123. The Company adopted the disclosure provisions of SFAS
No. 148 beginning in the first quarter of 2003.
At December 31, 2005, the Company had stock-based employee compensation plans, which are
described more fully in Note 9. As permitted by SFAS No. 123, the Company applies the recognition
and measurement principles of APB No. 25 ‘‘Accounting for Stock Issued to Employees,’’ and related
interpretations in accounting for those plans. Except for costs incurred in connection with the
acquisition of WW.com (See Note 3), no compensation expense for employee stock options is reflected
in earnings, as all options granted under the plans had an exercise price equal to the market value of
the common stock on the date of grant.
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:
December 31, January 1, January 3,
2005 2005 2004
Net income, as reported ......................... $174,402 $183,084 $143,941
Add:
Total stock-based employee compensation expense as
recorded under FIN 44 and APB 25, net of related
tax effect ................................. 27,680 — —
Deduct:
Total stock-based employee compensation expense
determined under the fair value method for all stock
options awards, net of related tax effect .......... (31,663) (4,223) (2,036)
Pro forma net income ........................... $170,419 $178,861 $141,905
Earnings per share:
Basic—as reported ........................... $ 1.70 $ 1.75 $ 1.35
Basic—pro forma ............................ $ 1.66 $ 1.71 $ 1.33
Diluted—as reported .......................... $ 1.67 $ 1.71 $ 1.31
Diluted—pro forma ........................... $ 1.64 $ 1.67 $ 1.29
F-14