WeightWatchers 2005 Annual Report Download - page 91

WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Recently Issued Accounting Standard:
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 supersedes 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 granted 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.
In April 2005, the Securities and Exchange Commission approved a new rule that amended the
effective date of FAS 123R for public companies, and the Company will now be required to, and will,
adopt this standard beginning in the first quarter of 2006.
In accordance with FAS 123R, 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
incremental expense that will be recognized in accordance with FAS 123R for fiscal 2006 will be
approximately $6.0 million. However, the total expense recorded in future periods, including fiscal 2006,
will depend on several variables, including the number of stock-based awards that are granted in future
periods and the fair value of those awards.
The American Jobs Creation Act of 2004 (the ‘‘AJCA’’) was enacted on October 22, 2004 and
includes a special one-time deduction of 85% of certain foreign earnings repatriated to the U.S. In
December 2004, the FASB issued FSP FAS 109-2, Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation Provision within the AJCA, allowing companies additional time to evaluate the
effect of the AJCA on plans for reinvestment or repatriation of foreign earnings. This legislation did
not have a material impact on the Company’s results of operations or cash flows.
Reclassification:
Certain prior year amounts have been reclassified to conform to the current year presentation.
3. Acquisitions
Summary
The acquisitions of certain assets of Weight Watchers of Dallas, Inc. and Pedebud, Inc., eight of
fifteen franchises of The WW Group, Inc. and its affiliates, Weight Watchers of Fort Worth, Inc. and
F-W Family Corporation have been accounted for under the purchase method of accounting and,
accordingly, earnings have been included in the consolidated operating results of the Company since
their dates of acquisition. Details of these acquisitions are outlined below.
Pursuant to a merger agreement effective July 2, 2005, the last day of the second quarter, WWI
increased its ownership interest in WW.com from approximately 20% to approximately 53% for a total
cash outlay of $136,385, including $107,900 paid to WW.com. Further to this, on December 16, 2005,
WW.com redeemed all of the equity interests in WW.com owned by Artal for the aggregate cash
consideration of $304,835. As a result of this redemption, WW.com became a wholly-owned subsidiary
of WWI. See further discussion below for the accounting treatment of this transaction.
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