WeightWatchers 2006 Annual Report Download - page 76

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WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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,
2005
January 1,
2005
Net income, as reported ................................................... $174,402 $183,084
Add:
Total share-based employee compensation expense as recorded under FIN 44 and
APB 25, net of related tax effect ...................................... 27,680 —
Deduct:
Total share-based employee compensation expense determined under the fair
value method for all share-based awards, net of related tax effect ............ (31,663) (4,223)
Pro forma net income .................................................... $170,419 $178,861
Earnings per share:
Basic — as reported .................................................. $ 1.70 $ 1.75
Basic — pro forma .................................................. $ 1.66 $ 1.71
Diluted — as reported ................................................ $ 1.67 $ 1.71
Diluted — pro forma ................................................. $ 1.64 $ 1.67
The Company adopted the provisions of SFAS 123(R), “Share-Based Payment” on January 1, 2006. Upon
adopting this standard, the Company began recognizing the cost of all share-based awards based on their
estimated grant-date fair value over the related service period of such awards. For the year ended December 30,
2006, the impact of adopting SFAS 123(R) was to reduce income before income taxes by $6,313 and net income
by $3,851, with a corresponding reduction in basic and diluted earnings per share of $0.04. In accordance with
SFAS 123(R), 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 has begun to 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 has not restated the results of prior periods.
On November 10, 2005, the Financial Accounting Standards Board issued FASB Staff Position No. FAS
123(R)-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards, (the
“FSP.”) The FSP allows companies to elect a specified “short-cut” method to calculate the historical pool of
windfall tax benefits upon adoption of SFAS 123(R). The Company elected to use this “short-cut” method when
it adopted FAS 123(R) on January 1, 2006.
In accordance with the modified prospective transition method of adopting FAS 123(R), the Company
elected to include the impact of pro forma deferred tax assets (i.e., the “as if” windfall or shortfall) for purposes
of determining assumed proceeds under the treasury stock method when determining the denominator for diluted
earnings per share.
Reclassification:
Certain prior year amounts have been reclassified to conform to the current year presentation.
F-13