WeightWatchers 2007 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)
Acquisition of WW.com
On June 13, 2005, WWI entered into an agreement to acquire its affiliate WW.com. As a result, WWI
increased its ownership interest in WW.com from approximately 20% to approximately 53% as follows: on
July 1, 2005, WWI exercised its 6,395 warrants to purchase WW.com common stock for a total price of $45,660;
and on July 2, 2005, WWI acquired through a merger of a subsidiary of WWI with WW.com (the “Merger”),
1,126 shares of WW.com common stock owned by the employees of WW.com and other parties not related to
Artal for a total price of $28,383, and acquired an additional 2,759 shares of WW.com common stock,
representing outstanding stock options then held by WW.com employees, for a total price of $62,342.
The acquisition of the 1,126 shares represented shares owned outright by the employees of WW.com and
other parties not related to Artal. This component of the transaction has been accounted for under the provisions
of SFAS No. 141, “Business Combinations,” (“FAS 141”). The acquisition of these shares resulted in an increase
to goodwill of $26,185 and an increase to finite-lived intangible assets of $1,161, primarily customer relations
and information technology. These amounts represent the excess of the purchase price of $28,383 over the net
book value of the assets acquired plus transaction costs.
The acquisition of the 2,759 shares represented vested and unvested options owned by employees of
WW.com. Because at the time of the acquisition of these shares Artal owned approximately 47% of WW.com
and is the parent company to WWI, the acquisition of these shares is considered to be a transaction between
entities under common control, and therefore, the provisions of FAS 141 are not applicable. Under the guidance
of FASB Interpretation No. 44, “Accounting for Certain Transactions involving Stock Compensation,” (“FIN
44”), and Emerging Issues Task Force Issue No. 00-23, “Issues Related to the Accounting for Stock
Compensation under APB Opinion No. 25 and FIN 44,” (“EITF 00-23”), the Company was required to record a
compensation charge related to the 2,293 vested options of $39,647 in the second quarter 2005. This amount
represents the difference between the purchase price per share and the exercise price per share of the vested
options. The 466 unvested options were exchanged for 134 restricted stock units of WWI, resulting in deferred
compensation of $7,214, which is being recorded as compensation expense as the restricted stock units vest.
In connection with the acquisition of the WW.com shares, WWI also purchased and canceled all 103
outstanding WW.com options held by WWI employees for a total settlement price of $2,415. Under the guidance
of FIN 44 and EITF 00-23, the Company was required to record the full settlement price as a compensation
charge in the second quarter 2005. This charge, coupled with the aforementioned $39,647 compensation charge
recorded in connection with the vested options held by WW.com employees, resulted in a total compensation
charge of $42,062, which was recorded as a component of selling, general and administrative expenses in the
second quarter of 2005.
On June 13, 2005, WW.com entered into a redemption agreement with Artal (the “Redemption”) to
purchase the 12,092 shares of WW.com currently owned by Artal. Pursuant to the Redemption on December 16,
2005, WW.com redeemed the remaining 47% of its outstanding shares of common stock held by Artal for the
aggregate cash consideration of $304,835, the same purchase price per share as that paid by WWI in the Merger.
WW.com used cash on hand of approximately $89,800 and the proceeds from two new credit facilities (see
Note 6) which totaled $215,000. In accordance with the provisions of SFAS No. 150, “Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity,” because at the time of the Redemption
Artal owned approximately 47% of WW.com and is the parent company of WWI, the Redemption was
considered to be a transaction between entities under common control. Therefore, the redemption was recorded
as a Dividend to Artal in the stockholders’ equity section of the balance sheet.
F-14