WeightWatchers 2002 Annual Report Download - page 29

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program innovations. As a percentage of net revenues, marketing expenses decreased from 12.5% for
the twelve months ended December 30, 2000 to 11.2% for the fiscal year ended December 29, 2001.
Selling, general and administrative expenses were $73.0 million for the fiscal year ended
December 29, 2001, an increase of $16.7 million, or 29.7%, from $56.3 million for the twelve months
ended December 30, 2000. As a percentage of net revenues, these costs decreased from 12.8% for the
twelve months ended December 30, 2000 to 11.7% for the fiscal year ended December 29, 2001. The
increase in selling, general and administrative expenses was the result of a one time charge of
$6.2 million for the write-off of a receivable from a licensing agreement, increases in salary and
incentive compensation and goodwill amortization due to the Weighco acquisition. Selling, general and
administrative expenses excluding goodwill amortization of $9.8 million and $6.2 million for the fiscal
year ended December 29, 2001 and the twelve months ended December 30, 2000 were $63.2 million
and $50.1 million, respectively.
As a result of the above, operating income was $194.8 million for the fiscal year ended
December 29, 2001, an increase of $84.5 million, or 76.6%, from $110.3 million for the twelve months
ended December 30, 2000. Pro forma for the acquisition of Weighco, operating income for the twelve
months ended December 30, 2000 was $125.6 million. Pro forma for the acquisition of Weighco,
operating income increased by 55.1% for the fiscal year ended December 29, 2001. Operating income,
excluding goodwill amortization of $9.8 million and $6.2 million for the fiscal year ended December 29,
2001 and the twelve months ended December 30, 2000, was $204.6 million and $116.5 million,
respectively.
Other expenses, net were $13.2 million for the fiscal year ended December 29, 2001, an increase of
$9.7 million, or 277.1%, from $3.5 million for the twelve months ended December 30, 2000. This
increase was primarily due to changes in unrealized currency gains and losses and advances to
WeightWatchers.com.
Provision for (benefit from) income taxes was ($23.2) million for the fiscal year ended
December 29, 2001, a decrease of $41.3 million, or 228.2%, from $18.1 million for the twelve months
ended December 30, 2000. The decrease was due to a one-time benefit of $71.9 million for the reversal
of the remaining valuation allowance set up in conjunction with the Transaction. At the time of the
Transaction, we determined that it was more likely than not that a portion of the deferred tax asset
would not be utilized. Therefore, a valuation allowance of approximately $72.1 million was established
against the corresponding deferred tax asset. Based on our performance since the Transaction, we
determined that the valuation allowance is no longer required.
An extraordinary charge on the early extinguishment of debt, net of taxes, was $2.9 million for the
fiscal year ended December 29, 2001. The one-time charge of $2.9 million related to the refinancing of
the term loan B facility, term loan D facility and the transferable loan certificate. Our term loan B
facility, term loan D facility and the transferable loan certificate were repaid in the amount of $71.0,
$19.0 and $82.0 million, respectively, and replaced with a new term loan B facility of $108.0 million and
a new transferable loan certificate of $64.0 million.
Liquidity and Capital Resources
For the fiscal year ended December 28, 2002, cash and cash equivalents increased $34.2 million to
$57.5 million and cash flows provided by operating activities were $164.9 million. Funds were used
primarily for investing and financing activities. Investing activities in the year totaled $73.9 million and
were primarily attributable to $68.1 million paid in connection with the acquisition of the assets of our
North Jersey, San Diego and Eastern North Carolina franchises, and $4.9 million invested in capital
expenditures. Cash used for financing activities totaled $60.5 million, including borrowings of
$58.5 million which were subsequently repaid as part of the $93.8 million paid in on our senior credit
facilities, the repurchase of all $25.0 million of our outstanding preferred stock and the $1.2 million
cumulative final dividend payment on our preferred stock.
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