WeightWatchers 2003 Annual Report Download - page 21

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for a total purchase price of $11.0 and $10.6 million, respectively. These acquisitions were financed
through cash from operations. All acquisitions were accounted for as purchases and accordingly, their
earnings have been included in our consolidated operating results since the dates of their acquisitions.
Reversal of Tax Valuation Allowance. During the fourth quarter of fiscal 2001, we reversed the
remaining tax valuation allowance set up in conjunction with the acquisition by Artal Luxembourg in
1999. At the time of the acquisition, 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 acquisition, we determined that the valuation allowance was no longer required. Accordingly,
the provision for taxes for the fiscal year ended December 29, 2001 included a one-time reversal
(credit) of the remaining balance of the valuation allowance of $71.9 million.
Acquisition of Weighco. On January 16, 2001, we acquired the franchised territories and certain
business assets of Weighco for an aggregate purchase price of $83.8 million. The acquisition was
financed through additional borrowings of $60.0 million and cash from operations. The acquisition has
been accounted for as a purchase and accordingly, Weighco’s earnings have been included in our
consolidated operating results since the date of acquisition.
Change in Fiscal Year. Effective April 30, 2000, we changed our fiscal year end from the last
Saturday in April to the Saturday closest to December 31 and eliminated a one month reporting lag for
certain foreign subsidiaries. The results of operations for these foreign subsidiaries have been adjusted
for the eight months ended December 30, 2000. The effect on our net income for these subsidiaries for
the period March 31, 2000 through April 29, 2000 was $1.1 million and was adjusted to the opening
accumulated deficit at April 30, 2000.
Recapitalization. On September 29, 1999, as part of our acquisition by Artal Luxembourg, we
entered into a recapitalization and stock purchase agreement, or the Transaction, with our former
parent, Heinz. In connection with this Transaction, we effectuated a stock split of 58.7 shares for each
share outstanding. We then redeemed 164.4 million shares of common stock from Heinz for
$349.5 million. The $349.5 million consisted of $324.5 million of cash and $25.0 million of our
redeemable Series A Preferred Stock. After redemption, Artal Luxembourg purchased 94% of our
remaining common stock from Heinz for $223.7 million. The recapitalization and stock purchase was
financed through borrowings under credit facilities amounting to approximately $237.0 million and by
issuing senior subordinated notes amounting to $255.0 million. In connection with the Transaction, we
incurred approximately $8.3 million in transaction costs, which were included in the results of
operations for the fiscal year ended April 29, 2000.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are the leading provider of weight-loss services, operating in 30 countries around the world.
We conduct our business through a combination of company-owned and franchise operations, with
company-owned operations accounting for 74% of total worldwide attendance for the fiscal year ended
January 3, 2004. 64% of our revenues were generated by our U.S. operations, and the remaining 36%
of our revenues resulted from our international operations. We derive our revenues principally from:
•Meeting fees. Our members pay us a weekly fee to attend our classes.
•Product sales. We sell proprietary products that complement our program, such as snack bars,
books, CD-ROMs and POINTS calculators, to our members and franchisees.
•Franchise royalties. Our franchisees typically pay us a royalty fee of 10% of their meeting fee
revenues.
•Other. We license our brand for certain foods, books and other products. We also generate
revenues from the publishing of books and magazines and third-party advertising.
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