WeightWatchers 2003 Annual Report Download - page 60

WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. Basis of Presentation
Weight Watchers International, Inc. and subsidiaries (the ‘‘Company’’) operates and franchises
territories offering weight loss and control programs through the operation of classroom type meetings
to the general public in the United States, Canada, Mexico, the United Kingdom, Continental Europe,
Australia, New Zealand, South Africa, and Brazil.
Recapitalization:
On September 29, 1999, the Company entered into a recapitalization and stock purchase
agreement (the ‘‘Transaction’’) with its former parent, H.J. Heinz Company (‘‘Heinz’’). In connection
with the Transaction, the Company effectuated a stock split of 58,747.6 shares for each share
outstanding. The Company then redeemed 164,442 shares of common stock from Heinz for $349,500.
The number of shares of the Company’s common stock that was authorized and outstanding prior to
the Transaction has been adjusted to reflect the stock split. The $349,500 consisted of $324,500 of cash
and $25,000 of the Company’s redeemable Series A Preferred Stock. After the redemption, Artal
Luxembourg S.A. (‘‘Artal’’) purchased 94% of the Company’s remaining common stock from Heinz for
$223,700. The recapitalization and stock purchase was financed through borrowings under credit
facilities amounting to approximately $237,000 and the issuance of Senior Subordinated Notes
amounting to $255,000, due 2009. The balance of the borrowings was utilized to refinance debt
incurred prior to the Transaction relating to the transfer of ownership and acquisition of the minority
interest in the Weight Watchers businesses that operate in Australia and New Zealand. The acquisition
of the minority interest resulted in approximately $15,900 of goodwill. In connection with the
Transaction, the Company incurred approximately $8,300 in transaction costs and $15,900 in deferred
financing costs. For U.S. Federal and State tax purposes, the Transaction was treated as a taxable sale
under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended. As a result, for tax
purposes, the Company recorded a step-up in the tax basis of net assets. For financial reporting
purposes, a valuation allowance of approximately $72,100 was established against the corresponding
deferred tax asset of $144,200.
Stock Split:
On October 29, 2001, the Company’s Board of Directors declared a 4.70536-for-one stock split,
which became effective concurrent with the effective date, November 15, 2001, of the registration
statement filed by the Company in connection with its initial public offering (‘‘IPO’’). All common
shares and per share amounts have been retroactively restated for the stock split. In addition, stock
options and the respective exercise prices have been amended to reflect this split.
Common Stock Offering:
On November 15, 2001, the Company traded 17,400 shares of its common stock on the New York
Stock Exchange at an initial price to the public of $24.00 per share. The Company did not receive any
of the proceeds from the sale of shares of the Company’s common stock pursuant to the IPO.
Simultaneous with the Transaction, the Company entered into a Registration Rights Agreement
with Artal, under which the Company is obligated at the request of Artal, to register its common stock
with the Securities and Exchange Commission and pay all costs associated with such registration. As a
result, all costs incurred in connection with the Company’s common stock offering have been recorded
in shareholders’ equity (deficit).
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