WeightWatchers 2004 Annual Report Download - page 31

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Marketing expenses increased $6.6 million, or 5.8%, to $120.2 million for the year ended
January 1, 2005 from $113.6 million in the year ended January 3, 2004, with the majority of the
increase resulting from currency translation. As a percentage of net revenue, marketing expenses were
12.4% for the year, as compared to 12.0% in the prior year period, driven by the softness in revenues.
Selling, general and administrative expenses were $87.8 million for the year ended January 1, 2005,
an increase of $14.0 million, or 19.0%, from $73.8 million in the prior year. Expenses were driven up
by professional fees and expenses related to compliance with Sarbanes-Oxley, as well as by a
strengthening of our management team and increase in our headcount to drive the future growth of
our business. Selling, general and administrative expenses were 9.1% of revenues for the year ended
January 1, 2005, as compared to 7.8% in the prior year.
Operating income was $289.9 million for the year ended January 1, 2005, a decrease of
$26.2 million, or 8.3%, from $316.1 million for the year ended January 3, 2004. Our operating income
margin for the year on this stand-alone basis was 30.0%, as compared to 33.5% in the prior year.
Net interest charges were down 56.7%, or $19.1 million, to $14.6 million for the year ended
January 1, 2005 from $33.7 million for the year ended January 3, 2004. The repurchase and retirement
in the third quarter of 2003 of most of our 13% Senior Subordinated Notes and the refinancing of our
Credit Facility at that time and again in January 2004 lowered our interest expense significantly.
For the year ended January 1, 2005, we reported other income of $9.3 million, as compared to
other expense of $2.8 million for the year ended January 3, 2004. In 2004, we received higher loan
repayments from WeightWatchers.com, which increased our other income by $4.8 million. In 2003, we
incurred unrealized currency translation gains and losses associated with our Senior Subordinated Notes
until the majority were retired in the third quarter of 2003. This has resulted in a $9.2 million decrease
in this expense.
We recognized early extinguishment of debt expenses of $4.3 million for the year ended January 1,
2005 as a result of the refinancing of our Credit Facility, which we undertook in the first quarter of
2004, and the repurchase and retirement of the balance of our Senior Subordinated Notes in the third
quarter of 2004. These expenses included the write off of unamortized debt issuance costs from prior
refinancings and the recognition of tender premiums and fees associated with these transactions. In the
third quarter of 2003, when we repurchased and retired the majority of our Senior Subordinated Notes,
we recognized early extinguishment of debt expenses of $47.4 million. These included tender premiums
of $42.6 million, the write off of unamortized debt issuance costs of $4.4 million and $0.4 million of
fees associated with the transaction.
Our effective tax rate for the year ended January 1, 2005 was 36.1% as compared to 38.0% for the
year ended January 3, 2004. We recorded a tax benefit in the third quarter of 2004 by reversing a
$5.5 million accrued but no longer necessary tax liability recorded as a result of the September 1999
recapitalization and stock purchase transaction with our former parent, H.J. Heinz Company.
Comparison of the fiscal year ended January 3, 2004 (53 weeks) to the fiscal year ended December 28, 2002
(52 weeks).
Net revenues were $943.9 million for the fiscal year ended January 3, 2004, an increase of
$134.3 million, or 16.6%, from $809.6 million for the fiscal year ended December 28, 2002. The 16.6%
increase in net revenues was partially the result of worldwide attendance growth of 10.1%, which drove
an $86.5 million increase in classroom meeting fees. The other components of the $134.3 million
increase in net revenues in fiscal 2003 over fiscal 2002 were $39.2 million of product sales, $2.9 million
of royalties from our licensee, WeightWatchers.com, $12.2 million attributable to our publications and
other licensing sources, offset by a $6.5 million decrease in franchise revenues. Excluding the impact of
fluctuations in foreign currency translations, meeting fees and product sales increased 10.7% in North
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