WeightWatchers 2004 Annual Report Download - page 76

WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. Acquisitions (Continued)
On March 30, 2003, the Company completed the acquisition of certain assets of eight of the fifteen
franchises of The WW Group, Inc. and its affiliates (the ‘‘WW Group’’) pursuant to the terms of an
Asset Purchase Agreement executed on March 31, 2003 among the WW Group, The WW Group East
L.L.C., The WW Group West L.L.C., Cuida Kilos, S.A. de C.V., Weight Watchers North America, Inc.
and the Company. The purchase price for the acquisition was $180,700 plus assumed liabilities of $448
and acquisition costs of $866. The Company completed the purchase price allocation in the fourth
quarter of 2003 as follows: franchise rights ($177,128), inventory ($2,741), prepaid expenses ($36) and
property and equipment ($2,109). The acquisition was financed through cash from operations and
additional borrowings of $85,000 under a new Term Loan D under the Company’s Credit Facility, as
amended on April 1, 2003 (as defined in Note 6).
The following table presents unaudited pro forma financial information that reflects the
consolidated operations of the Company and the acquired franchises of the WW Group as if the
acquisition had occurred as of the beginning of the respective periods. The pro forma financial
information does not give effect to any synergies that might result nor any discontinued expenses from
the acquisition of the WW Group. Such discontinued expenses are estimated by management to be
approximately $3,300 and $12,000 for the years ended January 3, 2004 and December 28, 2002,
respectively. These expenses relate to corporate expenses of the owners of the WW Group and other
indirect expenses of non-acquired franchises for the periods detailed below. This pro forma information
does not necessarily reflect the actual results that would have occurred, nor is it necessarily indicative
of future results of operations of the consolidated companies.
Pro Forma
For the fiscal year ended
January 3, December 28,
2004 2002
Revenue ...................................... $963,644 $885,510
Net income .................................... $145,200 $147,767
Diluted earnings per share ......................... $ 1.32 $ 1.35
During 2003, the Company also completed the acquisition of franchises in Mexico and Hong Kong,
as well as a third party entity, Easy Slim, for a total purchase price of $1,271, which was paid with cash
from operations. As a result of these three acquisitions, the Company recorded goodwill of $395 and
franchise rights of $1,326. Pro forma results of operations, assuming these acquisitions had been
completed at the beginning of fiscal 2003 and 2002, would not differ materially from the reported
results.
4. Goodwill and Other Intangible Assets
In accordance with SFAS No. 142, beginning in fiscal 2002, the Company no longer amortizes
goodwill or other indefinite lived intangible assets. The Company performed fair value impairment
testing as of January 1, 2005 and January 3, 2004 on its goodwill and other indefinite-lived intangible
assets and determined that no impairment existed. Unamortized goodwill is due mainly to the
acquisition of the Company by Heinz in 1978. The balance in goodwill increased during the year ended
January 1, 2005 primarily due to the Company’s purchase of the minority interest in one of its foreign
F-14