WeightWatchers 2004 Annual Report Download - page 87

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WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. Income Taxes (Continued)
The difference between the U.S. federal statutory tax rate and the Company’s consolidated
effective tax rate are as follows:
January 1, January 3, December 28,
2005 2004 2002
U.S. federal statutory rate ................. 35.0% 35.0% 35.0%
Federal and state tax reserve reversal ......... (2.5) (0.2) (0.2)
States income taxes (net of federal benefit) ..... 2.7 4.0 4.0
Reduction in valuation allowance ............ (3.5) — —
Other ................................ 0.9 (0.8) 0.2
Effective tax rate ...................... 32.6% 38.0% 39.0%
The deferred tax assets (liabilities) recorded on the Company’s consolidated balance sheet are as
follows:
January 1, January 3,
2005 2004
Amortization .................................... $75,449 $ 96,615
Provision for estimated expenses ...................... 1,872 1,442
Operating loss carryforwards ......................... 5,811 3,814
WeightWatchers.com loan ........................... — 11,505
Other .......................................... 2,194 2,067
Less: valuation allowance ............................ (1,593) —
Total deferred tax assets ............................ $83,733 $115,443
Depreciation/amortization ........................... $(2,109) $ —
Prepaid expenses .................................. (1,061) —
Deferred income .................................. (85) (65)
Other .......................................... (3,756) (1,775)
Total deferred tax liabilities .......................... $(7,011) $ (1,840)
Net deferred tax assets ............................. $76,722 $113,603
As of January 1, 2005 and January 3, 2004, various foreign subsidiaries of WWI had net operating
loss carry forwards of approximately $7,956 and $12,387 respectively, most of which can be carried
forward indefinitely.
As discussed in Note 2, beginning in the first fiscal quarter ended April 3, 2004, the Company’s
consolidated balance sheet includes the balance sheet of WeightWatchers.com. Accordingly, on April 3,
2004, the Company consolidated a deferred tax asset in the amount of $10,248 due to
WeightWatchers.com’s net operating loss carryforwards, which were offset by a full valuation allowance.
During 2004, WeightWatchers.com received a current benefit of $5,546 from its deferred tax asset as a
result of the utilization of net operating loss carryforwards. Due to the recent trend in profitability of
WeightWatchers.com, it is now more likely than not that WeightWatchers.com will fully realize the
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