WeightWatchers 2005 Annual Report Download - page 104

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WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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 primarily due to
WeightWatchers.com’s net operating loss carryforwards, which were offset by a full valuation allowance.
During 2004, WeightWatchers.com received current benefit of $5,546 from its deferred tax asset as a
result of the utilization of net operating loss carryforwards. In fiscal 2004, due to the recent trend in
profitability of WeightWatchers.com, it was concluded that it was more likely than not that
WeightWatchers.com would fully realize the benefit of its deferred tax assets. As such,
WeightWatchers.com reversed all of its remaining valuation allowance except for $1,593 relating to its
foreign operations. In fiscal 2005, due to the then recent trend in profitability of certain
WeightWatchers.com’s foreign operations, it was concluded that it was more likely than not that these
foreign operations would fully realize the benefit of its deferred tax assets. As such,
WeightWatchers.com reversed all of its remaining valuation allowance except for a full valuation
allowance of $575 relating to certain foreign operations.
Certain foreign operations of WWI have generated net operating loss carryforwards. It has been
determined that it is more likely than not that the deferred tax assets associated with these net
operating loss carryforwards will not be utilized. Therefore, a full valuation allowance of $2,845 has
been recorded.
As of December 31, 2005, WeightWatchers.com has net operating loss carryforwards of
approximately $19,000 for federal income tax purposes. These losses are available to reduce future
Weight Watchers International, Inc.’s consolidated taxable income and will begin to expire at varying
amounts after 2020.
The Company’s undistributed earnings of foreign subsidiaries are not considered to be reinvested
permanently. Accordingly, the Company has recorded all taxes, after taking into account foreign tax
credits, on the undistributed earnings of foreign subsidiaries.
11. Related Party Transactions
Transactions with WeightWatchers.com:
WeightWatchers.com was formed on September 22, 1999 to develop and market monthly
subscription weight loss plans on the Internet. WeightWatchers.com provides these weight management
products to consumers through paid access to specified areas of its website. It also provides marketing
services to WWI.
Due to the adoption of FIN 46R, the Company’s consolidated financial statements include the
financial statements of WeightWatchers.com beginning April 3, 2004. As a result, for all periods
through and including the first quarter of 2004, WWI’s transactions with WeightWatchers.com were not
considered intercompany activities and therefore, the resulting income/(expense) has been included in
the Company’s consolidated results of operations. Beginning in the second quarter of 2004 with the
adoption of FIN 46R, all transactions with WeightWatchers.com are now considered intercompany
activities and, therefore, are eliminated in consolidation.
Therefore, the Company’s consolidated results for the year ended December 31, 2005 contain no
income/(expense) related to WWI’s activities with WeightWatchers.com since all such activity was
eliminated in consolidation. However, the Company’s consolidated results for the year ended January 1,
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