WeightWatchers 2005 Annual Report Download - page 24

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The Weight Watchers brand could be impaired due to actions taken by our franchisees and licensees.
We believe that the Weight Watchers brand is one of our most valuable assets and that our
reputation provides us with a competitive advantage. Our franchisees operate their businesses under
our brand. In addition, we license the Weight Watchers brand to third-party manufacturers of a variety
of goods, including food products. Because our franchisees and licensees are independent third parties
with their own financial objectives, actions taken by them, including breaches of their contractual
obligations, such as not following our diets or not maintaining our quality standards, could harm our
brand or reputation. Also, the products we license to third parties may be subject to product recalls or
other deficiencies. Any negative publicity associated with these actions would adversely affect our
reputation and may result in decreased products sales, meeting attendance and Internet subscriptions
and, as a result, lower revenues and profits.
Our international operations expose us to economic, political and social risks in the countries in which
we operate.
The international nature of our operations involves a number of risks, including changes in U.S.
and foreign government regulations, tariffs, taxes and exchange controls, economic downturns, inflation
and political and social instability in the countries in which we operate and our dependence on foreign
personnel. Foreign government regulations may also restrict our ability to operate in those countries,
acquire new businesses or repatriate dividends from foreign subsidiaries back to the United States. We
cannot be certain that we will be able to enter and successfully compete in additional foreign markets
or that we will be able to continue to compete in the foreign markets in which we currently operate.
We are exposed to foreign currency risks from our international operations that could adversely affect
our financial results.
A significant portion of our revenues and operating costs are denominated in foreign currencies.
We are therefore exposed to fluctuations in the exchange rates between the U.S. dollar and the
currencies in which our foreign operations receive revenues and pay expenses. We do not currently
hedge, and have not historically hedged, our operational exposure to foreign currency fluctuations. Our
consolidated financial results are denominated in U.S. dollars and therefore, during times of a
strengthening U.S. dollar, our reported international revenues and earnings will be reduced because the
local currency will translate into fewer U.S. dollars. In addition, the assets and liabilities of our
non-U.S. subsidiaries are translated into U.S. dollars at the exchange rates in effect at the balance
sheet date. Revenues and expenses are translated into U.S. dollars at the average exchange rate for the
period. Translation adjustments arising from the use of differing exchange rates from period to period
are recorded in shareholders’ equity as accumulated other comprehensive income (loss). Translation
adjustments arising from intercompany receivables with our foreign subsidiaries are generally recorded
as a component of other expense (income). Accordingly, changes in currency exchange rates will cause
our net income and shareholders’ equity to fluctuate.
We may not successfully make or integrate acquisitions.
As part of our growth strategy, we intend to pursue selected acquisitions. We cannot assure you
that we will be able to effect acquisitions on commercially reasonable terms or at all. Even if we enter
into these transactions, we may not realize the benefits we anticipate or we may experience: difficulties
in integrating any acquired companies and products into our existing business; attrition of key
personnel from acquired businesses; significant charges or expenses; higher costs of integration than we
anticipated; or unforeseen operating difficulties that require significant financial and managerial
resources that would otherwise be available for the ongoing development or expansion of our existing
operations.
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