WeightWatchers 2005 Annual Report Download - page 25

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Consummating these transactions could also result in the incurrence of additional debt and related
interest expense, as well as unforeseen contingent liabilities, all of which could have a material adverse
effect on our business, financial condition and results of operations. We may also issue additional
equity in connection with these transactions, which would dilute our existing shareholders.
Disputes with our franchise operators could divert our management’s attention from their ordinary
responsibilities.
In the past, we have had disputes with our franchisees regarding operations and other contractual
issues. We continue to have disputes with some of our franchisees regarding the interpretation of
franchisee rights as they relate to the Internet and mail-order products. These disputes and any future
disputes could divert the attention of our management from their ordinary responsibilities.
Our results of operations may decline as a result of a downturn in general economic conditions or
consumer confidence.
Our results of operations are highly dependent on meeting fees, product sales and Internet product
subscriptions. A downturn in general economic conditions or consumer confidence and spending in any
of our major markets, including as a result of a terrorist attack, could result in people curtailing their
discretionary spending, which, in turn, could reduce attendance at our meetings, product sales and
Internet product subscriptions. Any such reduction would adversely affect our results of operations. In
addition, any event that discourages people from gathering with others, including as a result of a health
epidemic, could adversely affect our business.
The seasonal nature of our business could cause our operating results to fluctuate.
We have experienced and expect to continue to experience fluctuations in our quarterly results of
operations. Our business is seasonal with revenues generally decreasing at year end and during the
summer months. This seasonality could cause our share price to fluctuate as the results of an interim
financial period may not be indicative of our full year results. Seasonality also impacts relative revenue
and profitability of each quarter of the year, both on a quarter-to-quarter and year-over-year basis. The
timing of certain holidays, particularly Easter, which precedes the spring diet season and occurs
between March 22 and April 25, may affect our results of operations and the year-to-year comparability
of our results. For example, in 2006, Easter will fall on April 16, which means that the pre-summer diet
season will begin later than it did in 2005. This seasonality could cause our stock price to fluctuate as
the comparative change in our results for an interim financial period may not be indicative of our full
year results.
In addition, our meeting operations are subject to local conditions beyond our control, including
weather, natural disasters and other extraordinary events, that may prevent current or prospective
members from attending or joining meetings. For example, our NACO attendance was adversely
affected in the third quarter of fiscal 2005 by the impact of Hurricane Katrina and its aftermath. The
inability of prospective members to join our meetings at the beginning of a diet season could adversely
affect our results of operations throughout the entire diet season.
Third parties may infringe on our brand name and other intellectual property rights, which may have
an adverse impact on our business.
We currently rely on a combination of trademark, copyright, trade secret, patent and other
intellectual property laws and confidentiality procedures to establish and protect our proprietary rights,
including our brand name. If we fail to successfully enforce our intellectual property rights, the value of
our brand name, products and services could be diminished and our business may suffer. Our
precautions may not prevent misappropriation of our intellectual property, particularly in foreign
countries where laws or law enforcement practices may not protect our proprietary rights as fully as in
the United States. Any legal action that we may bring to protect our brand name and other intellectual
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