WeightWatchers 2005 Annual Report Download - page 34

that were subsequently repaid by the end of the second quarter of 2002. On July 2, 2002 and
September 1, 2002, we acquired the assets of our franchises in San Diego and eastern North Carolina
for a total purchase price of $11.0 million and $10.6 million, respectively. These acquisitions were
financed through cash from operations. The acquisitions were accounted for as purchases and,
accordingly, earnings from these franchises have been included in our consolidated operating results
since the respective dates of the acquisitions.
Acquisition of Oregon. On September 4, 2001, we acquired certain business assets of Weight
Watchers of Oregon, Inc. for an aggregate purchase price of $13.5 million. The acquisition was financed
through cash from operations. The acquisition has been accounted for as a purchase and, accordingly,
earnings have been included in our consolidated operating results since the date of acquisition.
Acquisition of Weighco. On January 16, 2001, we acquired certain business assets of Weighco for
an aggregate purchase price of $83.8 million. The acquisition was financed through additional
borrowings under the WWI Credit Facility of $60.0 million and cash from operations. The acquisition
has been accounted for as a purchase and, accordingly, Weighco’s earnings have been included in our
consolidated operating results since the date of acquisition.
Reversal of Tax Valuation Allowances and Tax Reserves
During the fourth quarter of fiscal 2001, we reversed the remaining tax valuation allowance set up
in conjunction with the acquisition of us by Artal in 1999. At the time of the acquisition, we
determined that it was more likely than not that a portion of the deferred tax asset would not be
utilized. Therefore, a valuation allowance of approximately $72.1 million was established against the
corresponding deferred tax asset. Based on our performance since the acquisition, we determined that
the valuation allowance was no longer required. Accordingly, the provision for taxes for fiscal 2001
included a one-time reversal (credit) of the remaining balance of the valuation allowance of
$71.9 million.
During the third quarter of fiscal 2004, we recorded a tax benefit by reversing a $5.5 million
accrued but no longer necessary tax liability resulting from the September 1999 recapitalization and
stock repurchase transaction with Heinz. In the fourth quarters of fiscal 2005 and fiscal 2004, we
recorded a tax benefit by reversing a $0.9 million and $2.8 million state tax reserve, respectively, with
respect to accrued but no longer necessary state tax liabilities. During the fourth quarter of fiscal 2004,
WeightWatchers.com received a benefit of $5.5 million from its deferred tax asset as a result of the
utilization of net operating loss carryforwards. Also in the fourth quarter of fiscal 2004, due to the then
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 $1.5 million relating
to its foreign operations. Also in the fourth quarter of fiscal 2005, due to the recent trend in
profitability of certain of 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 but $0.6 million of its remaining valuation allowance relating to
its foreign operations.
24