WeightWatchers 2005 Annual Report Download - page 48

Operating income was $289.9 million for fiscal 2004, a decrease of $26.2 million, or 8.3%, from
$316.1 million for fiscal 2003. Our operating income margin for fiscal 2004 on this stand-alone basis
was 30.0%, as compared to 33.5% in fiscal 2003.
Net interest charges were down 56.7%, or $19.1 million, to $14.6 million for fiscal 2004 from
$33.7 million for fiscal 2003. The repurchase and retirement in fiscal 2003 of most of our 13% Senior
Subordinated Notes and the refinancing of the WWI Credit Facility at that time and again in fiscal
2004 lowered our interest expense significantly.
For fiscal 2004, we reported other income of $9.3 million, as compared to other expense of
$2.8 million for fiscal 2003. In fiscal 2004, we received higher loan repayments from
WeightWatchers.com, which increased our other income by $4.8 million. In fiscal 2003, we incurred
unrealized currency translation gains and losses associated with our 13% Senior Subordinated Notes
until the majority were retired in the third quarter of fiscal 2003. This has resulted in a $9.2 million
decrease in this expense.
We recognized early extinguishment of debt expenses of $4.3 million for fiscal 2004 as a result of
the refinancing of the WWI Credit Facility and the repurchase and retirement of the balance of our
13% Senior Subordinated Notes. These expenses included the write-off of unamortized debt issuance
costs from prior refinancings and the recognition of tender premiums and fees associated with these
transactions. In fiscal 2003, when we repurchased and retired the majority of our 13% Senior
Subordinated Notes, we recognized early extinguishment of debt expenses of $47.4 million. These
included tender premiums of $42.6 million, the write-off of unamortized debt issuance costs of
$4.4 million and $0.4 million of fees associated with the transaction.
Our effective tax rate for fiscal 2004 was 36.1% as compared to 38.0% for fiscal 2003. We recorded
a tax benefit in fiscal 2004 by reversing a $5.5 million accrued but no longer necessary tax liability
recorded as a result of the September 1999 recapitalization and stock purchase transaction with Heinz.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2005 and January 1, 2005, the balance sheets of WeightWatchers.com are fully
consolidated with Weight Watchers International, and therefore the consolidated balance sheets for
both periods are comparable.
Balance Sheet
Comparing the balance sheet at December 31, 2005 with that at January 1, 2005, our cash balance
decreased by $3.7 million from $35.2 million to of $31.5 million. Our working capital deficit at
December 31, 2005 was $38.2 million compared to $26.8 million at January 1, 2005. Excluding cash, the
working capital deficit increased by $7.7 million. Higher accrued expenses and accounts payable is the
result of timing of salaries and other accruals as well as higher bonuses. Higher deferred revenue is
primarily the result of the successful sale of our Seasons Pass prepayment plans for meetings in NACO
of $11.4 million. Inventory and prepaids were lower in fiscal 2005. Program and meeting room material
inventory was built up at a high rate in fiscal 2004 consistent with the timing of our innovation
launches, and has been distributed and utilized throughout fiscal 2005. These decreased amounts were
offset by increases in our accounts receivable, primarily the result of our growing licensing revenues
and changes in income taxes totaling $25.1 million, the result of tax benefits associated with
WeightWatchers.com net operating loss carryforwards, stock option exercises and a reclassification of
tax reserves to long term.
Capital spending has averaged approximately $9.8 million annually over the last three years and
has consisted primarily of leasehold improvements, furniture and equipment for meeting locations and
information system and web-site development expenditures. In fiscal 2005, capital spending was
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