WeightWatchers 2006 Annual Report Download - page 26

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.
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.
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