WeightWatchers 2006 Annual Report Download - page 53

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Long-Term Debt” for a description of our Term Loans and our Revolver) and the third quarter fiscal 2004
repurchase and retirement of the remaining $15.5 million of our 13% Senior Subordinated Notes. These expenses
included the write-off of unamortized debt issuance costs from prior refinancings and the recognition of fees
associated with these refinancing transactions.
Our effective tax rate for fiscal 2005 was 37.6%, as compared to 32.6% for fiscal 2004. We recorded a tax
benefit in the third quarter of fiscal 2004 by reversing a $5.5 million accrued tax liability recorded as a result of
the September 1999 recapitalization and stock purchase transaction with Heinz. Additionally,
WeightWatchers.com benefited throughout fiscal 2005 from the utilization of net operating loss carryforwards,
for which a full valuation allowance had previously been recorded, thus largely eliminating its income tax
expense for that year. In addition, in the fourth quarter of fiscal 2004, WeightWatchers.com recorded a
$5.0 million reversal of its deferred tax valuation allowance which resulted in a $4.8 million tax expense benefit
in that quarter.
LIQUIDITY AND CAPITAL RESOURCES
At December 30, 2006 and December 31, 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 30, 2006 with that at December 31, 2005, our cash balance
increased by $6.0 million from $31.5 million to $37.5 million. Our working capital deficit at December 30, 2006
was $81.8 million compared to $38.2 million at December 31, 2005, an increase of $43.6 million. Excluding the
change in cash, the working capital deficit increased by $49.6 million from December 31, 2005 to December 30,
2006. Approximately $9.1 million of the increase in negative working capital is operational, largely the result of
a $5.0 million increase in deferred revenue for member prepayments associated with our new commitment plans
and a $4.1 million net increase in operating items including payables/accrued expenses (up $32.6 million),
partially offset by higher inventories, prepaid expenses and receivables (up $28.5 million). In addition to these
operational factors, we have a payable related to declaring but not yet paying our $17.1 million fourth quarter
dividend for which there was no corresponding dividend declared in fiscal 2005. Other increases to negative
working capital totaled $23.4 million, a combination of a $14.2 million increase in the current portion of our
long-term debt, and $9.2 million of utilization of WeightWatchers.com’s net operating loss carryforwards, which
reduced our deferred taxes.
Capital spending has averaged approximately $19.3 million annually over the three fiscal years ended
December 30, 2006 and has consisted primarily of leasehold improvements, furniture and equipment for meeting
locations and information system and web-site development expenditures. In fiscal 2006, we invested more
heavily in information systems. As a result, capital spending was $31.0 million in fiscal 2006, as compared to
$19.4 million in fiscal 2005.
Cash Flow
For fiscal 2006 and 2005, the statement of cash flows for WeightWatchers.com is fully consolidated with
our statement of cash flows. For fiscal 2004, the statement of cash flows for WeightWatchers.com was fully
consolidated only for the nine months ended January 1, 2005. For the first quarter of fiscal 2004, the cash flows
for WeightWatchers.com were reflected on a single line entitled “Impact of Consolidating WeightWatchers.com”
in the amount of $5.7 million.
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