WeightWatchers 2006 Annual Report Download - page 88

WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The deferred tax assets (liabilities) recorded on the Company’s consolidated balance sheet are as follows:
December 30,
2006
December 31,
2005
Amortization ............................................... $31,627 $ 54,622
Provision for estimated expenses ................................ 5,789 5,741
Operating loss carryforwards ................................... 7,517 11,385
Salaries and wages ........................................... — 3,317
Share-based compensation ..................................... 5,208 —
Other ..................................................... 5,621 5,034
Less: valuation allowance ..................................... (7,517) (3,420)
Total deferred tax assets ....................................... $48,245 $ 76,679
Depreciation/amortization ..................................... $(3,997) $ (6,168)
Prepaid expenses ............................................ (1,213) (820)
Deferred income ............................................. (362) (198)
Other ..................................................... (4,362) (3,974)
Total deferred tax liabilities .................................... $(9,934) $(11,160)
Net deferred tax assets ........................................ $38,311 $ 65,519
As of December 30, 2006 and December 31, 2005, various foreign subsidiaries had net operating loss
carryforwards of approximately $30,547 and $20,572, respectively, most of which can be carried forward
indefinitely.
As discussed in Note 2, beginning in the first fiscal quarter ended April 3, 2004, the Company’s
consolidated balance sheet includes the balance sheet of WeightWatchers.com. Accordingly, on April 3, 2004,
the Company consolidated a deferred tax asset in the amount of $10,248 primarily due to WeightWatchers.com’s
net operating loss carryforwards, which were offset by a full valuation allowance. During 2004,
WeightWatchers.com received current benefit of $5,546 from its deferred tax asset as a result of the utilization of
net operating loss carryforwards. In fiscal 2004, due to the 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
$1,593 relating to its foreign operations. In fiscal 2005, due to the then recent trend in profitability of certain
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 of
its remaining valuation allowance except for a full valuation allowance of $575 relating to certain foreign
operations. This amount was subsequently reversed in fiscal year 2006 due to the utilization of the net operating
loss carryforwards.
Certain foreign operations of WWI have generated net operating loss carryforwards. It has been determined
that it is more likely than not that the deferred tax assets associated with these net operating loss carryforwards
will not be utilized. Therefore, a full valuation allowance of $7,517 has been recorded.
The Company’s undistributed earnings of foreign subsidiaries are not considered to be reinvested
permanently. Accordingly, the Company has recorded all taxes, after taking into account foreign tax credits, on
the undistributed earnings of foreign subsidiaries.
During the fourth quarter of fiscal 2006, the Company recorded a net tax benefit of approximately $6,300 by
reversing tax reserves which due to the resolution of certain tax matters were no longer necessary, partially offset
by adjustments to its tax valuation allowance for foreign tax net operating loss carryforwards.
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