WeightWatchers 2002 Annual Report Download - page 27

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Product sales were $237.6 million for the fiscal year ended December 28, 2002, an increase of
$67.2 million, or 39.4%, from $170.4 million for the fiscal year ended December 29, 2001. Product sales
increased 47.4% to $146.8 million domestically and 28.4% to $90.8 million internationally, reflecting
our strategy to focus product sales efforts worldwide on a core group of products that complement our
program. Product sales increased both as a result of attendance growth and higher sales per individual
attendance in all regions.
Franchise royalties were $25.8 million domestically and $5.6 million internationally for the fiscal
year ended December 28, 2002. In total, franchise royalties increased $3.0 million, or 11.0%, from
$28.3 million for the fiscal year ended December 29, 2001, to $31.3 million in fiscal 2002 on the
strength of increased member attendance and product sales. Year-over-year growth in domestic
franchise royalties was reduced as a result of our acquisition of three franchises during fiscal 2002.
Revenues from publications, licensing and other royalties were $20.0 million for the fiscal year
ended December 28, 2002, an increase of $10.5 million, or 110.5%, from $9.5 million for the fiscal year
ended December 29, 2001. This increase was in large part the result of licensing royalty income from
WeightWatchers.com of $4.2 million, which we began accruing in 2002. Other areas of growth included
international licensing revenues and advertising revenues from our publications.
Cost of revenues was $370.3 million for the fiscal year ended December 28, 2002, an increase of
$83.9 million, or 29.3%, from $286.4 million for the fiscal year ended December 29, 2001 in line with
increases in revenues. Gross profit margin was 54.3% of sales in fiscal 2002, a slight increase from the
54.1% level in fiscal 2001.
Marketing expenses increased $11.5 million, or 16.5%, to $81.2 million in the fiscal year ended
December 28, 2002 from $69.7 million in the fiscal year ended December 29, 2001. Marketing expenses
increased to support the continuing growth of the business. As a percentage of net revenues, marketing
expenses decreased from 11.2% in 2001 to 10.0% in 2002, as we continue to leverage our marketing
efforts across the growing revenue base.
Selling, general and administrative expenses were $61.3 million for the fiscal year ended
December 28, 2002, a decrease of $11.7 million, or 16.0%, from $73.0 million for the fiscal year ended
December 29, 2001. As with marketing expenses, selling, general and administrative expenses in 2002
also declined as a percentage of revenues even after the exclusion of two non-recurring expenses which
totaled $16.0 million from the fiscal 2001 amount. In fiscal 2001, the company wrote-off a $6.2 million
uncollectible receivable from a licensing agreement, and, in addition, expensed $9.8 million of goodwill
amortization, a charge which is no longer required since the adoption in 2002 of SFAS Nos. 141 and
142. Excluding these two items from the year-over-year comparison, selling, general and administrative
expenses rose 7.5% in absolute dollars as a result of normal increases for salaries and other expenses,
and declined as a percentage of revenues from 9.1% in fiscal 2001 to 7.6% in fiscal 2002.
Operating income was $296.8 million for the fiscal year ended December 28, 2002, an increase of
$102.0 million, or 52.4%, from $194.8 million for the fiscal year ended December 29, 2001. The
operating income margin in fiscal year 2002 was 36.7%, up from 31.2% in the prior year. Excluding the
two non-recurring selling, general and administrative items mentioned above, last year’s operating
income margin for the fiscal year was 33.8%.
Other expenses, net were $19.0 million for the fiscal year ended December 28, 2002 as compared
to $13.2 million for the fiscal year ended December 29, 2001. In 2002, we recorded unrealized currency
losses on foreign currency denominated debt and other obligations net of hedges of $17.1 million as
compared to unrealized gains of $5.4 million in 2001. Additionally, in 2001 we recorded reserves of
$17.3 million against our loan to WeightWatchers.com.
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