WeightWatchers 2003 Annual Report Download - page 78

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WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. Income Taxes (Continued)
Therefore, a valuation allowance of $72,100 was established against the corresponding deferred tax
asset. Based on the Company’s performance since the Transaction, the Company determined that the
valuation allowance was no longer required. Accordingly, the provision for taxes for the fiscal year
ended December 29, 2001 includes a one-time reversal (credit) of the remaining balance of the
valuation allowance of $71,903 related to the Transaction.
As of January 3, 2004 and December 28, 2002, various foreign subsidiaries of the Company had
net operating loss carry forwards of approximately $12,387 and $12,359 respectively, most of which can
be carried forward indefinitely.
As of December 29, 2001, the Company’s undistributed earnings of foreign subsidiaries are no
longer 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.
12. Related Party Transactions
WeightWatchers.com:
On September 29, 1999, the Company entered into a subscription agreement with
WeightWatchers.com, Artal and Heinz under which Artal, Heinz and the Company purchased common
stock of WeightWatchers.com for a nominal amount. The Company owns approximately 19.9% of
WeightWatchers.com’s common stock while Artal owns approximately 72.8% of WeightWatchers.com’s
common stock. Because the Company has the ability to exercise significant influence over
WeightWatchers.com it accounts for this investment under the equity method of accounting.
Under the agreement with WeightWatchers.com, the Company granted it an exclusive license to
use its trademarks, copyrights and domain names in electronic media in connection with its online
weight-loss business. The license agreement provides the Company with control of how its intellectual
property is used. In particular, the Company has the right to approve WeightWatchers.com’s
e-commerce activities, marketing programs, privacy policy and materials publicly displayed on the
Internet. These controls are designed to protect the value of the Company’s intellectual property.
Under warrant agreements dated November 24, 1999, October 1, 2000, May 3, 2001, and
September 10, 2001, the Company has received warrants to purchase an additional 6,395 shares of
WeightWatchers.com’s common stock in connection with the loans that the Company has made to
WeightWatchers.com under the note described below. These warrants will expire from November 24,
2009 to September 10, 2011 and may be exercised at a price of $7.14 per share of
WeightWatchers.com’s common stock until their expiration. The exercise price and the number of
shares of WeightWatchers.com’s common stock available for purchase upon exercise of the warrants
may be adjusted from time to time upon the occurrence of certain events.
Loan Agreement:
Pursuant to the amended loan agreement dated September 20, 2001 between the Company and
WeightWatchers.com, through fiscal year 2001, the Company provided loans to WeightWatchers.com
aggregating $34,500. The Company has no further obligation to provide funding to
WeightWatchers.com. Beginning on January 1, 2002, the loan bears interest at 13% per year and
beginning March 31, 2002, interest has been and shall be paid to the Company semi-annually. All
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