WeightWatchers 2003 Annual Report Download - page 79

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WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
12. Related Party Transactions (Continued)
principal outstanding under the agreement is payable in six semi-annual installments commencing on
March 31, 2004. For the years ended January 3, 2004 and December 28, 2002, the Company recorded
interest income on the loan of $4,219 and $4,454, respectively. As of January 3, 2004 and December 28,
2002, the interest receivable balance was $1,009 and $1,106, respectively, and is included within
receivables, net. As WeightWatchers.com is an equity investee, and the Company was the only entity
providing funding through fiscal year 2001, the Company reduced its loan receivable balances by 100%
of WeightWatchers.com’s losses in fiscal 2001. Additionally, the remaining loan receivable balances were
reviewed for impairment on a quarterly basis and, accordingly, during fiscal 2001 the Company
recorded a full valuation allowance against the remaining balances. During fiscal 2003, the Company
received a voluntary loan repayment of $5,000 that was recorded as a component of other expense, net.
Intellectual Property License:
The Company entered into an amended and restated intellectual property license agreement dated
September 29, 2001 with WeightWatchers.com. In fiscal 2002, the Company began earning royalties
pursuant to the agreement. For the years ended January 3, 2004 and December 28, 2002, the Company
recorded royalty income of $7,080 and $4,175, respectively, which was included in product sales and
other, net. As of January 3, 2004 and December 28, 2002, the receivable balance was $1,758 and
$1,280, respectively, and is included within receivables, net.
Service Agreement:
Simultaneous with the signing of the amended and restated intellectual property license agreement,
the Company entered into a service agreement with WeightWatchers.com, under which
WeightWatchers.com provides certain types of services. The Company is required to pay for all
expenses incurred by WeightWatchers.com directly attributable to the services it performs under this
agreement, plus a fee of 10% of those expenses. The Company recorded service expense of $1,971,
$1,862 and $554 for the years ended January 3, 2004, December 28, 2002 and December 29, 2001,
respectively, that was included in marketing expenses. The accrued service payable at January 3, 2004
and December 28, 2002 was $1,223 and $484, respectively, and is netted against receivables, net.
Nellson Agreement:
On November 30, 1999, the Company entered into an agreement with Nellson Neutraceutical, Inc.
(‘‘Nellson’’), which up until October 4, 2002 was a wholly-owned subsidiary of Artal, to purchase
nutrition bar products manufactured by Nellson for sale at the Company’s meetings. Upon sale by
Artal, Nellson is no longer considered a related party. Under the agreement, Nellson agrees to produce
sufficient nutrition bar products to fill the Company’s purchase orders within 30 days of receipt. The
Company is not bound to purchase a minimum quantity of nutrition bar products. The term of the
agreement runs through December 31, 2004, and the Company has the option to renew the agreement
for successive one-year periods by providing written notice to Nellson. Management believes the
provisions of the agreement are comparable to those the Company would receive from a third party.
Total purchases from Nellson for the fiscal years ended December 28, 2002 and December 29, 2001
were $24,351, and $18,706, respectively. These purchases represent approximately 21% and 22% of
total inventory purchases for the fiscal years ended December 28, 2002 and December 29, 2001,
respectively.
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