WeightWatchers 2004 Annual Report Download - page 88

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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)
benefit of its deferred tax assets. As such, in the fourth quarter of 2004, WeightWatchers.com reversed
all of its remaining valuation allowance except for $1,593 relating to its foreign operations.
As of January 1, 2005, WeightWatchers.com has net operating loss carryforwards of approximately
$10,500 for federal income tax purposes. These losses are available to reduce future
WeightWatchers.com taxable income and will begin to expire at varying amounts after 2019.
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, WWI entered into a subscription agreement with WeightWatchers.com,
Artal and Heinz under which Artal, Heinz and WWI purchased common stock of WeightWatchers.com
for a nominal amount. WWI owns approximately 20.1% of WeightWatchers.com’s common stock while
Artal owns approximately 72.8% of WeightWatchers.com’s common stock.
Under the agreement with WeightWatchers.com, WWI 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 WWI with control of how its intellectual property is used. In
particular, WWI 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 WWI’s intellectual property.
Under warrant agreements dated November 24, 1999, October 1, 2000, May 3, 2001, and
September 10, 2001, WWI has received warrants to purchase an additional 6,395 shares of
WeightWatchers.com’s common stock in connection with the loans that WWI 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.
Due to the adoption of FIN 46R, the Company’s consolidated financial statements include the
financial statements of WeightWatchers.com beginning April 3, 2004. As a result, for all periods
through and including the first quarter of 2004, WWI’s transactions with WeightWatchers.com were not
considered intercompany activities and therefore, the resulting income/(expense) has been included in
the Company’s consolidated results of operations. Beginning in the second quarter of 2004 with the
adoption of FIN 46R, all transactions with WeightWatchers.com are now considered intercompany
activities and, therefore, are eliminated in consolidation.
The Company’s consolidated results for the year ended January 1, 2005 include only the income/
(expense) resulting from WWI’s activities with WeightWatchers.com that took place in the first quarter
of 2004. However, the Company’s consolidated results for the years ended January 3, 2004 and
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