WeightWatchers 2005 Annual Report Download - page 73

Download and view the complete annual report

Please find page 73 of the 2005 WeightWatchers annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 128

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128

acquisition of WeightWatchers.com in July 2005, Weight Watchers International earned royalties of
$5.4 million. For fiscal 2004, Weight Watchers International earned royalties of $8.2 million.
Weight Watchers International retains exclusive ownership of all of the trademarks and materials
that it licenses to WeightWatchers.com and of the derivative works created by WeightWatchers.com. All
of the rights granted to WeightWatchers.com in the license agreement are subject to Weight Watchers
International’s pre-existing agreements with third parties, including franchisees. The license agreement
provides Weight Watchers International with control over the use of our intellectual property. In
particular, Weight Watchers International has the right to approve WeightWatchers.com’s e-commerce
activities, any materials, sublicenses, communication to consumers, products, privacy policy, marketing
programs and materials publicly displayed on the Internet. These controls are designed to protect the
value of our intellectual property. WeightWatchers.com and Weight Watchers International jointly own
user data collected through the website and both parties are required to adhere to the site’s privacy
policy.
WeightWatchers.com Service Agreement
Simultaneously with the signing of the amended and restated intellectual property license, we
entered into a service agreement with WeightWatchers.com, under which WeightWatchers.com provides
the following types of services:
• information distribution services, which include the hosting, displaying and distributing on the
Internet of information relating to us and our affiliates and franchisees;
• marketing services, which include the hosting, displaying and distributing on the Internet of
information relating to our products and services such as classroom meetings, the Weight
Watchers Magazine and At Home and similar products and services from our affiliates and
franchisees; and
• customer communication services, which include establishing a means by which customers can
communicate with us on the Internet to ask questions related to our products and services and
the products and services of our affiliates and franchisees.
Weight Watchers International 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. For fiscal 2005, prior to the acquisition of WeightWatchers.com in July 2005, Weight Watchers
International service fees incurred by Weight Watchers International to WeightWatchers.com were
$1.4 million. In fiscal 2004, service fees incurred by Weight Watchers International to
WeightWatchers.com were $2.3 million.
Acquisition of WeightWatchers.com
On June 13, 2005, we entered into an agreement to acquire control of our licensee and affiliate,
WeightWatchers.com. On July 1 and 2, 2005, we increased our ownership interest in
WeightWatchers.com from approximately 20% to approximately 53% by (i) exercising warrants to
purchase WeightWatchers.com common stock for a total purchase price of approximately $45.7 million,
(ii) acquiring shares of WeightWatchers.com common stock owned by the employees of
WeightWatchers.com and other parties not related to Artal through a merger of a subsidiary of ours
with WeightWatchers.com for a total purchase price of approximately $28.4 million and (iii) acquiring
additional shares of WeightWatchers.com common stock, representing outstanding stock options then
held by WeightWatchers.com employees, for a total purchase of approximately $62.3 million.
On June 13, 2005, WeightWatchers.com also entered into a redemption agreement with Artal to
purchase all of the shares of WeightWatchers.com owned by Artal at the same price per share as we
paid in the merger.
63