SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 2001.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File no 000-03389
WEIGHT WATCHERS INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
Virginia
(State or other jurisdiction of
incorporation or organization)
11-6040273
(I.R.S. Employer
Identification No.)
175 Crossways Park West, Woodbury, New York 11797-2055
(Zip code)
(Address of principal executive offices)
Registrant’s telephone number, including area code:
(516) 390-1400
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class
Common Stock, no par value
Preferred Stock Purchase Rights
Name of each exchange on which registered
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X
No ____
Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value, as determined by the average bid and ask price on the New
York Stock Exchange, of the voting stock held by non-affiliates (shareholders holding less than
5% of the outstanding Common Stock, excluding directors and officers), as of January 31, 2002
was $887,393,414.
The number of common shares outstanding as of January 31, 2002 was 105,600,658.
Documents incorporated by reference: None
1
Part I
Item 1. Business
Weight Watchers International, Inc. (herein, together with its subsidiaries unless the
context otherwise requires, generally referred to as the “Company”) was incorporated in Virginia
in 1974, as a successor to a business founded in 1963.
The Company is a leading global branded consumer company and the world’s leading
provider of weight-loss services, operating in 30 countries around the world. The Company’s
programs help people lose weight and maintain their weight loss and, as a result, improve their
health, enhance their lifestyles and build self-confidence. At the core of the Company’s business
are weekly meetings, which promote weight loss through education and group support in
conjunction with a flexible, healthy diet. Each week, more than one million members attend
approximately 39,000 Weight Watchers meetings, which are run by over 14,000 classroom leaders.
The Company conducts its business through a combination of company-owned and
franchise operations, with company-owned operations accounting for approximately 65% of total
worldwide attendance in the fiscal year ended December 29, 2001. In the 1960's the Company
pursued an aggressive franchising strategy with respect to its classroom operations to rapidly grow
its geographic presence and build market share. The Company believes that its early franchising
strategy was very effective in establishing its brand as the world's leading weight-loss program.
The following schedule sets forth the Company’s revenues by category for the fiscal year
ended December 29, 2001, the eight months ended December 30, 2000, and the fiscal years ended
April 29, 2000 and April 24, 1999.
Revenue Sources
(in millions)
Fiscal Year
Ended
December 29,
2001
$ 262.5
153.2
170.4
23.3
5.0
9.5
$ 623.9
Eight Months
Ended
Fiscal Years Ended
December 30,
April 29,
April 24,
2000
$ 96.8
87.3
66.4
14.9
2.8
5.0
$ 273.2
2000
$ 130.8
152.7
84.2
21.3
4.5
6.1
$ 399.6
1999
$ 122.3
143.9
57.3
19.1
4.1
17.9
$ 364.6
North America Meeting Fees
International Meeting Fees
Product Sales
Domestic Franchise Commissions
Foreign Franchise Commissions
Other
Total Sales
On January 16, 2001, the Company acquired the franchised territories and certain business
assets of Weighco Enterprises, Inc., Weighco of Northwest, Inc. and Weighco of Southwest, Inc.
(“Weighco”) for $83.8 million. The pro forma financial information for the acquisition of
Weighco, for the fiscal year ended December 29, 2001 shows that the Company’s revenues grew
more than 28% over the comparable period in the prior year. The pro forma financial information
assumes the acquisition of Weighco occurred at the beginning of the earliest period presented.
2
The following table sets forth the Company’s worldwide attendance for the fiscal year
ended December 29, 2001, the eight months ended December 30, 2000 and the fiscal years ended
April 29, 2000 and April 24, 1999.
Attendance in Company-Owned Operations
(in millions)
Fiscal Year
Ended
December 29,
2001
(52 weeks)
Eight Months
Ended
December 30,
2000
(35 weeks)
Fiscal Years
Ended
April 29,
April 24,
2000
(53 weeks)
1999
(52 weeks)
North America
United Kingdom
Continental Europe
Other International
Total
23.5
11.6
8.7
3.2
47.0
8.9
7.0
4.6
1.9
22.4
13.2
10.6
6.1
3.3
33.2
10.9
9.8
5.7
3.4
29.8
The Company’s worldwide attendance has grown by 57.7% in its company-owned
operations from 29.8 million in the fiscal year ended April 24, 1999 to 47.0 million in the fiscal
year ended December 29, 2001. The acquisition of Weighco contributed to this attendance growth.
The Company is engaged principally in one line of business, weight control. Financial
information of the Company in each of its geographic areas is provided in Note 16 of the notes to
the consolidated financial statements.
Throughout its history, the Company has based its program on four core elements: group
support, behavior modification, diet and exercise. The group support system remains the
cornerstone of the Company’s classes. Members provide each other support by sharing their
experiences and their encouragement and empathy with other people enduring similar weight-loss
challenges. This group support provides the reassurance that no one must overcome their weight-
loss challenges alone. The Company facilitates this support through interactive meetings that
encourage learning through group activities and discussions.
Behavior modification and education on eating habits have also always been key elements
of the Company’s program. The Company uses motivation, education and support to help
members manage their weight and to change their habits. Discussions on topics such as staying
motivated, how to avoid overeating and managing stress offer members valuable insight on how to
stay on the Company’s program while dealing with the realities of everyday life. The Company’s
U.S. members also currently learn “Tools for Living,” a program of eight fundamental goal setting
and motivational principles. In addition, the Company’s U.S. members currently receive a booklet
titled “Managing Your Weight From the Inside Out” that teaches members how to develop a
positive mind-set about weight control, new approaches to problem solving and specific ideas for
handling some of the most common weight-loss issues. The Company’s international members
learn similar principles and receive similar publications.
3
The Company’s diets allow members to eat regular meals instead of pre-packaged meals.
By giving members the freedom to choose what they eat, the Company’s diets are flexible and
adjusted to modern lifestyles. In order to keep the Company’s diets at the forefront of weight-loss
science, each is designed in consultation with doctors and other scientific advisors. The Company
continually strives to improve its diets by periodically testing, then introducing, new features.
The Company’s current diets feature the POINTS system, which assigns each food a
POINTS value based on its nutritional content. Members are given a daily POINTS goal to use on
whatever combination of food they prefer so long as the total does not exceed the goal. While no
food is forbidden, the Company’s POINTS-based diets encourage members to eat a wide variety of
foods in amounts that promote healthy weight loss. The Company’s diets help members choose
foods that are low in fat, high in complex carbohydrates and moderate in protein. The Company
customizes its diets from country to country in order to suit local tastes, as well as package labeling
differences between countries. The Company’s current U.S. diet, Winning Points, allows members
to carry back or carry forward unused POINTS and thus gives members the flexibility to participate
in special occasions and special meals. The Company’s current U.K. diet is branded Pure Points,
and the Company’s current diet in Continental Europe is marketed as The Points Plan.
The final key element of the program is exercise. Exercise is an important component of
weight loss and the Company’s overall program to lose weight. The Company’s classroom leaders
emphasize the importance of exercise to weight loss and in leading a healthy, balanced lifestyle. In
addition, the Company’s Winning Points diet promotes exercise by granting members additional
POINTS for their diet based on the type and amount of exercise in which they engage. The
Company’s U.S. members currently receive "The Weight Watchers Activity Guide," which is
designed to promote exercise and activity outside of the classroom. This exercise guide is
consistent with the recommendations for physical activity outlined by both the Center for Disease
Control and Prevention and the American College of Sports Medicine. International members
receive similar information.
The Company presents its program in a series of weekly classes of approximately one hour
in duration. Classes are conveniently scheduled throughout the day. Typically, the Company holds
classes in either meeting rooms rented from civic or religious organizations or in leased locations.
In the Company’s classes, the leaders present the Company’s program, which combines
group support and education about healthy eating patterns, behavior modification and physical
activity with the Company’s scientifically developed diet. The Company’s more than 14,000
classroom leaders run meetings and educate members on the process of successful and sustained
weight loss. The Company’s leaders also provide inspiration and motivation for members and
represent examples of the program’s effectiveness because they have lost weight and maintained
their weight loss on the Company’s program.
Classes typically begin with registration and a confidential weigh-in to track each member's
progress. Leaders are trained to engage the members at the weigh-in to talk about their weight
control efforts during the previous week and to provide encouragement and advice. Part of the
class is educational, where the leader uses personal anecdotes, games or open questions to
demonstrate some of the Company’s core weight-loss strategies, such as self-belief and discipline.
4
For the remainder of the class, the leader focuses on a variety of topics pre-selected by the
Company, such as seasonal weight-loss topics, achievements people have made in the prior week
and celebrating and applauding successes. Members who have reached their weight goal are
singled out for their accomplishment. Discussions can range from dealing with a holiday office
party to making time to exercise. The leader encourages substantial class participation and
discusses the support of products and materials as appropriate. At the end of the class, new
members are given special instruction about the Company’s current diet.
The Company’s leaders help set a member's weight goal within a healthy range by using a
body mass index. When members reach their weight goal and maintain it for six weeks, they
achieve lifetime member status, which gives them the privilege to attend the Company’s meetings
free of charge as long as they maintain their weight within a certain range. Successful members
also become eligible to apply for positions as classroom leaders.
The Company’s At Work program addresses the weight-loss needs of working people by
holding classes at their place of employment. At Work is particularly popular in the United States
as employees, and increasingly employers, are receptive to the Company’s classes in the work
place. In many cases, employers subsidize employee participation and typically provide meeting
space without charge.
The Company has developed additional delivery methods for people who, either through
circumstance or personal preference, do not attend the Company’s classes. For example, the
Company has developed program cookbooks and an At Home self-help product that provide
information on the Company’s diet and guidance on weight loss, as well as CD-ROM versions of
the Company’s diet for the United Kingdom, Continental Europe and Australia.
Company Owned Operations
The Company’s North America operations consist of approximately 2,500 meeting
locations that generated $262.5 million in meeting fee revenue for the fiscal year ended December
29, 2001. North America attendance was 23.5 million in the fiscal year ended December 29, 2001.
International operations consist of approximately 8,900 meeting locations in 15 countries
outside the United States that generated $153.2 million in meeting fee revenue for the fiscal year
ended December 29, 2001. International attendance was 23.5 million for the fiscal year ended
December 29, 2001.
Product Sales
The Company sells a range of proprietary products, including snack bars, books,
CD-ROMS and POINTS calculators, that are consistent with the Company’s brand image. The
Company sells its products primarily through its classroom operations and to its franchisees. In
2001, sales of the Company’s proprietary products represented 27% of the Company’s revenues.
The Company has grown product sales per attendance by focusing on a core group of products that
complement the Weight Watchers program.
5
Franchise Operations
The Company’s franchised operations represented approximately 35% of total worldwide
attendance for the fiscal year ended December 29, 2001. The Company estimates that in fiscal
2001, these franchised operations attracted attendance of over 25 million. Franchisees typically pay
the Company a fee equal to 10% of their meeting fee revenues.
The Company’s franchisees are responsible for operating classes in their territory using the
program the Company has developed. The Company provides a central support system for the
program and the Company’s brand. The Company also produces and sells program and marketing
materials to the franchisees. Franchisees also purchase products from the Company at wholesale
prices for resale directly to members. Franchisees are obligated to adhere strictly to the Company’s
program content guidelines, with the freedom to control pricing, meeting locations, operational
structure and local promotions. Franchisees provide local operational expertise, advertising and
public relations. Franchisees are required to keep accurate records that the Company audits on a
periodic basis. Most franchise agreements are perpetual and can be terminated only upon a material
breach or bankruptcy of the franchisee.
Licensing
As a highly recognized global brand, Weight Watchers is a powerful marketing tool for the
Company and for third parties. The Company currently licenses the Weight Watchers brand in
certain categories of food, books and other products.
During the period that the Company’s former parent, H.J. Heinz Company (“Heinz”)
owned the Company, it developed a number of food product lines under the Weight Watchers
brand, with hundreds of millions of dollars of retail sales, mostly in the United States and in the
United Kingdom. Heinz, however, did not actively license the Weight Watchers brand to other
food companies. Heinz has retained a perpetual royalty-free license to continue using the
Company’s brand in its core food categories. In addition, Heinz still continues to receive royalty
payments of over $4 million per year from an existing portfolio of third-party licenses for various
food products outside of Heinz's core categories. After 2004, these royalty payments will be
payable to the Company, although the Company has the right to acquire them sooner.
Marketing and Promotion
An important source of new members is through word-of-mouth generated by the
Company’s current and former members. Over its 40-year operating history, the Company has
created a powerful referral network of loyal members. These referrals, combined with the
Company’s strong brand and the effectiveness of its program, enable the Company to efficiently
attract new and returning members.
The Company’s advertising enhances the Company’s brand image and awareness and
motivates both former members and potential new members to join the Company’s program. The
Company’s advertising schedule supports the three key enrollment-generating diet seasons of the
year: winter, spring and fall. The Company allocates its media advertising on a market-by-market
6
basis, as well as by media vehicle (television, radio, magazines and newspapers), taking into
account the target market and the effectiveness of the medium. Direct mail is also a critical
element of the Company’s marketing because it targets potential returning members. The
Company maintains a database of current and former members, which the Company uses to focus
its direct mailings. During 2001 the Company’s NACO operations sent over thirteen million
pieces of direct mail. Most of these mailings are timed to coincide with the start of the diet
seasons. Direct Mail generally consists of special offers encouraging former members to re-enroll
and related advertisements.
The Company’s most popular payment structure is a "pay-as-you-go" arrangement.
Typically, a new member pays an initial registration fee and then a weekly fee for each class
attended, although free registration is often offered as a promotion. The Company also offers
discounted prepayment options.
The focus of the Company’s public relations efforts is through its current and former
members who have successfully lost weight on the Company’s program. Classroom leaders and
successful members engage in local promotions, information presentations and charity events to
promote Weight Watchers and demonstrate the program's efficacy.
For many years the Company has also used celebrities to promote and endorse the
program. Since 1997, the Company has retained Sarah Ferguson, the Duchess of York, to promote
and endorse its program in North America. The Company also uses local celebrities to promote its
program in other countries.
Weight Watchers Magazine is an important branded marketing channel that is experiencing
strong growth. The Company re-acquired the rights to publish the magazine in February 2000.
Since its U.S. re-launch in March 2000, circulation has grown from zero to over 600,000 in
December 2001, with a readership of over two million. In addition to generating revenues from
subscription sales and advertising, Weight Watchers Magazine reinforces the value of the
Company’s brand and serves as an important marketing tool to non-members.
The Company’s affiliate and licensee, WeightWatchers.com, operates the Weight Watchers
website, which is an important global promotional channel for the Company’s brand and
businesses. The website contributes value to the Company’s classroom business by promoting the
Company’s brand, advertising Weight Watchers classes and keeping members involved with the
program outside the classroom through useful offerings, such as a meeting locator, low calorie
recipes, weight-loss news articles, success stories and on-line forums.
Under its agreement with WeightWatchers.com, the Company granted it an exclusive
license to use the Company’s trademarks, copyrights and domain names on the Internet in
connection with its online weight-loss business. The license agreement provides the Company with
control of how the Company’s intellectual property is used. In particular, the Company has the
right to approve WeightWatchers.com's e-commerce activities, strategies and operational plans,
marketing programs, privacy policy and materials publicly displayed on the Internet.
7
Competition
The weight-loss market includes commercial weight-loss programs, self-help weight-loss
products, Internet-based weight-loss products, dietary supplements, weight-loss services
administered by doctors, nutritionists and dieticians, and weight-loss drugs. Competition among
commercial weight-loss programs is largely based on program recognition and reputation and the
effectiveness, safety and price of the program.
In the United States, the Company competes with several other companies in the
commercial weight-loss industry, including Jenny Craig, although the Company believes that the
businesses are not comparable. For example, many of the Company’s competitors' businesses are
based on the sale of pre-packaged meals and meal replacements. The Company’s classes use group
support, education and behavior modification to help members change their eating habits, in
conjunction with a flexible diet that allows the Company’s members the freedom to choose what
they eat.
There are no significant group education-based competitors in any of the Company’s major
markets, except in the United Kingdom. Even there, the Company has a 50% market share and
approximately twice the revenues of its largest competitor, Slimming World.
Regulation
A number of laws and regulations govern the Company’s advertising, franchise operations
and relations with consumers. The Federal Trade Commission (“FTC”) and certain states regulate
advertising, disclosures to consumers and franchisees and other consumer matters. The Company’s
customers may file actions on their own behalf, as a class or otherwise, and may file complaints
with the FTC or state or local consumer affairs offices and these agencies may take action on their
own initiative or on a referral from consumers or others.
During the mid-1990s, the FTC filed complaints against a number of commercial
weight-loss providers alleging violations of the Federal Trade Commission Act by the use and
content of advertisements for weight-loss programs that featured testimonials, claims for program
success and safety, and statements as to program costs to participants. In 1997, the Company
entered into a consent order with the FTC settling all contested issues raised in the complaint filed
against the Company. The consent order requires the Company to comply with certain procedures
and disclosures in connection with the Company’s advertisements of products and services but
does not contain any admission of guilt nor require the Company to pay any civil penalties or
damages.
The Company’s foreign operations and franchises are also generally subject to regulations
of the applicable country regarding the offer and sale of franchises, the content of advertising and
the promotion of diet products and programs. Future legislation or regulations, including
legislation or regulations affecting the Company’s marketing and advertising practices, relations
with consumers or franchisees, or the Company’s food products, could have an adverse impact on
the Company.
8
Employees and Service Providers
As of December 29, 2001, the Company had approximately 34,400 employees and service
providers, of which 13,300 were located in the United States, 13,200 were located in the United
Kingdom, 3,500 were located in Continental Europe and 4,400 were located in Australia and New
Zealand. One hundred twelve employees work full-time as management and support personnel in
the Company’s Woodbury, New York offices, 235 employees work full-time as management and
support personnel at four regional offices in its North America operations, and 542 employees
work full-time as management and support personnel in its international operations. Within the
Company’s company-owned operations, approximately 9,300 service providers work part-time as
leaders and approximately 24,300 work part-time as receptionists worldwide. None of the
Company’s service providers or employees is represented by a labor union. The Company
considers its employee relations to be satisfactory.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, the matters discussed in this Annual
Report on Form 10-K include “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995 with respect to the Company’s financial condition, results
of operations, cash flows, dividends, financing plans and business strategies. These forward-
looking statements are found at various places throughout this Annual Report, including, without
limitation, the statements about the Company’s plans, strategies and prospects under the headings
"Management's Discussion and Analysis of Financial Condition and Results of Operations," and
"Business." The Company utilizes the words "may," "will," "expect," "anticipate," "believe,"
"estimate," "plan," "intend" and similar expressions in this Annual Report to identify
forward-looking statements. The Company has based these forward-looking statements on the
Company’s current views with respect to future events and financial performance. Actual results
could differ materially from those projected in the forward-looking statements. These
forward-looking statements are subject to risks, uncertainties and assumptions, including, among
other things:
•
•
•
•
competition, including price competition and competition with self-help, medical
and other weight-loss programs and products;
risks associated with the relative success of the Company’s marketing and
advertising;
risks associated with the continued attractiveness of the Company’s programs;
risks associated with the Company’s ability to meet its obligations related to the
Company’s outstanding indebtedness;
•
risks associated with general economic conditions; and
9
•
adverse results in litigation and regulatory matters, the adoption of adverse
legislation or regulations, more aggressive enforcement of existing legislation or
regulations or a change in the interpretation of existing legislation or regulations.
that many
important factors,
You should not put undue reliance on any forward-looking statements. You should
understand
the heading
including
"Management's Discussion and Analysis of Financial Condition and Results of Operations" could
cause the Company’s results to differ materially from those expressed or suggested in any
forward-looking statements. The Company does not undertake any obligation to publicly release
any revisions to these forward-looking statements to reflect events or circumstances after the date
of this Annual Report or to reflect the occurrence of unanticipated events.
those discussed under
10
Item 2. Properties
The Company is headquartered in Woodbury, New York in a leased office. Each of the
four North America regions has a small regional office. The Woodbury, New York lease expires in
2005, the Paramus, New Jersey lease expires in 2007 and the New York, New York Weight
Watchers Magazine lease expires in 2007. The Company guarantees the rental commitments for
WeightWatchers.com’s office facility. The Company’s other North American office leases are
short-term. The Company’s operations in each country also have one head office.
The Company typically holds its classes in third-party locations (typically meeting rooms
in well-located civic or religious organizations) or space leased in retail centers (typically leased
spaces in strip malls for short terms, generally less than five years). As of December 29, 2001,
there were approximately 2,500 North America meeting locations, including approximately 2,000
third-party locations and 500 retail centers. In the United Kingdom, there were approximately
4,700 meeting locations, with approximately 97% in third-party locations. In Continental Europe,
there were approximately 3,100 meeting locations, with approximately 96% in third-party
locations. In Australia and New Zealand, there were approximately 1,100 meeting locations, with
approximately 98% in third-party locations.
Item 3. Legal Proceedings
The Company is not a party to any material pending legal proceedings. The Company
has had and continues to have disputes with the Company’s franchisees regarding, among other
things, operations and revenue sharing, including the interpretation of franchise territories as they
relate to new media. In the opinion of management, based in part upon advice of legal counsel,
the disposition of all such matters is not expected to have a material effect on the Company’s
results of operations and financial condition.
11
Item 4. Submission of Matters to a Vote of Security Holders
The holder of the majority of the common stock of the Company took action by written
consent of the Shareholders on April 3, 2001 to increase the number of shares available for
grants under the 1999 Stock Purchase and Option Plan from 1,200,000 shares of authorized
common stock of the Company (5,646,432 on a post-split basis) to 1,500,000 shares of
authorized common stock of the Company (7,058,040 on a post-split basis.)
The holder of the majority of the common stock of the Company took action by written
consent of the shareholders on November 8, 2001 to (1) amend and restate the Company’s
Articles of Incorporation and Bylaws; (2) simultaneously with such amendment and restatement
of the Company’s Articles of Incorporation, each share of common stock, no par value, of the
Company, then outstanding was converted to 4.70536 shares of common stock and (3) directors
were placed in the respective classes designated and the directors placed in Class II and III were
elected as follows: Class I (term expiring 2002) Raymond Debbane and Jonas M. Fajgenbaum;
Class II (term expiring 2003) Sacha Lainovic and Christopher J. Sobecki; and Class III (term
expiring 2004) Linda Huett.
12
PART II
Item 5. Market for Registrant’s Common Stock and Related Stockholder Matters
The New York Stock Exchange (the “NYSE”) is the principal market on which the
Company’s common stock is traded. The common stock was first traded on the NYSE on
November 15, 2001 under the symbol “WTW”, concurrent with the underwritten initial public
offering of 17,400,000 shares of the Company’s common stock at an initial price to the public of
$24.00 per share. The underwriters exercised their option to purchase 2,610,000 additional
shares of the Company’s common stock to cover over-allotments. The Company did not receive
any of the proceeds from the sale of shares of the Company’s common stock pursuant to this
initial public offering. Prior to this offering, there was no established public trading market for
the Company’s common stock. The following table sets forth, for the period indicated, the high
and low sales prices per share for the Company’s common stock as reported on the New York
Stock Exchange consolidated tape (NYSE ticker symbol: “WTW”).
Fiscal Year ended December 29, 2001
Fourth Quarter
Holders
High
$36.01
Low
$28.25
The approximate number of holders of record of common stock as of January 31, 2002
was 81. This number does not include beneficial owners of the Company’s securities held in the
name of nominees.
Dividends
No cash dividends were declared or paid on the Company’s common stock in 2001. The
Company currently intends to retain all available funds for use in its business, and does not
anticipate paying cash dividends in the foreseeable future. In addition, the Company’s existing
debt instruments place limitations on the Company’s ability to pay dividends. Any future
determination as to the payment of dividends will be subject to such limitations, will be at the
discretion of the board of directors and will depend on the results of operations, financial
conditions, capital requirements and other factors deemed relevant by the board of directors.
13
Item 6. Selected Financial Data
The following schedule sets forth selected financial data of the Company and its subsidiaries for
the fiscal year ended December 29, 2001, the eight months ended December 30, 2000 and the
fiscal years ended April 29, 2000 and April 24, 1999.
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(In millions, except per share amounts)
Fiscal Year
Ended
December 29,
2001
Eight Months
Ended
December 30,
2000
(35 Weeks)
April 29,
2000
Fiscal Years Ended
April 25,
1998
April 24,
1999
April 26,
1997
Revenues, net
Net income (loss)
Working capital
Total assets
Long-term obligations
$
$
$
$
$
623.9
147.3
(24.1)
482.9
500.0
$
$
$
$
$
273.2
15.0
10.2
346.2
496.7
$
$
$
$
$
399.5
37.8
(0.9)
334.2
500.5
$
$
$
$
$
364.6
47.9
91.2
371.4
16.7
$
$
$
$
$
297.2
23.8
65.8
370.8
17.7
$
$
$
$
$
292.8
(24.0)
64.9
373.0
71.6
Basic Net Income Per Share:
Income before extraordinary item
Extraordinary item, net of taxes
Net Income
Diluted Net Income per Share:
Income before extraordinary item
Extraordinary item, net of taxes
Net Income
1.37
(0.03)
1.34
1.34
(0.03)
1.31
$
$
$
$
$
$
$
$
$
$
$
$
0.13
-
0.13
0.13
-
0.13
0.20
-
0.20
0.20
-
0.20
0.17
-
0.17
0.17
-
0.17
0.09
-
0.09
0.09
-
0.09
(0.09)
-
(0.09)
(0.09)
-
(0.09)
$
$
$
$
$
$
$
$
$
$
$
$
Items Affecting Comparability
Several events occurred during the fiscal year ended December 29, 2001, the eight months
ended December 30, 2000, and the fiscal years ended April 29, 2000 and April 24, 1999 that affect
the comparability of the Company’s financial statements. In order to understand the impact of
these events and disclose underlying business trends, they are summarized as follows:
Reversal of Tax Valuation Allowance. During the fourth quarter of fiscal 2001, the Company
reversed the remaining tax valuation allowance set up in conjunction with the Transaction, as
defined below in Recapitalization. At the time of the Transaction, the Company determined that it
was more likely than not that a portion of the deferred tax asset would not be utilized. Therefore, a
valuation allowance of approximately $72.1 million was established against the corresponding
deferred tax asset. Based on the Company’s performance since the Transaction, the Company
determined that the valuation allowance is no longer required. Accordingly, the provision for taxes
14
for the fiscal year ended December 29, 2001 included a one-time reversal (credit) of the remaining
balance of the valuation allowance of $71.9 million.
Acquisition of Weighco. On January 16, 2001, the Company acquired the franchised territories
and certain business assets of Weighco for an aggregate purchase price of $83.8 million. The
acquisition was financed through additional borrowings of $60.0 million and cash from operations.
The acquisition has been accounted for as a purchase. Accordingly, Weighco’s earnings have been
included in the consolidated operating results of the Company since the date of acquisition.
Change in Fiscal Year. Effective April 30, 2000, the Company changed its fiscal year end from
the last Saturday in April to the Saturday closest to December 31 and eliminated a one month
reporting lag for certain foreign subsidiaries. The results of operations for these foreign
subsidiaries have been adjusted for the eight months ended December 30, 2000. The effect on the
Company’s net income for these subsidiaries for the period March 31, 2000 through April 29,
2000 was $1.1 million and was adjusted to the opening accumulated deficit at April 30, 2000.
Recapitalization. On September 29, 1999, the Company entered into a recapitalization and stock
purchase agreement (the “Transaction”) with its former parent, Heinz. In connection with this
transaction, the Company effectuated a stock split of 58.7 shares for each share outstanding. The
Company then redeemed 164.4 million shares of common stock from Heinz for $349.5 million.
The $349.5 million consisted of $324.5 million of cash and $25.0 million of the Company’s
redeemable Series A Preferred Stock. After redemption, Artal Luxembourg S.A. purchased 94%
of the Company’s remaining common stock from Heinz for $223.7 million. The recapitalization
and stock purchase was financed through borrowings under credit facilities amounting to
approximately $237.0 million and by issuing Senior Subordinated Notes amounting to $255.0
million. In connection with the transaction, the Company incurred approximately $8.3 million in
transaction costs, which were included in the results of operations for the fiscal year ended April
29, 2000.
Management Initiatives. In fiscal 1997, the Company made the strategic decision to discontinue
the sale of pre-packaged meals in the North America classroom meetings (which were added in
1990 by the Company’s former owner, Heinz) and to introduce to the North America operations
some of the best practices developed by the Company’s European managers. After the Company’s
acquisition by Artal Luxembourg S.A. in 1999, the Company reorganized its management and
strengthened its strategic focus. Since 1997, the Company’s revenues and operating income have
increased principally as a result of:
• eliminating the prepackaged meals programs,
innovating its programs and services including introduction of POINTS-based diets,
•
• adapting the Company’s business model to local conditions by implementing more
aggressive marketing programs tailored to the local markets,
introducing new products and optimizing its product mix,
improving customer service,
restoring employee morale,
relocating classes from fixed to rented meeting rooms,
reducing back office and field headcount, and
•
•
•
•
•
• eliminating certain field offices.
15
Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company is a leading global branded consumer company and the world’s leading
provider of weight-loss services, operating in 30 countries around the world. The Company
conducts its business through a combination of company-owned and franchise operations, with
company-owned operations accounting for 65% of total worldwide attendance in the fiscal year
ended December 29, 2001. For the fiscal year ended December 29, 2001, 64% of the Company’s
revenues were derived from its North American Company-Owned operations (“NACO”), and the
remaining 36% of the Company’s revenues were derived from its international operations. The
Company derives its revenues principally from:
•
•
•
•
Meeting fees. The Company’s members pay a weekly fee to attend classes.
Product sales. The Company sells proprietary products that complement its
program, such as snack bars, books, CD-ROMs and POINTS calculators, to its
members and franchisees.
Franchise royalties. The Company’s franchisees typically pay a royalty fee of 10%
of their meeting fee revenues.
Other. The Company licenses its brand for certain foods, clothing, books and other
products. The Company also generates revenues from the publishing of books and
magazines and third-party advertising.
Significant Accounting Policies
Financial Reporting Release No. 60, which was recently issued by the Securities and
Exchange Commission (“SEC”), requires all registrants to discuss critical accounting policies or
methods used in preparation of the financial statements. The notes to the consolidated financial
statements include a summary of the significant accounting policies and methods used in the
preparation of the Company’s consolidated financial statements. However, in the opinion of
management, the Company does not have any individual accounting policies that are not disclosed
which are critical to the preparation of the consolidated financial statements. This is due
principally to the definitive nature of accounting requirements for the business. Also, in many
instances, the Company must use an accounting policy or method permitted under accounting
principles generally accepted in the United States of America (“U.S. GAAP”). The following is a
review of the more significant accounting policies and methods used by the Company.
Revenue Recognition
The Company earns revenue by conducting meetings, selling products and aids in its own
facilities, collecting commissions from franchisees operating under the Weight Watchers name and
16
collecting royalties related to licensing agreements. As required by U.S. GAAP, revenue is
recognized when registration fees are paid, services are rendered, products are shipped to
customers and title and risk of loss pass to the customer, and commissions and royalties are earned.
Deferred revenue, consisting of prepaid lecture income, is amortized into income over the period
earned.
Depreciation and Amortization
The Company depreciates its property and equipment and amortizes its goodwill and other
intangible assets using the straight-line method. For acquisitions completed prior to June 30, 2001,
the Company used 3 to 40 years to amortize goodwill and other intangible assets, which resulted in
amortization expense of $10.5 million for the fiscal year ended December 29, 2001. As discussed
in Note 2 to the consolidated financial statements with the adoption of SFAS No. 141 “Business
Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company will no
longer be required to amortize its goodwill. As a result, the Company estimates that the adoption
of these standards will reduce amortization expense by approximately $6.4 million, net of taxes,
for the year ending December 28, 2002. The Company will review annually its goodwill and other
intangible assets for possible impairment or loss of value.
Hedging Instruments
As of December 31, 2000, the Company adopted the provisions of SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” and its related amendment,
SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities”.
The adoption of these standards resulted in a charge to other comprehensive income of $3.2
million, net of taxes. These standards require that all derivative financial instruments be recorded
on the consolidated balance sheets at their fair value as either assets or liabilities. Approximately
50% of the Company’s derivative financial instruments are effective as hedges under the new
standard. Accordingly, the changes in the fair value of effective hedges are recognized in earnings
when the related hedged items are recorded in earnings. As discussed in Note 17 to the
consolidated financial statements, the Company has included a detailed discussion of the types of
exposures that are hedged, as well as a summary of the various instruments which the Company
utilizes. The Company does not use derivative financial instruments for speculative purposes.
Equity Investee
As discussed in Note 11 of the notes to the consolidated financial statements, the Company
owns approximately 19.8% of its affiliate, WeightWatchers.com, which in accordance with U.S.
GAAP, is accounted for under the equity method of accounting. Under a loan agreement between
the Company and WeightWatchers.com, during the fiscal year ended December 29, 2001, the eight
months ended December 30, 2001 and the fiscal year ended April 29, 2000, the Company
advanced WeightWatchers.com $17.4 million, $14.8 million and $2.0 million, respectively. As
required by U.S. GAAP, the Company’s investment in WeightWatchers.com has been reduced by
the equity losses apportioned to the Company based upon its ownership interest. The remaining
loan balance has been reviewed by the Company for impairment and management has determined
that at December 29, 2001, a full valuation allowance against the residual loan balance is
appropriate.
17
The preparation of all financial statements includes the use of estimates and assumptions
that affect a number of amounts included in the Company’s consolidated financial statements,
including among other things, inventory reserves and income taxes. The Company bases its
estimates on historical experience and other assumptions which it believes are reasonable.
Company management believes that full consideration has been given to all relevant
circumstances that the Company may be subject to in the financial statements of the Company
for the years presented.
Results of Operations
The following table summarizes the Company’s historical income from operations as a
percentage of revenues for the fiscal year ended December 29, 2001, the eight months ended
December 30, 2000 and the fiscal years ended April 29, 2000 and April 24, 1999.
Fiscal Year
Ended
December 29,
2001
Eight Months
Ended
December 30,
2000
100.0%
45.900
54.1
11.2
11.700
100.0%
51.000
49.0
9.9
12.600
Fiscal Years
Ended
April 29,
2000
100.0%
50.400
49.6
12.9
13.500
April 24,
1999
100.0%
49.100
50.9
14.5
14.100
Total revenues, net
Cost of revenues
Gross profit
Marketing expenses
Selling, general and administrative expenses
Operating income
31.2%0
26.5%0
23.2%0
22.3%0
Comparison of the fiscal year ended December 29, 2001(52 weeks) to the twelve months ended
December 30, 2000 (54 weeks).
Net revenues were $623.9 million for the fiscal year ended December 29, 2001, an increase
of $184.5 million, or 42.0%, from $439.4 million for the twelve months ended December 30, 2000.
Of the $184.5 million increase, $112.2 million was attributable to NACO classroom meeting fees,
$11.3 million from international company-owned classroom meeting fees, $58.1 million from
product sales and $2.9 million from licensing, publications and other royalties. Pro forma for the
acquisition of Weighco, net revenues for the twelve months ended December 30, 2000 were
$488.2 million. The pro forma financial information assumes the acquisition of Weighco occurred
at the beginning of the earliest period presented.
NACO classroom meeting fees were $262.5 million for the fiscal year ended December 29,
2001, an increase of $112.2 million, or 74.7%, from $150.3 million for the twelve months ended
December 30, 2000. International company-owned classroom meeting fees were $153.2 million
for the fiscal year ended December 29, 2001, an increase of $11.3 million, or 8.0%, from
$141.9 million for the twelve months ended December 29, 2000. NACO meeting fees benefited
from the inclusion of Weighco in the current fiscal year. Additionally, the increases in NACO and
18
international company-owned meeting fees were the result of increased member attendance and the
roll-out of new program innovations and price increases in select markets, offset in part by
negative exchange rate variances.
Product sales were $170.4 million for the fiscal year ended December 29, 2001, an increase
of $58.1 million, or 51.7%, from $112.3 million for the twelve months ended December 30, 2000.
NACO and international company-owned product sales were $99.7 million and $70.7 million,
respectively. The increases in product sales were primarily the result of increased member
attendance and the Company’s strategy to focus sales efforts on core classroom products, which
has increased average product sales per attendance.
Franchise royalties were $28.3 million for the fiscal year ended December 29, 2001, and
for the twelve months ended December 30, 2000. For the fiscal year ended December 29, 2001,
domestic and international franchise royalties were $23.3 million and $5.0 million, respectively.
Pro forma for the acquisition of Weighco, franchise royalties increased 24.4% for the fiscal year
ended December 29, 2001. This increase was primarily the result of increased member attendance,
offset in part by negative exchange rate variances.
Royalties from licensing, publications and other were $9.5 million for the fiscal year ended
December 29, 2001, an increase of $2.9 million, or 43.9%, from $6.6 million for the twelve months
ended December 30, 2000. This increase was driven by an increase in advertising revenue from
Weight Watchers Magazine and an increase in licensing royalties.
Cost of revenues was $286.4 million for the fiscal year ended December 29, 2001, an
increase of $68.4 million, or 31.4%, from $218.0 million for the twelve months ended
December 30, 2000. Gross profit margin was 54.1% for the fiscal year ended December 29, 2001,
compared to 50.4% for the twelve months ended December 30, 2000. Typically, the gross profit
margin for meeting fee revenue is slightly higher than the gross profit margin for product sales.
The increase in gross profit margin was partly due to a $3.8 million non-recurring expense related
to the elimination of a profit sharing agreement with certain franchisees in the twelve months
ended December 30, 2000. Excluding this charge, the gross profit margin in the twelve months
ended December 30, 2000 was 51.3%. The remaining increase in gross profit margin reflects
increased attendance, price increases and cost control initiatives.
Marketing expenses were $69.7 million for the fiscal year ended December 29, 2001, an
increase of $14.9 million, or 27.2%, from $54.8 million for the twelve months ended December 30,
2000. The increase in marketing expenses was primarily the result of additional advertising to
promote the new program innovations. As a percentage of net revenues, marketing expenses
decreased from 12.5% for the twelve months ended December 30, 2000 to 11.2% for the fiscal
year ended December 29, 2001.
Selling, general and administrative expenses were $73.0 million for the fiscal year ended
December 29, 2001, an increase of $16.7 million, or 29.7%, from $56.3 million for the twelve
months ended December 30, 2000. As a percentage of net revenues, these costs decreased from
12.8% for the twelve months ended December 30, 2000 to 11.7% for the fiscal year ended
December 29, 2001. The increase in selling, general and administrative expenses was the result of
a one time charge of $6.2 million for the write-off of a receivable from a licensing agreement,
19
increases in salary and incentive compensation and goodwill amortization due to the Weighco
acquisition. Selling, general and administrative expenses excluding goodwill amortization of $9.8
million and $6.2 million for the fiscal year ended December 29, 2001 and the twelve months ended
December 30, 2000 were $63.2 million and $50.1 million, respectively.
As a result of the above, operating income was $194.8 million for the fiscal year ended
December 29, 2001, an increase of $84.5 million, or 76.6%, from $110.3 million for the twelve
months ended December 30, 2000. Pro forma for the acquisition of Weighco, operating income for
the twelve months ended December 30, 2000 was $125.6 million. Pro forma for the acquisition of
Weighco, operating income increased by 55.1% for the fiscal year ended December 29, 2001.
Operating income, excluding goodwill amortization of $9.8 million and $6.2 million for the fiscal
year ended December 29, 2001 and the twelve months ended December 30, 2000, was $204.6
million and $116.5 million, respectively.
Other expenses, net were $13.2 million for the fiscal year ended December 29, 2001, an
increase of $9.7 million, or 277.1%, from $3.5 million for the twelve months ended December 30,
2000. This increase was primarily due to changes in unrealized currency gains and losses and
advances to WeightWatchers.com.
Provision for (benefit from) income taxes was ($23.2) million for the fiscal year ended
December 29, 2001, a decrease of $41.3 million, or 228.2%, from $18.1 million for the twelve
months ended December 30, 2000. The decrease was due to a one-time benefit of $71.9 million
for the reversal of the remaining valuation allowance set up in conjunction with the Transaction.
At the time of the Transaction, the Company determined that it was more likely than not that a
portion of the deferred tax asset would not be utilized. Therefore, a valuation allowance of
approximately $72.1 million was established against the corresponding deferred tax asset. Based
on the Company’s performance since the Transaction, the Company determined that the valuation
allowance is no longer required.
An extraordinary charge on the early extinguishment of debt, net of taxes, was $2.9 million
for the fiscal year ended December 29, 2001. The one-time charge of $2.9 million related to the
refinancing of the term loan B facility, term loan D facility and the transferable loan certificate.
The Company’s term loan B facility, term loan D facility and the transferable loan certificate were
repaid in the amount of $71.0, $19.0 and $82.0 million, respectively, and replaced with a new term
loan B facility of $108.0 million and a new transferable loan certificate of $64.0 million.
Comparison of the eight months ended December 30, 2000 (35 weeks) to the eight months ended
December 18, 1999 (34 weeks).
Net revenues were $273.2 million for the eight months ended December 30, 2000, an
increase of $36.2 million, or 15.3%, from $237.0 million for the eight months ended December 18,
1999. Of the $36.2 million increase, $19.5 million was attributable to NACO classroom meeting
fees, $2.3 million from foreign company-owned classroom meeting fees, $2.5 million from
franchise royalties, $11.7 million from product sales and $0.2 million from licensing, publications
and other royalties.
20
NACO classroom meeting fee revenues were $96.8 million for the eight months ended
December 30, 2000, an increase of 25.3% from $77.3 million for the eight months ended
December 18, 1999. This increase in NACO classroom meeting fee revenues was the result of a
14.2% increase in member attendance as well as a price increase in meetings fees in the majority of
the markets for NACO operations. The Company’s foreign company-owned classroom meeting
fee revenues were $87.3 million for the eight months ended December 30, 2000, an increase of
2.7% from $85.0 million for the eight months ended December 18, 1999. This performance was
the result of a 7.9% increase in attendance offset by negative exchange rate variances.
Franchise royalties were $17.7 million for the eight months ended December 30, 2000, an
increase of 17.2% from $15.1 million for the eight months ended December 18, 1999. This
increase was primarily the result of an increase in member attendance offset by negative exchange
rate variances.
Product sales were $66.4 million for the eight months ended December 30, 2000, an
increase of 21.4% from $54.7 million for the eight months ended December 18, 1999. This
increase in product sales was primarily the result of increased member attendance and the
Company’s strategy to focus sales efforts on core classroom products.
Royalties from licensing, publications and other were $5.1 million for the eight months
ended December 30, 2000, an increase of 4% from $4.9 million for the eight months ended
December 18, 1999.
Cost of revenues was $139.3 million for the eight months ended December 30, 2000, an
increase of 13.8% from $122.4 million for the eight months ended December 18, 1999. This
increase was primarily the result of an increased number of meetings to accommodate attendance
growth and increased product sales. Gross profit margin was 49.0% for the eight months ended
December 30, 2000, compared to 48.4% for the eight months ended December 18, 1999. The
increase in gross profit margin was primarily due to an increase in attendance per meeting and a
change in product mix with a greater focus on higher margin core products.
Marketing expenses were $27.0 million for the eight months ended December 30, 2000, a
decrease of 3.1% from $27.8 million for the eight months ended December 18, 1999. As a
percentage of revenues, marketing expenses decreased from 11.7% for the eight months ended
December 18, 1999 to 9.9% for the eight months ended December 30, 2000 as a result of the
Company’s efforts to improve the effectiveness of its marketing program.
Selling, general and administrative expenses were $34.4 million for the eight months ended
December 30, 2000, an increase of 10.6% from $31.1 million for the eight months ended
December 18, 1999. This increase was partly the result of an increase in incentive compensation as
well as other professional fees incurred. As a percentage of net revenues, these costs decreased
from 13.1% for the eight months ended December 18, 1999 to 12.6% for the eight months ended
December 30, 2000.
As a result of the above, the Company’s operating income was $72.5 million for the eight
months ended December 30, 2000, an increase of 34.8% from operating income of $53.8 million,
21
excluding a one-time charge of $8.3 million for transaction costs and $1.8 million of discontinued
food royalties for the eight months ended December 18, 1999.
Comparison of the fiscal year ended April 29, 2000 (53 weeks) to the fiscal year ended April 24,
1999 (52 weeks).
Net revenues were $399.6 million for the fiscal year ended April 29, 2000, an increase of
$35.0 million, or 9.6%, from $364.6 million for the fiscal year ended April 24, 1999. Of the
$35.0 million increase, $8.5 million was attributable to NACO classroom meeting fees,
$8.8 million to the Company’s foreign company-owned classroom meeting fees, $2.6 million to
franchise royalties and $26.9 million to product sales. These increases were offset by an
$11.8 million decrease in royalties from licensing, publications and other. The $11.8 million
decrease was primarily attributable to the discontinuation of food royalties from Heinz, offset in
part by the recognition in the fiscal year ended April 24, 1999 of the present value of the
guaranteed future payments from a licensing agreement. Adjusting for the discontinued food
royalties of $1.8 million, net revenues were $397.8 million for the fiscal year ended April 29, 2000,
an increase of 13.5% from $350.6 million (excluding $8.7 million from non-recurring revenues
from the licensing agreement and $5.3 million from discontinued food royalties) for the fiscal year
ended April 24, 1999.
NACO classroom meeting fee revenues were $130.8 million for the fiscal year ended
April 29, 2000, an increase of 6.9% from $122.3 million for the fiscal year ended April 24, 1999,
net of promotional allowances of $5.7 million and $23.0 million, respectively. This increase in
NACO classroom meeting fee revenues was the result of a 22% increase in member attendance,
partially offset by lower average meeting fee revenues per attendance as a result of the roll-out of
the Liberty/Loyalty pricing strategy. Liberty/Loyalty provides members the option of committing to
consecutive weekly attendance and paying a lower weekly fee with penalties for missed classes, or
paying a higher weekly fee without the missed meeting penalties. The Company’s revenues from
foreign company-owned classroom meeting fees were $152.7 million for the fiscal year ended
April 29, 2000, an increase of 6.1% from $143.9 million for the fiscal year ended April 24, 1999,
net of promotional allowances of $17.4 million and $17.2 million, respectively. This increase in the
Company’s foreign company-owned classroom meeting fee revenues was the result of a 6.1%
increase in international attendance in the United Kingdom, Continental Europe and Australia.
Domestic franchise royalties were $21.3 million for the fiscal year ended April 29, 2000, an
increase of 11.5% from $19.1 million for the fiscal year ended April 24, 1999. This increase in
domestic franchise royalties was primarily the result of an increase in member attendance due to
improved training and support and increased marketing effectiveness. International franchise
royalties were $4.5 million for the fiscal year ended April 29, 2000, an increase of 9.8% from
$4.1 million for the fiscal year ended April 24, 1999. This increase was primarily the result of the
Company’s strong performance in Canada and Ireland.
Product sales were $84.2 million for the fiscal year ended April 29, 2000, an increase of
47.0% from $57.3 million for the fiscal year ended April 24, 1999. This increase in product sales
was primarily the result of increased member attendance and the Company’s strategy to focus sales
efforts on core classroom products, including the Company’s newly introduced snack bars.
22
Royalties from licensing, publications and other were $6.1 million for the fiscal year ended
April 29, 2000, a decrease of 66% from $17.9 million for the fiscal year ended April 24, 1999,
which was primarily due to discontinued food royalties from Heinz, offset in part by an increase in
royalties from licensing agreements.
Cost of revenues was $201.4 million for the fiscal year ended April 29, 2000, an increase of
12.6% from $178.9 million for the fiscal year ended April 24, 1999. This increase was primarily
the result of an increased number of meetings to accommodate attendance growth and growing
product sales. The Company’s gross profit margin was 49.4% for the fiscal year ended April 29,
2000, excluding $1.8 million from discontinued food royalties, compared to 49.0% for the fiscal
year ended April 24, 1999, excluding $8.7 million from non-recurring revenues from a licensing
agreement and $5.3 million from discontinued food royalties.
Marketing expenses were $51.5 million for the fiscal year ended April 29, 2000, a decrease
of 2.6% from $52.9 million for the fiscal year ended April 24, 1999, net of promotional allowances
of $23.0 million and $40.2 million, respectively. The Company’s marketing program remained
unchanged. The decrease of $1.4 million was related to amounts expended under Heinz's
marketing programs in the fiscal year ended April 24, 1999 and the discontinuation of food
royalties-related marketing rebate expenses.
Selling, general and administrative expenses were $53.8 million for the fiscal year ended
April 29, 2000, an increase of 4.5% from $51.5 million for the fiscal year ended April 24, 1999. As
a percentage of net revenues, excluding $1.8 million from discontinued food royalties in the fiscal
year ended April 29, 2000 and excluding $8.7 million from non-recurring revenues from a
licensing agreement and $5.3 million from discontinued food royalties in the fiscal year ended
April 24, 1999, these costs were 13.5% for the fiscal year ended April 29, 2000, compared to
14.7% for the fiscal year ended April 24, 1999. This decrease was due to the continued benefit of
the Company’s restructuring and reorganization program.
As a result of the above, the Company’s operating income was $91.1 million, excluding a
one-time charge of $8.3 million of transaction costs and $1.8 million in revenues from
discontinued food royalties, for the year ended April 29, 2000, an increase of 35.4% from
operating income of $67.3 million, excluding $8.7 million of non-recurring revenues from a
licensing agreement and $5.3 million from discontinued food royalties, for the fiscal year ended
April 24, 1999.
23
Liquidity and Capital Resources
For the fiscal year ended December 29, 2001, the Company’s primary source of funds to
meet working capital needs was cash from operations. Cash and cash equivalents decreased
$21.2 million for the fiscal year ended December 29, 2001. Cash flows provided by operating
activities of $121.6 million were used primarily for investing activities. Cash flows used for
investing activities of $120.1 million were primarily attributable to $84.4 million (including
acquisition costs) and $13.5 million paid in connection with the Weighco acquisition and the
acquisition of the Company’s Oregon franchise, respectively, loans totaling $17.3 million made to
WeightWatchers.com and capital expenditures of $3.8 million. Net cash flows used for financing
activities of $21.4 million consisted primarily of proceeds from borrowings under the Company’s
senior credit facility of $60.0 million, offset by the payment of dividends on the Company’s
preferred stock of $1.5 million, payments associated with the cost of the public equity offering of
$1.0 million, repayments of principal on the Company’s outstanding senior credit facilities of
$50.8 million and the repurchase of 6,719,254 shares of the Company’s common stock held by
Heinz for $27.1 million.
Capital spending has averaged approximately $3 million annually over the last four years
and has consisted primarily of leasehold improvements for meeting locations and administrative
offices, computer equipment for field staff and call centers, and information system upgrades.
The Company’s total debt was $474.0 million and $470.7 at December 29, 2001 and
December 30, 2000, respectively. As of December 29, 2001, the Company had approximately
$45.0 million of additional borrowing capacity available under the Company’s revolving credit
facility. On January 16, 2001, the Company acquired Weighco for $83.8 million. The Company
financed the acquisition with available cash of $23.8 million and additional borrowings of $60.0
million under the Company’s senior credit facilities. As discussed in Note 5 to the consolidated
financial statements, the Company’s total debt of $474.0 million at December 29, 2001 is due to be
repaid as follows (in millions):
2002
2003
2004
2005
2006
2007 and thereafter
$15.7
20.2
17.6
17.0
1.7
401.8
$474.0
Debt obligations due to be repaid in 2002 are expected to be satisfied with operating cash
flows.
The Company’s credit ratings by Moody’s at December 29, 2001 for the credit facilities
and senior subordinated notes were “Ba1” and “Ba3”, respectively. The Company’s credit ratings
by Standard & Poor’s at December 29, 2001 for the credit facilities and senior subordinated notes
were “BB – ” and “B”, respectively.
24
The Company’s debt consists of both fixed and variable-rate instruments. At December 29,
2001 and December 30, 2000, fixed-rate debt constituted approximately 50.3% and 51.9% of its
total debt respectively. The decrease in the percentage of fixed-rate debt was primarily due to the
translation of Euro debt into U.S. dollars. The average interest rate on the Company’s debt was
approximately 8.6% and 11.6% at December 29, 2001 and December 30, 2000, respectively.
The Company believes that cash flows from operating activities, together with borrowings
available under the Company’s revolving credit facility, will be sufficient for the next twelve
months to fund currently anticipated capital expenditure requirements, debt service requirements
and working capital requirements. Any future acquisitions, joint ventures or other similar
transactions could require additional capital and the Company cannot be certain that any additional
capital will be available on acceptable terms or at all.
On April 18, 2001, the Company entered into a Put/Call Agreement with Heinz. Under this
agreement, Heinz had an option to sell and the Company had an option to purchase all of the
Company’s common stock owned by Heinz. Under this agreement, Heinz has sold to the Company
6,719,254 shares of the Company’s common stock held by it for an aggregate purchase price of
$27.1 million, which was funded with cash from operations. Heinz no longer holds any common
stock of the Company.
The balances under the Company’s senior credit facilities as of December 29, 2001 were
$235.6 million, consisting of a $63.6 million term loan A facility, a $108.0 million term loan B
facility, and a $64.0 million transferable loan certificate facility. As of December 29, 2001, $45.0
million was available under the revolving credit facility for additional borrowings. The term loan A
facility matures on September 30, 2005, the term loan B facility matures on December 31, 2007,
the transferable loan certificate facility matures on December 31, 2007 and the revolving credit
facility matures on September 30, 2005. On January 18, 2002, the Company completed the
acquisition of one of its franchisees, Weight Watchers of North Jersey, Inc. The acquisition was
financed through additional borrowings of $46.5 million pursuant to the Company’s Amended and
Restated Credit Agreement, dated December 21, 2001.
The term loan A facility, the term loan B facility, the transferable loan certificate facility
and the revolving credit facility bear interest at a rate equal to (a) in the case of the term loan A
facility and the revolving credit facility, LIBOR plus 1.75% or, at the Company’s option, the
alternate base rate (as defined in the senior credit facilities) plus 0.75%, (b) in the case of the term
loan B facility and the transferable loan certificate facility, LIBOR plus 2.50% or, at the
Company’s option, the alternate base rate plus 1.50%. In addition to paying interest on outstanding
principal under the senior credit facilities, the Company is required to pay a commitment fee to the
lenders under the revolving credit facility with respect to the unused commitments at a rate equal to
0.50% per year.
The Company’s senior credit facilities contain covenants that restrict the Company’s ability
to incur additional indebtedness, pay dividends on and redeem capital stock, make other restricted
payments, including investments, sell the Company’s assets and enter into consolidations, mergers
and transfers of all or substantially all of the Company’s assets. The Company’s senior credit
facilities also require the Company to maintain specified financial ratios and satisfy financial
25
condition tests. These tests and financial ratios become more restrictive over the life of the senior
credit facilities.
The Company issued $150.0 million in aggregate principal amount of senior subordinated
notes and Euro 100.0 million in aggregate principal amount of senior subordinated notes in
connection with the Company’s acquisition by Artal Luxembourg. The Company’s senior
subordinated notes mature in 2009 and bear interest at a rate of 13% per annum. The Company’s
obligations under the notes are subordinate and junior in right of payment to all of the Company’s
existing and future senior indebtedness, including all indebtedness under the senior credit facilities.
The indentures, pursuant to which the notes were issued, restrict the Company’s ability to incur
additional indebtedness, issue shares of disqualified stock and preferred stock, pay dividends, make
other restricted payments, including investments, create limitations on the ability of the Company’s
subsidiaries to pay dividends or make certain payments to the Company, merge or consolidate with
any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially
all of the Company’s assets.
As of December 29, 2001, the Company had one million shares of Series A Preferred Stock
issued and outstanding with a preference value of $25.0 million. Holders of the Series A Preferred
Stock were entitled to receive dividends at an annual rate of 6% payable annually in arrears. If
there was a liquidation, dissolution or winding up, the holders of shares of Series A Preferred Stock
were entitled to be paid out of the Company’s assets available for distribution to shareholders an
amount in cash equal to the $25 liquidation preference per share plus all accrued and unpaid
dividends prior to the distribution of any assets to holders of shares of the Company’s common
stock. Subject to the restrictions set forth in the Company’s debt instruments, holders of the
Company’s Series A Preferred Stock had the right to cause the Company to repurchase their shares
upon the occurrence of certain defined events. On March 1, 2002, the Company redeemed all of
the Company’s Series A Preferred Stock held by Heinz for a redemption price of $25 million plus
accrued and unpaid dividends. The redemption was financed through additional borrowings of
$12.0 million under the revolving credit facility and cash from operations.
The Company is obligated under non-cancelable operating leases primarily for office and
rent facilities. The Company has also guaranteed the performance of WeightWatchers.com’s lease
of its office space at 888 Seventh Avenue, New York, New York. The annual rent rate for this
WeightWatchers.com lease is $.5 million plus increases for operating expenses and real estate
taxes. This lease expires in September 2003. See Note 11 to the consolidated financial statements
for a more thorough discussion of related party transactions. Rent expense charged to operations
under all the Company’s leases, including the WeightWatchers.com lease, for the fiscal year ended
December 29, 2001 was approximately $14.8 million. Future minimum lease payments under these
agreements are as follows (in millions):
2002
2003
2004
2005
2006
2007 and thereafter
$13.0
9.1
5.9
3.9
2.4
15.9
$50.2
26
The Company’s ability to fund the Company’s capital expenditure requirements, interest,
principal and dividend payment obligations and working capital requirements and to comply with
all of the financial covenants under the Company’s debt agreements depends on the Company’s
future operations, performance and cash flow. These are subject to prevailing economic conditions
and to financial, business and other factors, some of which are beyond the Company’s control.
Seasonality
The Company’s business is seasonal, with revenues generally decreasing at year end and
during the summer months. The Company’s advertising schedule supports the three key
enrollment-generating seasons of the year: winter, spring and fall. Due to the timing of the
Company’s marketing expenditures, particularly the higher level of expenditures in the first
quarter, the Company’s operating income for the second quarter is generally the strongest, with the
fourth quarter being the weakest.
Accounting Standards
In August 2001, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards, or SFAS No. 143, “Accounting for Asset Retirement Obligations,” and
SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS No.
143 addresses financial accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SFAS No. 144 supersedes
SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of,” and the accounting and reporting provisions of AICPA Accounting Principles
Board Opinion No. 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions,” and addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. The Company will adopt SFAS 143 and SFAS 144 on December 29, 2002 and
December 30, 2001, respectively. The Company does not expect the adoption of SFAS No. 143
and 144 to have a material impact on its consolidated financial position or results of operations.
In June 2001, the Emerging Issues Task Force (EITF) reached a consensus on Issue No.
00-14, “Accounting for Certain Sales Incentives” which is effective no later than periods beginning
after December 15, 2001. EITF Issue No 00-14 addresses the recognition, measurement and
statement of earnings classification for certain sales incentive. EITF issue No 00-14 is effective for
the Company beginning December 30, 2001. The Company has determined that the impact of
adoption or subsequent application of EITF Issue No. 00-14 will not have a material effect on its
consolidated results of operations.
27
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to foreign currency fluctuations and interest rate changes. The
Company’s exposure to market risk for changes in interest rates relates to the fair value of long-
term fixed rate debt and interest expense of variable rate debt. The Company has historically
managed interest rates through the use of, and the Company’s long-term debt is currently
composed of, a combination of fixed and variable rate borrowings. Generally, the fair market value
of fixed rate debt will increase as interest rates fall and decrease as interest rates rise.
Based on the overall interest rate exposure on the Company’s fixed rate borrowings at
December 29, 2001, a 10% change in market interest rates would have less than a 5% impact on
the fair value of the Company’s long-term debt. Based on variable rate debt levels at December 29,
2001, a 10% change in market interest rates would have less than a 5% impact on the Company’s
net interest expense.
Other than intercompany transactions between the Company’s domestic and foreign
entities and the portion of the Company’s senior subordinated notes that are denominated in Euros,
the Company generally does not have significant transactions that are denominated in a currency
other than the functional currency applicable to each entity.
The Company enters into forward and swap contracts to hedge transactions denominated in
foreign currencies to reduce the currency risk associated with fluctuating exchange rates. These
contracts are used primarily to hedge certain intercompany cash flows and for payments arising
from some of the Company’s foreign currency denominated obligations. In addition, the Company
enters into interest rate swaps to hedge a substantial portion of its variable rate debt. Changes in the
fair value of these derivatives will be recorded each period in earnings for non-qualifying
derivatives or accumulated other comprehensive income (loss) for qualifying derivatives.
Fluctuations in currency exchange rates may also impact the Company’s shareholders'
equity. The assets and liabilities of the Company’s non-U.S. subsidiaries are translated into U.S.
dollars at the exchange rates in effect at the balance sheet date. Revenues and expenses are
translated into U.S. dollars at the weighted average exchange rate for the period. The resulting
translation adjustments are recorded in shareholders' equity as accumulated other comprehensive
income (loss). In addition, fluctuations in the value of the Euro will cause the U.S. dollar translated
amounts to change in comparison to prior periods. Furthermore, the Company revalues its
outstanding senior subordinated Euro notes at the end of each period and the resulting change in
value will be reflected in the income statement of the corresponding period.
As part of the European Economic and Monetary Union, the Euro will replace the national
currencies of many of the European countries in which the Company conducts business. The
conversion rates between the Euro and the participating nations’ currencies were fixed irrevocably
as of January 1, 1999, with the participating national currencies scheduled to be removed from
circulation between January 1 and June 30, 2002, and replaced by Euro notes and coinage. The
effects of the Euro conversion on the Company’s consolidated financial position and results of
operations have not been significant. The costs of the systems and business process conversions
were not material.
28
Each of the Company’s subsidiaries derives revenues and incurs expenses primarily within
a single country and, consequently, does not generally incur currency risks in connection with the
conduct of normal business operations.
The Company uses foreign currency forward contracts to more properly align the
underlying sources of cash flow with the Company’s debt servicing requirements. At
December 29, 2001, the Company had long-term foreign currency forward contracts receivables
with notional amounts of $44.0 million and Euro 76.0 million, offset by foreign currency forward
contracts payables with notional amounts of £59.2 million and $21.9 million.
29
Item 8. Financial Statements and Supplementary Data
This information is incorporated by reference to the “Consolidated Financial Statements
and Notes” on pages F-1 through F-43, together with the report thereon of
PricewaterhouseCoopers LLP on page F-44.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
NONE.
30
PART III
Item 10. Executive Officers and Directors of the Company
Set forth below are the names, ages as of December 29, 2001 and current positions with the
Company and its subsidiaries of the executive officers and directors. Directors are elected at the
annual meeting of shareholders. Executive officers are appointed by, and hold office at, the
discretion of the directors.
Name
Age Position
Linda Huett
Richard McSorley
Clive Brothers
Scott R. Penn
Thomas S. Kiritsis
Robert W. Hollweg
Raymond Debbane(1)
Jonas M. Fajgenbaum
Sacha Lainovic(1)
Christopher J. Sobecki
Sam K. Reed (2) (3)
Marsha Johnson Evans(2) (3)
___________
57
57
48
30
57
59
46
29
45
43
54
54
President and Chief Executive Officer, Director
Chief Operating Officer, NACO
Chief Operating Officer, Europe
Vice President, Australasia
Vice President, Chief Financial Officer
Vice President, General Counsel and Secretary
Chairman of the Board
Director
Director
Director
Director
Director
(1) Member of the Company’s compensation and benefits committee.
(2) Member of the Company’s audit committee.
(3)
Named to the board of directors on February 12, 2002.
Linda Huett. Ms. Huett has been the President and a director of the Company since September
1999. She became the Company’s Chief Executive Officer in December 2000. Ms. Huett joined
the Company in 1984 as a classroom leader. Ms. Huett was promoted to U.K. Training Manager in
1986. In 1990, Ms. Huett was appointed Director of the United Kingdom operation and in 1993
was appointed Vice President of Weight Watchers U.K. Ms. Huett graduated from Gustavas
Adolphus College and received her Masters in Theater from Yale University. Ms. Huett is also a
director of WeightWatchers.com, Inc.
Richard McSorley. Mr. McSorley has served as the Company’s Chief Operating Officer for North
America since January 2001. From 1992 until the Company’s purchase of Weighco, Mr. McSorley
served in various capacities with Weighco Enterprises, Inc., including as President since 1995 and
Chief Executive Officer since 1996. Mr. McSorley received his B.A. degree from Villanova
University and an M.B.A. from the University of Pittsburgh.
Clive Brothers. Mr. Brothers has served as the Company’s Chief Operating Officer for Europe
since February 2001. Mr. Brothers joined the Company in 1985 as a marketing manager in the
31
United Kingdom. In 1990, Mr. Brothers was appointed General Manager, France and was
appointed Vice President, Continental Europe in 1993. Mr. Brothers received a B.A. (Hons) in
Business Studies from Leeds Polytechnic in England and a diploma in Marketing from the
Chartered Institute of Marketing.
Scott R. Penn. Scott Penn has been a Vice President of the Company’s Australasia operations
since September 1999. Mr. Penn joined the Company in 1994 as a Marketing Services Manager in
Australia. In 1996, he was promoted to Group Marketing Manager in Australia and in 1997 he was
promoted to General Manager—Marketing and Finance.
Thomas S. Kiritsis. Mr. Kiritsis has served as the Company’s Vice President, Chief Financial
Officer since joining the Company in May 2000. From June 1994 to April 2000, he was Senior
Vice President of Finance of Olsten Corporation. Mr. Kiritsis received a B.B.A. in Accounting
from Hofstra University and is a certified public accountant.
Robert W. Hollweg. Mr. Hollweg has served as the Company’s Vice President, General Counsel
and Secretary since January 1998. He joined the Company in 1969 as an Assistant Counsel in the
law department. He transferred to the Heinz law department subsequent to Heinz's acquisition of
the Company in 1978 and served there in various capacities. He rejoined the Company after Artal
Luxembourg acquired the Company in September 1999. Mr. Hollweg graduated from Fordham
University and received his Juris Doctor degree from Fordham University School of Law. He is a
member of the American and New York State Bar Associations and a former President of the
International Trademark Association.
Raymond Debbane. Mr. Debbane has been the Company’s Chairman of the board of directors
since the Company’s acquisition by Artal Luxembourg on September 29, 1999. Mr. Debbane is a
co-founder and President of The Invus Group, Ltd. Prior to forming The Invus Group, Ltd. in
1985, Mr. Debbane was a manager and consultant for The Boston Consulting Group in Paris,
France. He holds an M.B.A. from Stanford Graduate School of Business, an M.S. in Food Science
and Technology from the University of California, Davis and a B.S. in Agricultural Sciences and
Agricultural Engineering from American University of Beirut. Mr. Debbane is a director of Artal
Group S.A., Ceres, Inc., Financial Technologies International Inc. and Nellson Nutraceutical, Inc.
Mr. Debbane is also the Chairman of the board of directors of WeightWatchers.com, Inc. and
served as a director of Keebler Foods Company from 1996 to 1999.
Jonas M. Fajgenbaum. Mr. Fajgenbaum has been a director of the Company since the Company’s
acquisition by Artal Luxembourg on September 29, 1999. Mr. Fajgenbaum is a Managing Director
at The Invus Group, Ltd., which he joined in 1996. Prior to joining The Invus Group, Ltd.,
Mr. Fajgenbaum was a consultant for McKinsey & Company in New York from 1994 to 1996. He
graduated with a B.S. from the Wharton School of Business and a B.A. in Economics from the
University of Pennsylvania in 1994.
Sacha Lainovic. Mr. Lainovic has been a director of the Company since the Company’s
acquisition by Artal Luxembourg on September 29, 1999. Mr. Lainovic is a co-founder and
Executive Vice President of The Invus Group, Ltd. Prior to forming The Invus Group, Ltd. in
1985, Mr. Lainovic was a manager and consultant for the Boston Consulting Group in Paris,
France. He holds an M.B.A. from Stanford Graduate School of Business and an M.S. in
32
from
Insa de Lyon
is a director of
engineering
WeightWatchers.com, Inc., Financial Technologies International Inc., Nellson Nutraceutical, Inc.
and Unwired Australia Pty Limited, and also served as a director of Keebler Foods Company from
1996 to 1999.
in Lyon, France. Mr. Lainovic
Christopher J. Sobecki. Mr. Sobecki has been a director of the Company since the Company’s
acquisition by Artal Luxembourg on September 29, 1999. Mr. Sobecki, a Managing Director of
The Invus Group, Ltd., joined the firm in 1989. He received an M.B.A. from Harvard Business
School. He also obtained a B.S. in Industrial Engineering from Purdue University. Mr. Sobecki is a
director of WeightWatchers.com, Inc., Nellson Nutraceutical, Inc., Financial Technologies
International Inc. and iLife, Inc. He also served as a director of Keebler Foods Company from
1996 to 1998.
Sam K. Reed. Mr. Reed has 27 years of experience in the food industry. He was formerly Vice
Chairman and Director of Kellogg Company, the world’s leading producer of cereal and a leading
producer of convenience foods. From 1996 to 2001, Mr. Reed was Chief Executive Officer,
President and a Director of Keebler Foods Company. Previously, he was Chief Executive Officer,
of Specialty Foods Corporation’s $450 million Western Bakery Group division. He is a Director
of the Tractor Supply Company. Mr. Reed received a B.A. from Rice University and an M.B.A.
from Stanford University.
Marsha Johnson Evans. Ms. Evans is currently the National Executive Director of Girl Scouts of
the U.S.A., the world’s preeminent organization dedicated solely to girls. A retired Rear Admiral
in the United States Navy, Ms. Evans has served as superintendent of the Naval Postgraduate
School in Monterey, California and headed the Navy’s worldwide recruiting organization from
1993 to 1995. She is currently a director of the May Department Stores Company and numerous
nonprofit boards. Ms. Evans received a B.A. from Occidental College and a Master’s Degree from
the Fletcher School of Law and Diplomacy at Tufts University.
Board of Directors
The Company’s board of directors is currently comprised of seven directors.
Board of Directors Report on Executive Compensation Programs
The Company’s board of directors oversees the compensation programs of the Company,
with particular attention to the compensation for its Chief Executive Officer and the other
executive officers. It is the responsibility of the Company’s board of directors to review,
recommend and approve changes to the Company’s compensation policies and benefits programs,
to administer the Company’s stock plans, including approving stock option grants to executive
officers and other stock option grants, and to otherwise ensure that the Company’s compensation
philosophy is consistent with the best interests of the Company and is properly implemented.
The Company’s compensation philosophy
total
compensation package that enables the Company to attract and retain key executive and employee
talent needed to accomplish the Company’s goals, and (2) directly link compensation to
improvements in the Company's financial and operational performance.
to (1) provide a competitive
is
33
Total compensation is comprised of a base salary plus both cash and non-cash incentive
compensation, and is based on the Company’s financial performance and other factors, and is
delivered through a combination of cash and equity-based awards. This approach results in overall
compensation levels which follow the Company’s financial performance.
The Company’s board of directors reviews each senior executive officer's base salary
annually. In determining appropriate base salary levels, consideration is given to the officer's
impact level, scope of responsibility, prior experience, past accomplishments and data on
prevailing compensation levels in relevant executive labor markets.
The Company’s board of directors believes that granting stock options provides officers
with a strong economic interest in maximizing shareholder returns over the longer term. The
Company believes that the practice of granting stock options is important in retaining and
recruiting the key talent necessary at all employee levels to ensure the Company’s continued
success.
Committees of the Company’s Board of Directors
The standing committees of the Company’s board of directors consist of an audit
committee and a compensation and benefits committee.
Audit Committee
The principal duties of the Company’s audit committee are as follows:
•
•
•
•
•
to oversee that the Company’s management has maintained the reliability and
integrity of the Company’s accounting policies and financial reporting and the
Company’s disclosure practices;
to oversee that the Company’s management has established and maintained
processes to assure that an adequate system of internal control is functioning;
to oversee that the Company’s management has established and maintained
processes to assure the Company’s compliance with all applicable laws, regulations
and corporate policy;
to review the Company’s annual and quarterly financial statements prior to their
filing or prior to the release of earnings; and
review
the performance of
independent accountants and make
to
recommendations to the board of directors regarding the appointment or
termination of the independent accountants.
the
The audit committee has the power to investigate any matter brought to its attention within
the scope of its duties and to retain counsel for this purpose where appropriate.
34
Compensation and Benefits Committee
The principal duties of the compensation and benefits committee are as follows:
•
•
•
•
to review key employee compensation policies, plans and programs;
to monitor performance and compensation of the Company’s employee-director,
officers and other key employees;
to prepare recommendations and periodic reports to the board of directors
concerning these matters; and
to function as the committee which administers the incentive programs referred to
in "Executive Compensation" below.
Compensation and Benefits Committee Interlocks and Insider Participation
None of the Company’s executive officers has served as a director or member of the
compensation and benefits committee, or other committee serving an equivalent function, of any
entity of which an executive officer is expected to serve as a member of the Company’s
compensation and benefits committee.
Classes and Terms of Directors
The Company’s board of directors is divided into three classes, as nearly equal in number
as possible, with each director serving a three-year term and one class being elected at each year's
annual meeting of shareholders. The following individuals are directors and serve for the terms
indicated:
Class 1 Directors (term expiring in 2002)
Raymond Debbane
Jonas M. Fajgenbaum
Class 2 Directors (term expiring in 2003)
Sacha Lainovic
Christopher J. Sobecki
Marsha Johnson Evans
Class 3 Director (term expiring in 2004)
Linda Huett
Sam K. Reed
35
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s
directors, executive officers and holders of more than 10% of the Company’s common stock
(collectively, “Reporting Persons”) to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership of common stock of the Company. Such
persons are required by regulations of the Securities and Exchange Commission to furnish the
Company with copies of all such filings. Based on its review of the copies of such filings received
by it with respect to the fiscal year ended December 29, 2001 and written representations from
certain Reporting Persons, the Company believes that all Reporting Persons complied with all
Section 16(a) filing requirements in the fiscal year ended December 29, 2001.
36
Item 11. Executive Compensation
The following table sets forth for the fiscal year ended December 29, 2001, the twelve
months ended December 30, 2000, and for the fiscal year ended April 29, 2000, the compensation
paid to the Company’s President and Chief Executive Officer and to each of the next four most
highly compensated executive officers whose total annual salary and bonus was in excess of
$100,000.
Summary Compensation Table
Twelve Month Period
Compensation
Long-term Compensation Awards
Securities Underlying Options
(No. Awarded)
Name and principal position Twelve Months Ended
Salary
Bonus
Weight
Watchers WeightWatchers.com(5)
All Other
Compensation(6)
Linda Huett
President and
Chief Executive Officer
December 29, 2001
December 30, 2000(4)
April 29, 2000
$250,016
236,565
183,750
$425,027
283,351
215,159
—
141,161
282,322
December 29, 2001
December 30, 2000
204,844
130,798
252,034
160,035
—
282,322
—
—
11,385
—
11,385
$93,497
84,531
288,905
66,580
26,747
December 29, 2001
192,534
252,034
282,322
—
17,579
Thomas S. Kiritsis(1)
Vice President,
Chief Financial Officer
Richard McSorley(2)
Chief Operating Officer,
North America
Clive Brothers
Chief Operating Officer,
Europe
December 29, 2001
December 30, 2000(4)
April 29, 2000
Robert W. Hollweg(3)
Vice President, General
Counsel and Secretary
Scott R. Penn
Vice President, Australasia
___________
December 29, 2001
December 30, 2000(4)
April 29, 2000
December 29, 2001
December 30, 2000(4)
April 29, 2000
183,593
170,148
143,423
157,245
142,510
70,500
117,711
124,758
63,508
207,651
154,215
158,597
198,058
100,013
67,349
94,350
78,059
86,134
—
—
282,322
—
282,322
—
—
—
282,322
—
—
11,385
—
11,385
—
—
—
11,385
30,872
29,639
12,908
51,705
43,519
11,325
25,759
28,484
15,930
(1) Mr. Kiritsis joined the Company on May 1, 2000.
(2) Mr. McSorley joined the Company on January 16, 2001.
(3) Mr. Hollweg rejoined the Company in September 1999. Prior to that time, he was an
employee of Heinz.
(4)
Effective April 30, 2000, the Company changed its fiscal year end from the last Saturday in
April to the Saturday closest to December 31. To accurately reflect annual compensation,
37
the compensation reported for the twelve months ended December 30, 2000 has been
derived from the compensation for the eight months ended December 30, 2000, plus the
compensation for the four months ended April 29, 2000, except that the shares underlying
the options issued in respect of WeightWatchers.com shares are not included in the
executive officer's compensation for the twelve months ended December 30, 2000 because
this grant of options is reflected in the executive officer's compensation for the twelve
months ended April 29, 2000. As a result, there is overlap in the compensation reported for
the twelve months ended December 30, 2000 and the twelve months ended April 29, 2000.
Awards of options with respect to shares of WeightWatchers.com common stock owned by
the Company were made
the Company’s
WeightWatchers.com 1999 Stock Incentive Plan of Weight Watchers International, Inc.
and Subsidiaries.
the named executives under
to
For the fiscal year ended December 29, 2001, these figures include amounts contributed
under the Company’s 401(k) savings plan and the Company’s non-qualified executive
profit sharing plan of $80,005 for Ms. Huett, $59,831 for Mr. Kiritsis, $43,689 for
Mr. Hollweg and $11,552 for Mr. McSorley. Also included are contributions to the U.K.
Pension Plan of $18,456 for Mr. Brothers and contributions to the Australia Pension Plan
of $16,000 for Mr. Penn, as well as auto lease expense for named executives.
(5)
(6)
In December 1999, the Company’s board of directors adopted the "1999 Stock Purchase
and Option Plan of Weight Watchers International, Inc. and Subsidiaries" under which selected
employees were afforded the opportunity to purchase shares of the Company’s common stock
and/or were granted options to purchase shares of the Company’s common stock. The number of
shares available for grant under this plan is 7,058,040 shares of the Company’s authorized
common stock.
The following table sets forth information regarding options granted during the fiscal year
ended December 29, 2001 to the named executive officers under the Company’s stock purchase
and option plan.
Weight Watchers International, Inc. and Subsidiaries Option Grants
For the Fiscal Year Ended December 29, 2001
Individual Grants
Percent of
Total Options
Granted to
Employees in
Fiscal Year
Ended
December 29, 2001(2)
Number of
Securities
Underlying
Options
Granted (1)
Name
Exercise
or
Base Price
(per share)
Expiration
Date
Grant
Date
Present
Value(3)
Richard McSorley
282,322
38.6%
$4.04
May 7, 2011
$457,364
38
(1)
(2)
(3)
Options were granted during the fiscal year ended December 29, 2001 under the terms
of the Company’s option plan. No options under the plan were exercised during the
fiscal year ended December 29, 2001. Options are exercisable based on vesting
provisions outlined in the agreement.
Percentage of total options granted are based on total grants made to all employees
during the fiscal year ended December 29, 2001.
The estimated grant date’s present value is determined using the Black-Scholes model.
The adjustments and assumptions incorporated in the Black-Scholes model in
estimating the value of the grants include the following: (a) the exercise price of the
options equals the fair market value of the underlying stock on the date of grant; (b) an
option term of 7.5 years; (c) dividend yield of 0% and volatility of 34.6% and (d) a risk
free interest rate ranging from 5.1% to 5.4%. The ultimate value, if any, an optionee
will realize upon exercise of an option will depend on the excess of the market value of
the Company’s common stock over the exercise price of the option.
Under the Company’s 1999 Stock Purchase and Option Plan, the Company has the ability
to grant stock options, restricted stock, stock appreciation rights and other stock-based awards.
Generally, stock options granted under this plan vest and become exercisable in annual increments
over five years with respect to one-third of options granted, and the remaining two-thirds of the
options vest on the ninth anniversary of the date the options were granted, subject to accelerated
vesting upon the Company’s achievement of certain performance targets. In any event, the options
that vest over five years automatically become fully vested upon the occurrence of a change in
control of the Company.
In April 2000, the Company’s board of directors adopted the "WeightWatchers.com Stock
Incentive Plan of Weight Watchers International, Inc. and Subsidiaries" pursuant to which selected
employees were granted options to purchase shares of WeightWatchers.com common stock. The
number of shares available for grant under this plan is 400,000 shares of authorized common stock
of WeightWatchers.com. No options were granted during the fiscal year ended December 29,
2001 to the named executive officers under the WeightWatchers.com Stock Incentive Plan.
Under the Company’s WeightWatchers.com Stock Incentive Plan, the Company has the
ability to grant stock options, restricted stock, stock appreciation rights and other stock-based
awards on shares of WeightWatchers.com common stock. Generally, stock options under the plan
vest in annual increments over five years upon the Company’s achievement of certain performance
targets. These options are not exercisable until the earlier to occur of (1) six months after the tenth
anniversary of the date the option was granted; and (2) a public offering of WeightWatchers.com
common stock or a private sale of the stock in which an employee holding stock is entitled to
participate under the terms of the sale participation agreement entered into with Artal Luxembourg.
The following tables set forth the number and value of securities underlying unexercised
options held by each of the Company’s executive officers listed on the Summary Compensation
Table above as of December 29, 2001. None of the Company’s executive officers exercised any
39
options in the fiscal year ended December 29, 2001, and the Company does not have any stock
appreciation rights.
Aggregated Options/SAR
Values as of December 29, 2001
Fiscal Year Ended
December 29, 2001
Shares
Acquired in Values
Exercise (#) Realized
Number of Weight Watchers
Securities
Underlying Unexercised
Options/SARs at
December 29, 2001
Value of Weight Watchers
Unexercised
In-The-Money
Options/SARs at
December 29, 2001
Exercisable (#)
Unexercisable (#) Exercisable Unexercisable
—
—
—
—
—
—
—
—
—
—
—
—
207,036
136,456
136,456
136,456
136,456
47,054
216,447
145,866
145,866
145,866
145,866
235,268
$6,769,380
$6,475,051
$4,561,959
$4,267,661
$4,561,959
$4,267,661
$4,561,959
$4,267,661
$4,267,661
$4,561,959
$1,381,600 $6,907,939
Name
Linda Huett
Clive Brothers
Scott R. Penn
Thomas S. Kiritsis
Robert W. Hollweg
Richard McSorley
Number of
WeightWatchers.com
Securities
Underlying Unexercised
Options/SARs at
December 29, 2001
Value of
WeightWatchers.com
In-The-Money
Options/SARs at
December 29, 2001
Number of
Heinz Securities
Underlying Unexercised
Options/SARs at
December 29, 2001
Value of Heinz
In-The-Money
Options/SARs at
December 29, 2001
Exercisable
(#)
Unexercisable
(#)
Exercisable Unexercisable
Exercisable
(#)
Unexercisable
(#)
Exercisable Unexercisable
5,692
5,692
5,692
5,692
5,692
—
5,693
5,693
5,693
5,693
5,693
—
—
—
—
—
—
—
—
—
—
—
—
—
40,000
40,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Name
Linda Huett
Clive Brothers
Scott R. Penn
Thomas S. Kiritsis
Robert W. Hollweg
Richard McSorley
Directors Compensation
The Company’s executive directors and the Company’s directors who are associated with
The Invus Group, Ltd. do not receive compensation except in their capacity as officers or
employees. Mr. Reed and Ms. Evans will receive (1) annual compensation in the amount of
$30,000, paid quarterly half in cash and half in common stock of the Company; (2) $1,000 per
Audit Committee meeting; (3) options for 2,000 shares of the Company’s common stock per year,
with the first grant on February 6, 2002, at an exercise price equal to the closing price of the
common stock of the Company on the day that the options are granted, the options have a five year
life and vest one year after the grant date; and (4) reimbursement of reasonable out-of-pocket
expenses associated with a director’s role on the board of directors.
40
Executive Savings and Profit Sharing Plan
The Company sponsors a savings plan for salaried and eligible hourly employees. This
defined contribution plan provides for employer matching contributions up to 100% of the first 3%
of an employee's eligible compensation. The savings plan also permits employees to contribute
between 1% and 13% of eligible compensation on a pre-tax basis.
The savings plan also contains a profit sharing component for full-time salaried employees
that are not key management personnel, which provides for a guaranteed monthly employer
contribution for each participant based on the participant's age and a percentage of the participant's
eligible compensation. In addition, the profit sharing plan has a supplemental employer
contribution component, based on the Company’s achievement of certain annual performance
targets, and a discretionary contribution component.
The Company also established an executive profit sharing plan, which provides a non-
qualified profit sharing plan for key management personnel who are not eligible to participate in
the Company’s profit sharing plan. This non-qualified profit sharing plan has similar features to the
Company’s profit sharing plan.
41
Item 12. Security Ownership of Certain Beneficial Owners and Management
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial ownership of the
Company’s common stock by (1) all persons known by the Company to own beneficially more
than 5% of the Company’s common stock, (2) the Company’s chief executive officer and each of
the named executive officers, (3) each director, and (4) all directors and executive officers as a
group.
Beneficial ownership is determined in accordance with the rules of the Securities and
Exchange Commission. In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to options held by that
person that are currently exercisable or exercisable within 60 days after December 29, 2001 are
deemed issued and outstanding. These shares, however, are not deemed outstanding for purposes
of computing percentage ownership of each other shareholder.
The Company’s capital stock consists of common stock and preferred stock. As of
December 29, 2001, there were 105,499,987 shares of the Company’s common stock and
1,000,000 shares of the Company’s preferred stock outstanding. On March 1, 2002, the Company
redeemed all of the Company’s Series A Preferred Stock held by Heinz for a redemption price of
$25 million plus accrued and unpaid dividends.
Name of Beneficial Owner
Artal Luxembourg S.A. (1)
Linda Huett (2)(3)
Richard McSorley(2)
Clive Brothers (2)(3)(4)
Scott R. Penn (2)(3)(4)
Thomas S. Kiritsis (2)(3)(4)
Robert W. Hollweg (2)(3)
Raymond Debbane (5)(6)
Sacha Lainovic (6)
Christopher J. Sobecki (6)
Jonas M. Fajgenbaum (6)
All directors and executive officers as a group
(10 people)
As of December 29, 2001
Percent
Shares
80,517,663
301,244
159,984
231,064
382,311
234,731
254,090
—
—
—
—
76.3%
*
*
*
*
*
*
—
—
—
—
1,563,424(3)
1.5%
___________
*
Less than 1.0%
(1)
Artal Luxembourg may be contacted at 105, Grand-Rue, L-1661 Luxembourg, Luxembourg. The parent entity of Artal Luxembourg S.A.
is Artal Group S.A. The address of Artal Group is the same as the address of Artal Luxembourg.
(2)
The Company’s officers may be contacted c/o Weight Watchers International, Inc., 175 Crossways Park West, Woodbury, New York,
11797.
42
(3)
Includes shares subject to purchase upon exercise of options exercisable within 60 days after December 29, 2001, as follows: Ms. Huett
207,036 shares; Mr. Brothers 136,456 shares; Mr. Scott Penn 170,569 shares (includes 34,113 shares subject to options held by Mr. Scott
Penn's spouse); Mr. Kiritsis 136,456 shares; Mr. Hollweg 136,456 shares; and Mr. McSorley 65,876 shares.
(4)
With respect to Mr. Scott Penn, includes 70,581 shares of the Company’s common stock and vested options to purchase 34,113 shares of
the Company’s common stock held by Mr. Scott Penn's spouse. With respect to Mr. Thomas Kiritsis, includes 4,167 shares of the
Company’s common stock held by Mr. Thomas Kiritsis’ spouse. With respect to Mr. Clive Brothers, includes 500 shares of the
Company’s common stock held by Mr. Clive Brothers’ spouse.
(5)
Mr. Debbane is also a director of Artal Group. Artal Group is the parent entity of Artal Luxembourg. Mr. Debbane disclaims beneficial
ownership of all shares owned by Artal Luxembourg.
(6)
The Company’s non-executive directors may be contacted c/o The Invus Group, Ltd., 135 East 57th Street, New York, New York 10022.
43
Item 13. Certain Relationships and Related Transactions
Shareholders’ Agreements
Simultaneously with the closing of the Company’s acquisition by Artal Luxembourg, the
Company entered into a shareholders' agreement with Artal Luxembourg and Heinz relating to
their rights with respect to the Company’s common stock. Subsequent transferees of Artal
Luxembourg and Heinz must, subject to limited exceptions, agree to be bound by the terms and
provisions of the agreement. Heinz has sold all shares of the Company’s common stock held by it
and accordingly no longer has any rights or obligations under this agreement. The Company and
Artal Luxembourg recently terminated this agreement.
Shortly after the Company’s acquisition by Artal Luxembourg, the Company entered into a
shareholders' agreement with Artal Luxembourg and Merchant Capital, Inc., Richard and Heather
Penn, Longisland International Limited, Envoy Partners and Scotiabanc, Inc. relating to their
rights with respect to the Company’s common stock held by these parties other than Artal
Luxembourg. Without the consent of Artal Luxembourg, transfers of the Company’s common
stock by these shareholders are restricted with certain exceptions. Subsequent transferees of the
Company’s common stock must, subject to limited exceptions, agree to be bound by the terms and
provisions of the agreement. Additionally, this agreement provides the shareholders with the right
to participate pro rata in certain transfers of the Company’s common stock by Artal Luxembourg
and grants Artal Luxembourg the right to require the other shareholders to participate on a pro rata
basis in certain transfers of the Company’s common stock by Artal Luxembourg.
Registration Rights Agreement
Simultaneously with the closing of the Company’s acquisition by Artal Luxembourg, the
Company entered into a registration rights agreement with Artal Luxembourg and Heinz. The
registration rights agreement grants Artal Luxembourg the right to require the Company to register
its shares of the Company’s common stock for public sale under the Securities Act (1) upon
demand and (2) in the event that the Company conducts certain types of registered offerings. Heinz
has sold all shares of the Company’s common stock held by it and accordingly no longer has any
rights under this agreement. Merchant Capital, Inc., Richard and Heather Penn, Long Island
International Limited, Envoy Partners and Scotiabanc, Inc. became parties to this registration rights
agreement under joinder agreements, and each acquired the right to require the Company to
register and sell their stock in the event that the Company conducts certain types of registered
offerings.
Preferred Shareholders’ Agreement
Simultaneously with the closing of the Company’s acquisition by Artal Luxembourg, the
Company entered into a preferred shareholders' agreement with Heinz that governed the
Company’s relationship concerning the Company’s Series A Preferred Stock. Subsequent
transferees of Heinz, subject to limited exceptions, had to agree to be bound by the terms and
provisions of this agreement. Artal Luxembourg and the Company had a preemptive right to
acquire the preferred stock from Heinz if Heinz received an offer to purchase any or all of its
44
preferred stock from a third party and it wished to accept the offer. Heinz had the right to require
the Company to redeem any or all of its shares of the Company’s preferred stock. This right,
however, was limited by the provisions contained in the Company’s credit agreement and the
indentures pursuant to which the Company’s senior subordinated notes were issued. On March 1,
2002, the Company redeemed all of the Company’s Series A Preferred Stock held by Heinz for a
redemption price of $25 million plus accrued and unpaid dividends.
Put/Call Agreement
On April 18, 2001, the Company entered into a Put/Call Agreement with Heinz. Under this
agreement, Heinz had an option to sell and the Company had an option to purchase all of the
Company’s common stock currently owned by Heinz. Under this agreement, Heinz has sold to the
Company 6,719,254 shares of the Company’s common stock held by it for an aggregate purchase
price of $27.1 million. Heinz no longer holds any common stock of the Company.
Limited Liability Company Agreement
Simultaneously with the closing of the Company’s acquisition by Artal Luxembourg, the
Company contributed $2,500 in exchange for a 50% membership interest in WW Foods, LLC, a
Delaware limited liability company. Heinz owns the remaining 50% interest. The purpose of WW
Foods is to own, maintain and preserve Weight Watchers food and beverage trademarks that were
contributed to it by Heinz. WW Foods serves as the vehicle for licensing rights in those food and
beverage trademarks to the Company and to Heinz, and for the licensing of program information
by the Company to Heinz.
Licensing Agreements
The licensing agreements govern the ownership and rights to use the Weight Watchers and
other trademarks, service marks and related rights among the Company, Heinz and WW Foods. As
described below, the licensing agreements address the parties' respective ownership and rights to
use food and beverage trademarks, service marks, program standards, program information,
program information trademarks and third party licenses. Heinz is also a party to an operating
agreement, which helps preserve and enhance these trademarks, service marks and related rights
and facilitates their orderly use by each party.
Food and Beverage Trademarks
Under the licensing agreements, the Company distributed to Heinz and Heinz contributed
to WW Foods all Weight Watchers trademarks and other trademarks the Company owned relating
to food and beverage products. However, Heinz retained certain trademarks previously used by
Heinz in connection with those food and beverage trademarks that do not include the Weight
Watchers name (including, for example, Smart Ones), which the Company distributed to Heinz. At
the closing of the Company’s acquisition by Artal Luxembourg, WW Foods granted an exclusive,
worldwide, royalty-free, perpetual license to use the food and beverage trademarks:
•
to Heinz, for worldwide use on food products in specified product categories
(including frozen dinners, frozen breakfasts, frozen desserts (excluding ice cream),
45
frozen pizza and pizza snacks, frozen potatoes, frozen rice products, ketchup,
tomato sauce, gravy, canned tuna or salmon products, soup, noodles (excluding
pasta), and canned beans and pasta products), and for use only in Australia and
New Zealand
in specified additional food product categories (including
mayonnaise, frozen vegetables, canned fruits and canned vegetables); and
•
to the Company, for use on all other food and beverage products.
The Company may promote, endorse and sell any of these licensed products through the
Company’s classroom business and related activities, subject to non-competition provisions with
Heinz. Additionally, the Company may continue to sell any food and beverage product (or
comparable product) sold by the Company in a particular country within the year preceding the
closing of the Company’s acquisition by Artal Luxembourg, even if that product has been
exclusively licensed to Heinz. However, the Company may do so only within that country and by
using the same channels of distribution through which the product was sold during that one-year
period.
Some of the food and beverage trademarks and trademark applications were not distributed
to Heinz for contribution to WW Foods. These trademarks and trademark applications include:
•
•
•
•
trademarks consisting of registrations in multiple trademark classes, where the
classes include both food and beverage product classes and classes relating to other
types of products or services;
pending applications that could not be transferred until a registration is granted;
trademark registrations and applications in countries that do not recognize
ownership of trademarks by an entity such as WW Foods;
trademark registrations and applications in countries where the local law imposes
restrictions or limitations on the ownership or registration of similar trademarks by
unrelated parties; and
•
program information trademarks (as defined below).
The Company retained legal ownership of these types of food and beverage trademarks,
which the Company holds in custody for the benefit of WW Foods.
At the closing of the Company’s acquisition by Artal Luxembourg, the Company granted
to Heinz an exclusive, worldwide, royalty-free license to use those food and beverage trademarks
(or any portion covering food and beverage products) that the Company holds in custody for the
benefit of WW Foods in connection with the other products licensed to Heinz by WW Foods. The
Company has undertaken to contribute any of these custodial trademarks (or any portion covering
food and beverage products) to WW Foods if WW Foods determines that the transfer may be
achieved under local law. If local law does not permit an existing registration in multiple trademark
classes to be severed so as to reflect separate ownership of registrations in food and beverage
product classes from registrations in classes covering other types of products or services, (1) WW
46
Foods will apply for new registrations to cover the food and beverage products, (2) the Company
will cancel the portion of the multi-class registration covering food and beverage products upon
issuance of the new registrations and (3) the Company will retain ownership of all remaining
portions of the multi-class registration. Heinz will pay the Company an annual fee of $1.2 million
until September 2004 in exchange for the Company’s serving as the custodian of the food and
beverage trademarks held for the benefit of WW Foods.
Other Marks
The Company retains exclusive ownership of all service marks and trademarks other than
food and beverage trademarks and, except for the rights granted to WW Foods and to Heinz, the
Company has the exclusive right to use all these marks for any purpose, including their use as
trademarks for all products other than food and beverage products.
Program Standards
The Company has exclusive control of the dietary principles to be followed in any eating or
lifestyle regimen to facilitate weight loss or weight control employed by the classroom business
such as Winning Points. Except for specified limitations concerning products currently sold and
extensions of existing product lines, Heinz may use the food and beverage related trademarks only
on Heinz licensed products that have been specially formulated to be compatible with the
Company’s dietary principles. The Company has exclusive responsibility for enforcing compliance
with its dietary principles.
Program Information and Program Information Trademarks
The Company retains exclusive ownership of all program information, consisting of:
•
•
•
all information and know-how relating to any weight-loss program;
all terminology; and
all trademarks or service marks used to identify the programs or terminology.
The Company granted an exclusive, worldwide, royalty-free license to WW Foods (for
sublicense to Heinz) to use the terminology and the related trademarks and service marks, and the
Company provided WW Foods (and through it, Heinz) with access to and a right to use this
information as may be reasonably necessary to develop, manufacture or market food and beverage
products in accordance with the Company’s dietary principles. Heinz granted a worldwide,
royalty-free license to WW Foods to use improvements that Heinz may develop in the course of its
use of the Company’s dietary principles or weight-loss program, which WW Foods sublicensed in
turn to the Company.
Third Party Licenses
Under the licensing agreements, the Company assigned to Heinz all licenses that the
Company previously granted to third parties, and Heinz retained all existing sublicenses granted by
47
it to third parties under a license previously granted to Heinz that relate to the manufacture,
distribution or sale of food and beverage products. Heinz assumed the Company’s obligations
under these third party licenses, and has the right to collect and keep all proceeds from them until
September 2004. Ownership of these licenses, to the extent they pertain to products licensed to the
Company by WW Foods, will be transitioned to the Company over the five-year period following
the Company’s acquisition by Artal Luxembourg. All proceeds from any of these licenses that
cannot be transitioned to the Company by September 2004 will be collected by Heinz and paid
over to the Company. Any sublicense that the Company or Heinz grants after the closing of the
Company’s acquisition by Artal Luxembourg relating to use of the Company’s food and beverage
related trademarks must conform to the terms of the WW Foods licenses granted to Heinz and the
Company.
Effective May 3, 2001, the Company agreed to manage these third party licenses under an
agreement with Heinz dated April 30, 2001 for a fee equal to 5% of the royalties from these
licenses. This agreement also grants the Company an option, exercisible in the Company’s sole
discretion, to buy the royalty stream from these licenses prior to September 29, 2004 at a price
computed using a formula which adjusts for the then current royalty base, an assumed growth rate
over the balance of the period, the 5% management fee, the custodial fee, an agreed discount rate
and a tax rate.
Heinz Licenses
Subsequent to its acquisition by Artal Luxembourg, the Company entered into three
short-term licenses with Heinz and its affiliates regarding the manufacture and marketing of certain
food products (not licensed to Heinz by WW Foods) under the Company’s brand in the United
Kingdom, Australia and in New Zealand through WW Foods as described above. These products
were ones that were manufactured and marketed by Heinz prior to the Company’s acquisition by
Artal Luxembourg.
Management Agreement
Simultaneously with the closing of the Company’s acquisition by Artal Luxembourg, the
Company entered into a management agreement with The Invus Group, Ltd., the independent
investment advisor to Artal Luxembourg. Under this agreement, The Invus Group provides the
Company with management, consulting and other services in exchange for an annual fee equal to
the greater of one million dollars or one percent of the Company’s EBITDA (as defined in the
indentures relating to the Company’s senior subordinated notes). This agreement is terminable at
the option of The Invus Group at any time or by the Company at any time after Artal Luxembourg
owns less than a majority of the Company’s voting stock.
Corporate Agreement
The Company has entered into a corporate agreement with Artal Luxembourg. The
Company has agreed that, so long as Artal Luxembourg beneficially owns 10% or more, but less
than a majority of the Company’s then outstanding voting stock, Artal Luxembourg will have the
right to nominate a number of directors approximately equal to that percentage multiplied by the
48
number of directors on the Company’s board. This right to nominate directors will not restrict Artal
Luxembourg from nominating a greater number of directors.
The Company has agreed with Artal Luxembourg that both Weight Watchers and Artal
Luxembourg have the right to:
•
•
•
engage in the same or similar business activities as the other party;
do business with any customer or client of the other party; and
employ or engage any officer or employee of the other party.
Neither Artal Luxembourg nor the Company, nor the Company’s respective related parties, will be
liable to each other as a result of engaging in any of these activities.
Under the corporate agreement, if one of the Company’s officers or directors who also
serves as an officer, director or advisor of Artal Luxembourg becomes aware of a potential
transaction related primarily to the group education-based weight-loss business that may represent
a corporate opportunity for both Artal Luxembourg and the Company, the officer, director or
advisor has no duty to present that opportunity to Artal Luxembourg, and the Company will have
the sole right to pursue the transaction if the Company’s board so determines. If one of the
Company’s officers or directors who also serves as an officer, director or advisor of Artal
Luxembourg becomes aware of any other potential transaction that may represent a corporate
opportunity for both Artal Luxembourg and the Company, the officer or director will have a duty
to present that opportunity to Artal Luxembourg, and Artal Luxembourg will have the sole right to
pursue the transaction if Artal Luxembourg's board so determines. If one of the Company’s
officers or directors who does not serve as an officer, director or advisor of Artal Luxembourg
becomes aware of a potential transaction that may represent a corporate opportunity for both Artal
Luxembourg and the Company, neither the officer nor the director nor the Company have a duty to
present that opportunity to Artal Luxembourg, and the Company may pursue the transaction if its
board so determines.
If Artal Luxembourg transfers, sells or otherwise disposes of the Company’s then
outstanding voting stock, the transferee will generally succeed to the same rights that Artal
Luxembourg has under this agreement by virtue of its ownership of the Company’s voting stock,
subject to Artal Luxembourg's option not to transfer those rights.
WeightWatchers.com Note
On September 10, 2001, the Company amended and restated its loan agreement with
WeightWatchers.com, increasing the aggregate commitment thereunder to $34.5 million. The
principal amount may be advanced at any time or from time to time prior to July 31, 2003. The
note bears interest at 13% per year, beginning on January 1, 2002, which interest, except as set
forth below, shall be paid semi-annually starting on March 31, 2002. All principal outstanding
under this note will be payable in six semi-annual installments, starting on March 31, 2004. The
note may be prepaid at any time in whole or in part, without penalty. Any borrowings over
49
$26.2 million outstanding principal amount will begin bearing interest immediately. As of
December 29, 2001, $34.5 million of principal was outstanding under this note.
WeightWatchers.com Warrant Agreements
received warrants
to purchase an additional 6,394,997
Under the warrant agreements that the Company entered with WeightWatchers.com, the
Company has
shares of
WeightWatchers.com's common stock in connection with the loans that the Company made to
WeightWatchers.com under the note described above. 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 Company owns 19.8% of the
outstanding common stock of WeightWatchers.com, or 38.7% on a fully diluted basis (including
the exercise of all options and all the warrants the Company owns in WeightWatchers.com).
Collateral Assignment and Security Agreement
In connection with the WeightWatchers.com note, the Company entered into a collateral
assignment and security agreement whereby the Company obtained a security interest in the assets
of WeightWatchers.com. The Company’s security interest in those assets will terminate when the
note has been paid in full.
WeightWatchers.com Intellectual Property License
The Company has entered into an amended and restated intellectual property license
agreement with WeightWatchers.com that governs WeightWatchers.com's right to use the
Company’s trademarks and materials related to the Weight Watchers program.
The amended and restated license agreement grants WeightWatchers.com the exclusive
right to (1) use any of the Company’s trademarks, service marks, logos, brand names and other
business identifiers as part of a domain name for a website on the Internet; (2) use any of the
domain names the Company owns; (3) use any of the Company’s trademarks on the Internet and
any other similar or related forms of interactive digital transmission that now exists or may be
developed later (provided that the Company and the Company’s affiliates, franchisees, and
licensees other than WeightWatchers.com can continue using the trademarks in connection with
online advertising and promotion of activities conducted offline); and (4) use any materials related
to the Weight Watchers program, including any text, artwork and photographs, and advertising,
marketing and promotional materials on the Internet. The license agreement also grants
WeightWatchers.com a non-exclusive right to (1) use any of the Company’s trademarks to
advertise any approved activities that relate to its online weight-loss business; and (2) create
derivative works. All rights granted to WeightWatchers.com must be used solely in connection
with the conduct of its online weight-loss business.
Beginning in January 2002, WeightWatchers.com will pay the Company a royalty of 10%
of the net revenues it earns through its online activities.
50
The Company retains exclusive ownership of all of the trademarks and materials that the
the derivative works created by
to WeightWatchers.com and of
licenses
Company
WeightWatchers.com.
All of the rights granted to WeightWatchers.com in the license agreement are subject to the
Company’s pre-existing agreements with third parties, including franchisees.
The license agreement provides the Company with control over the use of its intellectual
property. The Company has the right to approve any e-commerce activities, any materials,
sublicenses, communication to consumers, products, privacy policy, strategies, marketing and
operational plans WeightWatchers.com intends to use or implement in connection with its online
weight-loss business. WeightWatchers.com is obligated to adhere to strict quality standards, usage
guidelines and business criteria provided to WeightWatchers.com by the Company.
WeightWatchers.com and the Company will 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,
the Company 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 the Company and the
Company’s affiliates and franchisees;
marketing services, which include the hosting, displaying and distributing on the
Internet of information relating to the Company’s products and services such as the
Company’s classroom meetings, the Weight Watchers Magazine and At Home and
similar products and services from the Company’s affiliates and franchisees; and
customer communication services, which include establishing a means by which
customers can communicate with the Company on the Internet to ask questions
related to the Company’s products and services and the products and services of the
Company’s affiliates and franchisees.
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.
WeightWatchers.com Shareholders' Agreement
The Company entered into a shareholders' agreement with WeightWatchers.com, Inc.,
Artal Luxembourg and Heinz that governs the Company’s and Artal Luxembourg's relationship
with WeightWatchers.com as holders of its common stock. Heinz has sold all of its shares in
WeightWatchers.com back to WeightWatchers.com and thus no longer has any rights under this
51
agreement. Subsequent transferees of the Company and of Artal Luxembourg must, except for
some limited exceptions, agree to be bound by the terms and provisions of the agreement.
The shareholders' agreement imposes on the Company restrictions on the transfer of
common stock of WeightWatchers.com until the earlier to occur of (1) September 29, 2004 and
(2) WeightWatchers.com's initial public offering of common stock under the Securities Act, except
for certain exceptions. The Company has the right to participate pro rata in certain transfers of
common stock of WeightWatchers.com by Artal Luxembourg, and Artal Luxembourg has the right
transfers of
to participate on a pro rata basis
to require
WeightWatchers.com's common stock by it.
the Company
in certain
WeightWatchers.com Registration Rights Agreement
The Company entered into a registration rights agreement with WeightWatchers.com, Artal
Luxembourg and Heinz with respect to the Company’s shares in WeightWatchers.com. Heinz has
resold all of its shares in WeightWatchers.com back to WeightWatchers.com and thus no longer
has any rights under this agreement. The registration rights agreement grants Artal Luxembourg
the right to require WeightWatchers.com to register its shares of WeightWatchers.com common
stock upon demand and also grants the Company and Artal Luxembourg rights to register and sell
shares of WeightWatchers.com's common stock in the event WeightWatchers.com conducts
certain types of registered offerings.
WeightWatchers.com Lease Guarantee
The Company has guaranteed the performance of WeightWatchers.com's lease of its office
space at 888 Seventh Avenue, New York, New York. The annual rental rate is $.5 million plus
increases for operating expenses and real estate taxes. The lease expires in September 2003.
Nellson Co-Pack Agreement
The Company entered into an agreement with Nellson Nutraceutical, a subsidiary of Artal
Luxembourg, to purchase snack bar and powder products manufactured by Nellson Nutraceutical
for sale at the Company’s meetings. Under the agreement, Nellson Nutraceutical agreed to produce
sufficient snack bar products to fill the Company’s purchase orders within 30 days of Nellson
Nutraceutical's receipt of these purchase orders, and the Company is not bound to purchase a
minimum quantity of snack bar products. The Company purchased $18.7 million, $4.9 million and
$4.3 million, respectively, of products from Nellson Nutraceutical during the fiscal year ended
December 29, 2001, the eight months ended December 30, 2000 and the fiscal year ended
April 29, 2000. 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 Nutraceutical.
52
PART IV
ITEM 14. Exhibits, Financial Statement Schedule, and Report on Form 8-K.
(a) 1. Financial Statements
The financial statements listed in the Index to Financial Statements and Financial Statement Schedule on
page F-1 are filed as part of this Form 10-K.
2. Financial Statement Schedule
The financial statement schedule listed in the Index to Financial Statements and Financial Statement
Schedule on page F-1 is filed as part of this Form 10-K.
3. Exhibits
The exhibits listed in the Exhibit Index are filed as part of this Form 10-K.
(b). Reports on Form 8-K
None.
53
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS
Items 14(a) 1&2
Pages
Consolidated Balance Sheets as of December 29, 2001, December 30, 2000 and
F-2
April 29, 2000
Consolidated Statements of Operations for the fiscal year ended December 29, 2001,
F-3
the eight months ended December 30, 2000, and the fiscal years ended April
29, 2000 and April 24, 1999
Consolidated Statements of Changes in Stockholders’ Deficit, Parent Company
Investment and Comprehensive Income for the fiscal year ended December
29, 2001, the eight months ended December 30, 2000, and the fiscal years
ended April 29, 2000 and April 24, 1999
Consolidated Statements of Cash Flows for the fiscal year ended
December 29, 2001, the eight months ended December 30, 2000, and the
fiscal years ended April 29, 2000 and April 24, 1999
Notes to Consolidated Financial Statements
Report of Independent Accountants
Schedule II – Valuation and Qualifying Accounts and Reserves for the fiscal year
ended December 29, 2001, the eight months ended December 30, 2000, and
the fiscal years ended April 29, 2000 and April 24, 1999
All other schedules are omitted for the reason that they are either not required, not
applicable, not material or the information is included in the consolidated financial
statements or notes thereto.
F-4
F-5
F-6
F-44
F-45
F-1
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 29, 2001, DECEMBER 30, 2000 AND APRIL 29, 2000
(IN THOUSANDS)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Receivables (net of allowances:
December 29, 2001 - $726; December 30, 2000 - $797; April 29, 2000 - $609)
Notes receivable, current
Foreign currency contract receivable
Inventories, net
Prepaid expenses
Deferred income taxes
TOTAL CURRENT ASSETS
Property and equipment, net
Notes and other receivables, noncurrent
Goodwill (net of accumulated amortization:
December 29,
2001
December 30,
2000
April 29,
2000
$
23,338
$
44,501
$
44,043
13,619
-
-
26,205
15,944
4,773
83,879
10,725
325
14,678
2,106
5,364
15,044
11,099
648
93,440
8,145
5,601
12,877
2,791
-
9,328
8,360
94
77,493
7,001
7,045
December 29, 2001 - $68,783; December 30, 2000 - $59,216; April 29, 2000 - $55,430)
234,302
150,901
152,565
Trademarks and other intangible assets (net of accumulated amortization:
December 29, 2001 - $20,608; December 30, 2000 - $19,871; April 29, 2000 - $19,423)
Deferred income taxes
Deferred financing costs, net
Other noncurrent assets
TOTAL ASSETS
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Short-term borrowings due to related party
Portion of long-term debt due within one year
Accounts payable
Salaries and wages
Accrued interest
Accrued restructuring costs
Foreign currency contract payable
Other accrued liabilities
Income taxes
Deferred revenue
TOTAL CURRENT LIABILITIES
Long-term debt
Deferred income taxes
Other
TOTAL LONG-TERM DEBT AND OTHER LIABILITIES
Commitments and contingencies
Redeemable preferred stock
SHAREHOLDERS' DEFICIT
Common stock, $0 par 1,000,000 shares authorized; 111,988 shares issued;
outstanding 105,500 shares at December 29, 2001
and 111,988 at December 30, 2000 and April 29, 2000
Treasury stock, at cost, 6,488 shares at December 29, 2001
Accumulated deficit
Accumulated other comprehensive loss
TOTAL SHAREHOLDERS' DEFICIT
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' DEFICIT
6,863
136,281
9,164
1,309
482,848
$
6,648
67,207
13,513
762
346,217
$
7,163
67,574
14,666
700
334,207
$
$
2,888
15,699
17,698
15,133
7,810
283
2,811
23,529
9,139
13,020
108,010
$
1,730
14,120
11,989
10,544
9,662
2,485
-
23,215
3,660
5,836
83,241
$
1,489
14,120
12,362
10,125
4,082
4,786
486
19,583
6,786
4,632
78,451
458,320
3,169
870
462,359
456,530
3,107
121
459,758
460,510
2,941
546
463,997
25,996
25,996
25,875
-
(26,196)
(73,998)
(13,323)
(113,517)
-
-
(216,507)
(6,271)
(222,778)
-
-
(231,663)
(2,453)
(234,116)
$
482,848
$
346,217
$
334,207
The accompanying notes are an integral part of the consolidated financial statements.
F-2
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 29, 2001, THE EIGHT MONTHS ENDED
DECEMBER 30, 2000, AND THE FISCAL YEARS ENDED APRIL 29, 2000 AND APRIL 24, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Meeting fees, net
Product sales and other, net
Revenues, net
Cost of revenues
Gross profit
Marketing expenses
Selling, general and administrative expenses
Transaction costs
Operating income
Interest expense (income)
Other expense (income), net
Income before income taxes, minority interest
and extraordinary item
(Benefit from) provision for income taxes
Income before minority interest
and extraordinary item
Minority interest
Income before extraordinary item
Extraordinary charge on early extinguishment
of debt, net of taxes of $1,784
Net income
Preferred stock dividends
Net income available to common shareholders
Basic net income per share:
Income before extraordinary item
Extraordinary item, net of taxes
Net income
Diluted net income per share:
Income before extraordinary item
Extraordinary item, net of taxes
Net income
December 29,
December 30,
2001
2000
April 29,
2000
April 24,
1999
(52 Weeks)
(35 Weeks)
(53 Weeks)
(52 Weeks)
$
415,680
$
184,102
$
276,103
$
266,140
208,190
623,870
286,436
337,434
69,716
73,029
-
194,689
54,537
13,181
126,971
(23,198)
150,169
107
150,062
89,073
273,175
139,283
133,892
26,986
34,424
-
72,482
37,125
14,334
21,023
5,857
15,166
147
15,019
123,471
399,574
201,389
198,185
51,453
53,759
8,345
84,628
31,079
(13,367)
66,916
28,323
38,593
834
37,759
98,468
364,608
178,925
185,683
52,856
51,501
-
81,326
(7,168)
2,659
85,835
36,360
49,475
1,493
47,982
2,875
147,187
$
$
-
15,019
-
37,759
$
-
47,982
$
1,500
145,687
$
$
1,000
14,019
875
36,884
$
-
47,982
$
$
1.37
$
0.13
$
0.20
$
0.17
$
(0.03)
1.34
$
-
0.13
$
-
0.20
-
0.17
$
$
1.34
$
0.13
$
0.20
$
0.17
$
(0.03)
1.31
$
-
0.13
$
-
0.20
-
0.17
$
Weighted average common shares outstanding:
Basic
Diluted
108,676
110,975
111,988
112,171
182,206
182,206
276,430
276,430
The accompanying notes are an integral part of the consolidated financial statements.
F-3
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT, PARENT
COMPANY INVESTMENT AND COMPREHENSIVE INCOME
FOR THE FISCAL YEAR ENDED DECEMBER 29, 2001,
THE EIGHT MONTHS ENDED DECEMBER 30, 2000, AND
THE FISCAL YEARS ENDED APRIL 29, 2000 AND APRIL 24, 1999
(IN THOUSANDS)
Common Stock
Treasury Stock
Shares
Amount
Shares
Amount
Additional
Paid In
Capital
Accumulated
Other
Parent
Comprehensive Accumulated Company's
Investment
Deficit
Loss
Total
Balance at April 25, 1998
276,430
$
229,089
$
229,089
Comprehensive Income:
Net income
Translation adjustment
Total Comprehensive Income
Net Parent settlements
Dividend
Balance at April 24, 1999
276,430
(164,442)
-
Net Parent settlements
Recapitalization and settlement
of Parent company investment
Deferred tax asset
Comprehensive Income:
Net income
Translation adjustment
Total Comprehensive Income
Preferred stock dividend
Balance at April 29, 2000
111,988
-
Elimination of foreign subsidiaries
one month reporting lag effective
April 30, 2000
Comprehensive Income:
Net income
Translation adjustment
Total Comprehensive Income
Preferred stock dividend
-
-
-
-
Balance at December 30, 2000
111,988
-
-
-
Comprehensive Income:
Net income
Translation adjustment
Changes in fair value of derivatives
accounted for as hedges
Total Comprehensive Income
Preferred stock dividend
Purchase of treasury stock
Stock options exercised
Sale of common stock
Cost of public equity offering
6,719
(93)
(138)
$
(27,132)
375
561
47,982
19,660
(42,851)
(4,932)
47,982
19,660
67,642
(42,851)
(4,932)
248,948
248,948
(252,883)
(252,883)
$
(72,100)
72,100
$
(12,764)
$
(268,547)
3,935
10,311
37,759
(875)
(349,476)
72,100
37,759
10,311
48,070
(875)
-
-
(2,453)
(231,663)
-
(234,116)
(3,818)
1,137
15,019
(1,000)
1,137
15,019
(3,818)
11,201
(1,000)
(6,271)
(216,507)
-
(222,778)
(3,132)
(3,920)
147,187
(1,500)
(177)
(36)
(2,965)
147,187
(3,132)
(3,920)
140,135
(1,500)
(27,132)
198
525
(2,965)
Balance at December 29, 2001
111,988
-
6,488
$
(26,196)
$
-
$
(13,323)
$
(73,998)
$
-
$
(113,517)
The accompanying notes are an integral part of the consolidated financial statements.
F-4
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEAR ENDED DECEMBER 29, 2001,
THE EIGHT MONTHS ENDED DECEMBER 30, 2000, AND
THE FISCAL YEARS ENDED APRIL 29, 2000 AND APRIL 24, 1999
(IN THOUSANDS)
December 29,
December 30,
April 29,
2001
(52 Weeks)
2000
(35 Weeks)
2000
(53 Weeks)
April 24,
1999
(52 Weeks)
Operating activities:
Net income
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization
Amortization of deferred financing costs
Deferred tax (benefit) provision
Unrealized loss (gain) on derivative instruments
Accounting for equity investment
Elimination of foreign subsidiaries one month reporting lag
Allowance for doubtful accounts
Reserve for inventory obsolescence, other
Foreign currency exchange rate gain
Extraordinary charges from early extinguishment of debt
Other items, net
Changes in cash due to:
Receivables
Inventories
Prepaid expenses
Due from related parties
Accounts payable
Accrued liabilities
Deferred revenue
Income taxes
Cash provided by operating activities
Investing activities:
Capital expenditures
Advances and interest in equity investment
Acquisitions
Acquisitions of minority interest
Other items, net
Cash used for investing activities
Financing activities:
Net increase (decrease) in short-term borrowings
Proceeds from borrowings
Repurchase of common stock
Payment of dividends
Payments on long-term debt
Deferred financing cost
Net Parent settlements
Purchase of treasury stock
Cost of public equity offering
Proceeds from sale of common stock
Proceeds from stock options exercised
Cash (used for) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
$
147,187
$
15,019
$
37,759
$
47,982
13,243
2,097
(71,069)
1,125
17,344
-
6,330
2,718
(6,496)
2,875
191
231
(11,895)
(5,605)
1,158
5,201
1,985
7,290
7,654
121,564
(3,834)
(17,344)
(97,877)
-
(1,063)
(120,118)
748
60,042
-
(1,500)
(50,813)
(2,406)
-
(27,132)
(1,017)
525
198
(21,355)
(1,254)
(21,163)
6,607
1,282
104
(5,815)
17,604
1,206
198
3,993
-
-
(954)
(2,746)
(8,902)
(3,592)
241
(303)
6,862
1,043
(2,975)
28,872
(3,626)
(15,604)
-
(2,400)
3
(21,627)
(34)
-
-
(879)
(7,060)
-
-
-
-
-
(7,973)
1,186
458
9,286
1,112
8,541
499
-
-
(385)
3,360
-
-
(2,492)
13,424
(5,177)
(801)
(14,765)
(1,512)
5,281
(1,753)
(2,492)
49,885
(1,874)
-
-
(15,900)
(1,867)
(19,641)
(5,455)
491,260
(324,476)
(2,796)
(3,530)
(15,861)
(131,030)
-
-
-
8,112
(13,828)
24,528
9,586
-
9,279
-
-
-
118
1,923
-
-
38
(7,277)
(1,849)
(1,454)
3,693
3,083
(10,076)
(716)
3,571
57,901
(2,474)
-
-
-
(565)
(3,039)
856
-
-
(10,368)
(1,081)
-
(37,076)
-
-
-
(47,669)
493
7,686
Cash and cash equivalents, beginning of fiscal year/period
Cash and cash equivalents, end of fiscal year/period
$
44,501
23,338
$
44,043
44,501
19,515
44,043
$
11,829
19,515
$
The accompanying notes are an integral part of the consolidated financial statements.
F-5
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. Basis of Presentation
Weight Watchers International, Inc. (the “Company”) operates and franchises territories offering
weight loss and control programs through the operation of classroom type meetings to the general public
in the United States, Canada, Mexico, the United Kingdom, Continental Europe, Australia, New Zealand,
South Africa, and Brazil.
Recapitalization:
On September 29, 1999, the Company entered into a recapitalization and stock purchase
agreement (the “Transaction”) with its former parent, H.J. Heinz Company (“Heinz”). In connection with
the Transaction, the Company effectuated a stock split of 58,747.6 shares for each share outstanding. The
Company then redeemed 164,442 shares of common stock from Heinz for $349,500. The number of
shares of the Company’s common stock that was authorized and outstanding prior to the Transaction has
been adjusted to reflect the stock split. The $349,500 consisted of $324,500 of cash and $25,000 of the
Company’s redeemable Series A Preferred Stock. After the redemption, Artal Luxembourg S.A.
(“Artal”) purchased 94% of the Company’s remaining common stock from Heinz for $223,700. The
recapitalization and stock purchase was financed through borrowings under credit facilities amounting to
approximately $237,000 and the issuance of Senior Subordinated Notes amounting to $255,000, due
2009. The balance of the borrowings was utilized to refinance debt incurred prior to the Transaction
relating to the transfer of ownership and acquisition of the minority interest in the Weight Watchers
businesses that operate in Australia and New Zealand. The acquisition of the minority interest resulted in
approximately $15,900 of goodwill. In connection with the Transaction, the Company incurred
approximately $8,300 in transaction costs and $15,900 in deferred financing costs. For U.S. Federal and
State tax purposes, the Transaction was treated as a taxable sale under Section 338(h)(10) of the Internal
Revenue Code of 1986, as amended. As a result, for tax purposes, the Company recorded a step-up in the
tax basis of net assets. For financial reporting purposes, a valuation allowance of approximately $72,100
was established against the corresponding deferred tax asset of $144,200.
Weighco Acquisition:
On January 16, 2001, the Company acquired certain business assets of Weighco Enterprises, Inc.,
Weighco of Northwest, Inc. and Weighco of Southwest, Inc. (“Weighco”), for an aggregate purchase
price of $83,800. See Note 3.
Stock Split:
On October 29, 2001, the Company’s board of directors declared a 4.70536-for-one stock split,
which became effective concurrent with the effective date, November 15, 2001, of the registration
statement filed by the Company in connection with its initial public offering (“IPO”). All common shares
and per share amounts have been retroactively restated for the stock split. In addition, stock options and
the respective exercise prices have been amended to reflect this split.
Common Stock Offering:
On November 15, 2001, the Company traded 17,400 shares of its common stock on the New
York Stock Exchange at an initial price to the public of $24.00 per share. The Company did not receive
any of the proceeds from the sale of shares of the Company’s common stock pursuant to this initial public
offering.
F-6
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Simultaneous with the Transaction, the Company entered into a Registration Rights Agreement with
Artal, under which the Company is obligated at the request of Artal, to register its common stock with the
Securities and Exchange Commission and pay all costs associated with such registration. As a result, all
costs incurred in connection with the Company’s common stock offering have been recorded in
shareholders’ deficit.
2. Summary of Significant Accounting Policies
Change in Fiscal Year:
The Company changed its fiscal year from the last Saturday of April to the Saturday closest to
December 31st effective with the eight months commencing April 30, 2000.
The following table presents certain financial information for the eight months ended December
30, 2000 and December 18, 1999.
Eight Months Ended
December
2000
(35 Weeks)
December
1999
(34 Weeks)
(Unaudited)
$ 273,175 $ 236,974
Revenues, net
$ 133,892 $ 114,592
Gross profit
Income before income taxes and minority interest $ 21,023 $ 39,020
$ 5,857 $ 15,150
Provision for income taxes
$ 15,166 $ 23,870
Income before minority interest
$ 147 $ 694
Minority interest
$ 15,019 $ 23,176
Net Income
Consolidation:
The consolidated financial statements include the accounts of the Company and its wholly-
owned subsidiaries. All material intercompany accounts and transactions have been eliminated in
consolidation. In order to facilitate timely reporting in prior periods, certain foreign subsidiaries ended
their fiscal years one month prior to the Company’s fiscal year end with no material impact on the
consolidated financial statements. The one-month lag was eliminated effective April 30, 2000. The
effect on net income of these subsidiaries for the period March 31, 2000 through April 29, 2000 was
$1,137 and was adjusted to opening accumulated deficit at April 30, 2000.
Use of Estimates:
The preparation of financial statements, in conformity with accounting principles generally
accepted in the United States of America, requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at
F-7
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
the date of the financial statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Translation of Foreign Currencies:
For all foreign operations, the functional currency is the local currency. Assets and liabilities of
these operations are translated at the exchange rate in effect at each year-end. Income statement accounts
are translated at the average rate of exchange prevailing during the year. Translation adjustments arising
from the use of differing exchange rates from period to period are included in accumulated other
comprehensive income (loss).
Cash Equivalents:
Cash and cash equivalents are defined as highly liquid investments with original maturities of
three months or less.
Inventories:
Inventories, which consist of finished goods, are stated at the lower of cost or market on a first-in,
first-out basis, net of reserves for obsolescence and shrinkage.
Property and Equipment:
Property and equipment are recorded at cost. For financial reporting purposes, equipment is
depreciated on the straight-line method over the estimated useful lives of the assets (5 to 10 years).
Leasehold improvements are amortized on the straight-line method over the shorter of the term of the
lease or the useful life of the related assets (5 to 10 years). Expenditures for new facilities and
improvements that substantially extend the useful life of an asset are capitalized. Ordinary repairs and
maintenance are expensed as incurred. When assets are retired or otherwise disposed of, the cost and
related depreciation are removed from the accounts and any related gains or losses are included in
income.
Impairment of Long Lived Assets:
The Company follows the provisions of Statement of Financial Accounting Standard (“SFAS”)
No. 121, “Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
of.” This statement requires that certain assets be reviewed for impairment and, if impaired, remeasured
at fair value whenever events or changes in circumstances indicate that the carrying amount of the asset
may not be recoverable.
In October 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets,” which supercedes SFAS No. 121.
SFAS No. 144 provides updated guidance concerning the recognition and measurement of an impairment
loss for certain types of long-lived assets. SFAS No. 144 is effective for the Company beginning
December 30, 2001. The Company does not expect the adoption of SFAS No. 144 to have a material
impact on the Company’s fiscal 2002 financial statements.
F-8
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Intangibles:
Goodwill, trademarks and other intangibles arising from acquisitions, including the acquisition of
previously franchised areas, are being amortized on a straight-line basis over periods ranging from 3 to 40
years. Amortization of goodwill, trademarks and other intangibles for the fiscal year ended December 29,
2001, the eight months ended December 30, 2000, and the fiscal years ended April 29, 2000 and April 24,
1999 was $10,511, $4,515, $6,304 and $4,228, respectively.
During 2001, the FASB issued SFAS No. 141, “Business Combinations” and SFAS No. 142,
“Goodwill and Other Intangible Assets.” Effective December 30, 2001, the Company will no longer be
required to amortize indefinite life goodwill and intangible assets as a charge to earnings for acquisitions
completed prior to June 30, 2001. For acquisitions completed after June 30, 2001, the provisions of SFAS
No. 141 and 142 were effective immediately.
In addition, the Company will be required to conduct an annual review of goodwill and other
intangible assets for potential impairment. The Company estimates that the adoption of these standards
will reduce amortization expense for fiscal 2002 by approximately $6,400, net of taxes.
The Company accounts for software costs under the AICPA Statement of Position (“SOP”) No.
98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use”. SOP
No. 98-1 requires capitalization of certain costs incurred in connection with developing or obtaining
internally used software. Software costs are amortized over 3 to 5 years.
Revenue Recognition:
The Company earns revenue by conducting meetings, selling products and aids in its own
facilities, by collecting commissions from franchisees operating under the Weight Watchers name and by
collecting royalties related to licensing agreements. Revenue is recognized when registration fees are
paid, services are rendered, products are sold and commissions and royalties are earned. Deferred
revenue, consisting of prepaid lecture income, is amortized into income over the period earned.
Advertising Costs:
Advertising costs consist primarily of national and local direct mail, television, and
spokesperson’s fees. All costs related to advertising are expensed in the period incurred. Total
advertising expenses for the fiscal year ended December 29, 2001, the eight months ended December 30,
2000, and the fiscal years ended April 29, 2000 and April 24, 1999 were $66,749, $25,792, $48,027 and
$48,800, respectively.
Income Taxes:
The Company provides for taxes based on current taxable income and the future tax
consequences of temporary differences between the financial reporting and income tax carrying values of
its assets and liabilities. Under SFAS No. 109, “Accounting for Income Taxes”, assets and liabilities
acquired in purchase business combinations are assigned their fair values and deferred taxes are provided
for lower or higher tax bases.
F-9
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Derivative Instruments and Hedging:
The Company enters into forward and swap contracts to hedge transactions denominated in
foreign currencies to reduce the currency risk associated with fluctuating exchange rates. These contracts
are used primarily to hedge certain intercompany cash flows and for payments arising from some of the
Company’s foreign currency denominated obligations. In addition, the Company enters into interest rate
swaps to hedge a substantial portion of its variable rate debt.
Effective December 31, 2000, the Company adopted SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” and its related amendment, SFAS No. 138, “Accounting for Certain
Derivative Instruments and Certain Hedging Activities”. These standards require that all derivative
financial instruments be recorded on the consolidated balance sheets at their fair value as either assets or
liabilities. Changes in the fair value of derivatives will be recorded each period in earnings or
accumulated other comprehensive income (loss), depending on whether a derivative is designated and
effective as part of a hedge transaction and, if it is, the type of hedge transaction. Gains and losses on
derivative instruments reported in accumulated other comprehensive income (loss) will be included in
earnings in the periods in which earnings are affected by the hedged item. As of December 31, 2000, the
adoption of these new standards resulted in an adjustment of $5,086 ($3,204 net of taxes) to accumulated
other comprehensive loss.
Investments:
The Company uses the cost method to account for investments in which the Company holds 20%
or less of the investee’s voting stock and the Company does not have significant influence. Where the
Company holds 50% or less of the investee’s voting stock or where the Company has the ability to
exercise significant influence over operating and financial policies of the investee, the investment is
accounted for under the equity method.
Deferred Financing Costs:
Deferred financing costs consist of costs associated with the establishment of the Company’s
credit facilities resulting from the Transaction. During the fiscal year ended December 29, 2001, the
Company incurred additional deferred financing costs of $2,406 associated with the Weighco acquisition
and refinancing of its credit facilities. Such costs are being amortized using the interest rate method over
the term of the related debt. Amortization expense for the fiscal year ended December 29, 2001, the eight
months ended December 30, 2000 and the fiscal year ended April 29, 2000 was $2,097, $1,282 and
$1,112, respectively. In connection with the refinancing, the Company recognized an extraordinary
charge on the early extinguishment of debt of $2,875, net of taxes. See Note 5.
Comprehensive Income:
Other comprehensive income represents the change in shareholders’ deficit resulting from
transactions other than shareholder investments and distributions. The Company’s comprehensive income
includes net income, changes in the fair value of derivative instruments and the effects of foreign
currency translations.
F-10
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Recently Issued Accounting Standards:
In August 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.”
SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 is effective for the
Company beginning December 29, 2002. The Company does not expect the adoption of SFAS No. 143 to
have a material impact on its consolidated financial position or results of operations.
In June 2001, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 00-14,
“Accounting for Certain Sales Incentives,” which is effective no later than periods beginning after
December 15, 2001. EITF Issue No 00-14 addresses the recognition, measurement and statement of
earnings classification for certain sales incentive. EITF Issue No. 00-14 is effective for the Company
beginning December 30, 2001. The Company has determined that the impact of adoption or subsequent
application of EITF Issue No. 00-14 will not have a material effect on its consolidated results of operations.
Reclassification:
Certain prior year amounts have been reclassified to conform to the current year presentation.
3. Acquisitions
On September 4, 2001, the Company completed the acquisition of Weight Watchers of Oregon,
Inc., for an aggregate purchase price of $13,500. Substantially all of the purchase price in excess of the
net assets acquired was recorded as goodwill. The acquisition has been accounted for under the
provisions of SFAS No. 141, “Business Combinations”. SFAS No. 141 requires that all business
combinations initiated after June 30, 2001 be accounted for by the purchase method of accounting,
thereby eliminating the pooling-of-interests methods of accounting.
On January 16, 2001, the Company completed the acquisition of Weighco, for an aggregate
purchase price of $83,800 plus acquisition costs of $577. Assets acquired include inventory ($1,884) and
property and equipment ($1,801). The excess of investment over the net book value of assets acquired at
the date of acquisition resulted in goodwill of $80,692. The acquisition was financed through additional
borrowings of $60,000 obtained pursuant to the Company’s Amended and Restated Credit Agreement,
dated January 16, 2001, and cash from operations.
These acquisitions have been accounted for under the purchase method of accounting and
accordingly, earnings have been included in the consolidated operating results of the Company since the
date of acquisition.
The following table presents unaudited pro forma financial information that reflects the
consolidated results of operations of the Company, including Weighco, as if the acquisition had occurred
as of the beginning of the period. This pro forma information does not necessarily reflect the actual
results that would have occurred, nor is it necessarily indicative of future results of operations of the
consolidated companies.
F-11
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Pro Forma
Eight Months Ended
December 30,
2000
Revenue
Net income
Per share information:
Basic and diluted earnings per share
$
$
$
306,509
17,257
0.15
4. Property and Equipment
The components of property and equipment were:
Leasehold improvements
Equipment
Less: Accumulated depreciation and amortization
Construction in progress
December 29,
December 30,
2001
2000
April 29,
2000
$
18,059
$
19,218
$
17,954
36,071
54,130
43,494
10,636
89
31,921
51,139
43,006
8,133
12
30,900
48,854
41,911
6,943
58
$
10,725
$
8,145
$
7,001
Depreciation and amortization expense of property and equipment for the fiscal year ended
December 29, 2001, the eight months ended December 30, 2000, and the fiscal years ended April 29,
2000 and April 24, 1999 was $2,732, $2,162, $2,982 and $3,487, respectively.
5. Long-Term Debt
December 29, 2001
December 30, 2000
April 29, 2000
EURO 100.0 million 13% Senior Subordinated Notes due 2009
US $150.0 million 13% Senior Subordinated Notes due 2009
Term A Loan due 2005
Term B Loan due 2007
Transferable Loan Certificate due 2007
Less Current Portion
Effective
rate
13.00%
13.00%
6.95%
8.25%
8.25%
Balance
$
94,240
150,000
65,625
74,438
86,347
470,650
14,120
$
456,530
Effective
rate
13.00%
13.00%
9.81%
10.95%
10.95%
Balance
$
91,160
150,000
71,875
74,813
86,782
474,630
14,120
$
460,510
Effective
rate
13.00%
13.00%
9.22%
10.04%
10.04%
Balance
$
88,380
150,000
63,639
108,000
64,000
474,019
15,699
$
458,320
F-12
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
In connection with the Transaction, the Company entered into a credit facility (“Credit Facility”)
with The Bank of Nova Scotia, Credit Suisse First Boston and certain other lenders providing (i) a
$75,000 term loan A facility (“Term Loan A”), (ii) a $75,000 term loan B facility (“Term Loan B”), (iii)
an $87,000 transferable loan certificate (“TLC”) and (iv) a revolving credit facility with borrowings up to
$30,000 (“Revolving Credit Facility”). The Credit Facility was amended and restated on January 16,
2001 to provide for an additional $50,000 in borrowings in connection with the acquisition of Weighco
(see Note 3) as follows: (i) Term Loan A was increased by $15,000, (ii) the Revolving Credit Facility was
increased by $15,000 to $45,000 and (iii) a new $20,000 term loan D facility (“Term Loan D”). On
December 21, 2001, the Amended and Restated Credit Facility dated January 16, 2001 was refinanced as
follows: (i) Term Loan B, Term Loan D and the TLC in the amount of $71,000, $19,000 and $82,000,
respectively were repaid and replaced with a new Term Loan B of $108,000 and a new TLC of $64,000.
No additional borrowings were incurred. Borrowings under the Credit Facility are paid quarterly and bear
interest at a rate equal to LIBOR plus (a) in the case of Term Loan A and the Revolving Credit Facility,
1.75% or, at the Company’s option, the alternate base rate, as defined, plus 0.75% and, (b) in the case of
Term Loan B and the TLC, 2.50% or, at the Company’s option, the alternate base rate plus 1.50%. At
December 29, 2001, the interest rates were 3.73% for Term Loan A, 4.40% for Term Loan B, and 4.43%
for the TLC. All assets of the Company collateralize the Credit Facility.
In addition, as part of the Transaction, the Company issued $150,000 USD denominated and
100,000 EUR denominated principal amount of 13% Senior Subordinated Notes due 2009 (the “Notes”)
to qualified institutional buyers. At December 29, 2001, the 100,000 EUR notes translated into 88,380
USD denominated equivalent. The impact of the change in foreign exchange rates related to euro
denominated debt is reflected in the income statement. Interest is payable on the Notes semi-annually on
April 1 and October 1 of each year. The Company uses interest rate swaps and foreign currency forward
contracts in association with its debt. The Notes are uncollateralized senior subordinated obligations of
the Company, subordinated in right of payment to all existing and future senior indebtedness of the
Company, including the Credit Facility. The notes are guaranteed by certain subsidiaries of the
Company.
The Credit Facility contains a number of covenants that, among other things, restrict the
Company’s ability to dispose of assets, incur additional indebtedness, or engage in certain transactions
with affiliates and otherwise restrict the Company’s corporate activities. In addition, under the Credit
Facility, the Company is required to comply with specified financial ratios and tests, including minimum
fixed charge coverage and interest coverage ratios and maximum leverage ratios.
The aggregate amounts of existing long-term debt maturing in each of the next five years and
thereafter are as follows:
2002
2003
2004
2005
2006
2007 and thereafter
$ 15,699
20,161
17,630
17,029
1,720
401,780
$ 474,019
F-13
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. Redeemable Preferred Stock
The Company issued one million shares of Series A Preferred Stock in conjunction with the
Transaction. Holders of the Series A Preferred Stock are entitled to receive dividends at an annual rate of
6% payable annually in arrears. The liquidation preference of the Series A Preferred Stock is $25 per
share. If there is a liquidation, dissolution or winding up, the holders of shares of Series A Preferred
Stock are entitled to be paid out of the Company assets available for distribution to shareholders an
amount in cash equal to the $25 liquidation preference per share plus all accrued and unpaid dividends
prior to the distribution of any assets to holders of shares of common stock.
Except as required by law, the holders of the preferred stock have no voting rights with respect to
their shares of preferred stock, except that (1) the approval of holders of a majority of the outstanding
shares of preferred stock, voting as a class, is required to amend, repeal or change any of the provisions of
the Company’s certificate of incorporation in any manner that would alter or change the powers,
preferences or special rights of the shares of preferred stock in a way that would affect them adversely
and (2) the consent of each holder of Series A Preferred Stock is required for any amendment that reduces
the dividend payable on or the liquidation value of the Series A Preferred Stock.
On March 1, 2002, the Company redeemed all of the Company’s Series A Preferred Stock held
by Heinz for a redemption price of $25,000 plus accrued and unpaid dividends.
7. Treasury Stock
On April 18, 2001, the Company entered into a Put/Call Agreement with Heinz, pursuant to
which Heinz acquired the right and option to sell during the period ending on or before May 15, 2002,
and the Company acquired the right and option to purchase after that date and on or before August 15,
2002, 6,719 shares of the common stock of the Company owned by Heinz. Under this agreement, during
the fiscal year ended December 29, 2001, Heinz has sold all of its shares to the Company at fair value for
an aggregate purchase price of $27,132, which was funded with cash from operations. Heinz no longer
holds any common stock of the Company.
F-14
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. Earnings Per Share
Basic earnings per share (“EPS”) computations are calculated utilizing the weighed average
number of common shares outstanding during the periods presented. Diluted EPS includes the weighted
average number of common shares outstanding and the effect of common stock equivalents. The
following table sets forth the computation of basic and diluted EPS.
Numerator:
Net income
Preferred stock dividends
Numerator for basic and diluted EPS-income
available to common shareholders
Numerator for basic and diluted EPS-extraordinary
Eight Months
Ended
December 30,
2000
December 29,
2001
April 29,
2000
April 24,
1999
$
147,187
1,500
$
15,019
1,000
$
37,759
875
$
47,982
-
$
145,687
$
14,019
$
36,884
$
47,982
item, net of taxes
$
2,875
$
-
$
-
$
-
Numerator for basic and diluted EPS-income before
extraordinary item
$
148,562
$
14,019
$
36,884
$
47,982
Denominator:
Denominator for basic EPS-weighted-average shares
Effect of dilutive securities:
Stock options
Denominator for diluted EPS-weighted-average
shares
EPS:
Basic EPS:
Income before extraordinary item
Extraordinary item, net of taxes
108,676
111,988
182,206
276,430
2,299
183
-
-
110,975
112,171
182,206
276,430
$
1.37
(0.03)
$
0.13
-
$
0.20
-
$
0.17
-
Net income
$
1.34
$
0.13
$
0.20
$
0.17
Diluted EPS:
Income before extraordinary item
Extraordinary item, net of taxes
$
1.34
(0.03)
$
0.13
-
$
0.20
-
$
0.17
-
Net income
$
1.31
$
0.13
$
0.20
$
0.17
9. Stock Plans
Weight Watchers Incentive Compensation Plans:
On December 16, 1999, the board of directors adopted the 1999 Stock Purchase and Option Plan
of Weight Watchers International, Inc. and Subsidiaries (the “Plan”). The Plan is designed to promote the
long-term financial interests and growth of the Company and its subsidiaries by attracting and retaining
F-15
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
management with the ability to contribute to the success of the business. The Plan is to be administered
by the board of directors or a committee thereof.
Under the stock purchase component of the plan discussed above, 1,639 shares of common stock
were sold to 45 members of the Company’s management group at a price of $2.13 to $4.04 per share.
Under the option component of the Plan, grants may take the following forms in the committee’s
sole discretion: Incentive Stock Options, Other Stock Options (other than incentive options), Stock
Appreciation Rights, Restricted Stock, Purchase Stock, Dividend Equivalent Rights, Performance Units,
Performance Shares and Other Stock–Based Grants. The maximum number of shares available for grant
under this plan was 5,647 shares of authorized common stock as of the effective date of the Plan. In
2001, the number of shares available for grant was increased to 7,058 shares.
Pursuant to the option component of the Plan, the board of directors authorized the Company to
enter into agreements under which certain members of management received Non-Qualified Time and
Performance Stock Options providing them the opportunity to purchase shares of the Company’s
common stock at an exercise price of $2.13 to $4.04. The options are exercisable based on the terms
outlined in the agreement. The exercise price was equivalent to the fair market value at the date of grant.
The fair value of each option is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions:
Dividened yield
Volatility
Risk-free interest rate
Expected term (years)
December 29,
2001
0%
34.6%
5.1%-5.4%
7.5
Eight Months
Ended
December 30,
2000
0%
0%
5.9%-6.3%
10
April 29,
2000
0%
0%
6.5%-6.7%
10
F-16
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
A summary of the Company’s stock option activity is as follows:
December 29, 2001
Eight Months Ended
December 30, 2000
April 29, 2000
Number of
Shares
Weighted
average
exercise price
Number of
Shares
Weighted
average
exercise price
Number of
Shares
Weighted
average
exercise price
5,301
$
2.13
4,934
$
2.13
-
$
-
731
(93)
(268)
$
$
$
3.89
2.13
2.13
494
-
(127)
$
2.13
$
-
$
2.13
5,671
2,479
1,387
$
$
2.35
2.19
5,301
1,325
346
$
$
2.13
2.13
4,934
-
-
4,934
164
713
$
2.13
$
-
$
-
$
$
2.13
2.13
$
1.89
$
0.98
$
1.03
Options outstanding,
Beginning of year
Granted
Exercised
Cancelled
Options outstanding, end of year
Options exercisable, end of year
Options available for grant, end of year
Weighted-average fair value of options
granted during the year
The weighted average remaining contractual life of options outstanding at December 29, 2001,
December 30, 2000 and April 29, 2000 was 8.3, 8.9 and 9.5 years, respectively.
WeightWatchers.com Stock Incentive Plan of Weight Watchers International, Inc. and Subsidiaries:
In April 2000, the board of directors adopted the WeightWatchers.com Stock Incentive Plan of
Weight Watchers International, Inc. and Subsidiaries, pursuant to which selected employees were granted
options to purchase shares of common stock of WeightWatchers.com, Inc. that are owned by the Company.
The number of shares available for grant under this plan is 400 shares of authorized common stock of
WeightWatchers.com, Inc. All options vest over a period of time, however, vesting of certain options may
be accelerated if the Company achieves specified performance levels.
The fair value of each option is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions:
Dividend yield
Volatility
Risk-free interest rate
Expected term (years)
Eight Months
Ended
December 30,
April 29,
2000
0%
0%
5.9%-6.3%
10
2000
0%
0%
6.5%
10
December 29,
2001
0%
0%
5.1%-5.4%
10
F-17
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
A summary of the Company’s stock option activity is as follows:
December 29, 2001
Eight Months Ended
December 30, 2000
April 29, 2000
Number of
Shares
Weighted
average
exercise price
Number of
Shares
Weighted
average
exercise price
Number of
Shares
Weighted
average
exercise price
173
$
0.50
159
$
0.50
-
$
-
$
-
$
-
$
0.50
$
$
0.50
0.50
-
-
(9)
164
84
236
0.50
$
$
-
$
-
$
$
0.50
0.50
14
-
-
173
43
227
0.50
$
$
-
$
-
$
$
0.50
0.50
159
-
-
159
-
241
$
-
$
0.23
$
0.16
Options outstanding,
Beginning of year
Granted
Exercised
Cancelled
Options outstanding, end of year
Options exercisable, end of year
Options available for grant, end of year
Weighted-average fair value of options
granted during the year
The weighted average remaining contractual life of options outstanding at December 29, 2001,
December 30, 2000 and April 29, 2000 was 8.3, 9.3 and 10 years, respectively.
The pro forma effect of SFAS No. 123 on the Company’s financial statements would have been
as follows under the 1999 Stock Purchase and Option Plan of Weight Watchers International, Inc. and
Subsidiaries and the WeightWatchers.com Stock Incentive Plan of Weight Watchers International, Inc.
and Subsidiaries:
Net Income:
As reported
Pro forma
EPS:
As reported
Pro forma
December 29,
2001
$
$
$
$
147,187
146,629
1.34
1.34
Eight Months
Ended
December 30,
2000
$
$
$
$
15,019
14,984
0.13
0.12
April 29,
2000
$
$
$
$
37,759
37,170
0.20
0.20
Heinz Incentive Compensation Plans – Prior to the Transaction:
Certain qualifying employees of the Company were granted options to purchase Heinz common
stock under Heinz’s stock option plans. These options under the Plan have been granted at not less than
market prices on the date of grant. Stock options granted have a maximum term of ten years. Vesting
occurs from one to three years after the date of grant. Beginning in fiscal 1998, in order to place greater
emphasis on creation of shareholder value, performance-accelerated stock options were granted to certain
key executives. These options vest eight years after the grant date, subject to acceleration if
predetermined share price goals are achieved.
F-18
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The pro forma effect of SFAS No. 123 on the Company’s financial statements would have been
as follows:
Net Income:
As reported
Pro forma
EPS:
As reported
Pro forma
April 24,
1999
$ 47,982
$ 47,621
$
$
0.17
0.17
The fair value of each option is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions:
Dividend yield
Volatility
Risk-free interest rate
Expected term (years)
10. Income Taxes
April 24,
1999
2.5%
22.0%
5.1%
5
The following tables summarizes the (benefit) provision for U.S. federal, state and foreign taxes
on income:
Current:
U.S federal
State
Foreign
Deferred:
U.S federal
State
Foreign
December 29,
2001
Eight Months
Ended
December 30,
2000
April 29,
2000
April 24,
1999
$
27,550
7,203
11,394
$
234
200
5,319
$
5,727
2,464
11,591
$
11,997
3,247
11,837
$
46,147
$
5,753
$
19,782
$
27,081
$
(59,665)
(5,494)
(4,186)
$
-
-
104
$
7,800
368
373
$
6,368
312
2,599
$
(69,345)
$
104
$
8,541
$
9,279
Total tax (benefit) provision
$
(23,198)
$
5,857
$
28,323
$
36,360
F-19
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The components of income before income taxes, minority interest and extraordinary item consist
of the following:
Domestic
Foreign
December 29,
2001
$
92,903
34,068
Eight Months
Ended
December 30,
2000
$
9,399
11,624
April 29,
2000
April 24,
1999
$
33,538
33,378
$
48,199
37,636
$
126,971
$
21,023
$
66,916
$
85,835
The difference between the U.S. federal statutory tax rate and the Company’s consolidated
effective tax rate are as follows:
December 29,
2001
Eight Months
Ended
December 30,
2000
April 29,
2000
April 24,
1999
U.S. federal statutory rate
Foreign income taxes
States' income taxes (net of federal benefit)
Goodwill amortization
Other
Valuation allowance
Effective tax rate
35.0%
0.8
0.9
0.2
(1.6)
(53.6)
(18.3%)
35.0%
4.0
0.6
1.0
1.3
(14.0)
27.9%
35.0%
1.7
2.6
0.4
2.6
-
42.3%
35.0%
3.5
2.7
0.8
0.4
-
42.4%
F-20
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The deferred tax assets and deferred tax (liabilities) recorded on the balance sheet are as follows:
Depreciation/amortization
Provision for estimated expenses
Operating loss carryforwards
Transaction expenses
WW.com loan
Other
Amortization
Less: Valuation allowance
December 29,
2001
December 30,
2000
April 29,
2000
$
509
1,756
4,186
-
12,765
411
129,837
-
$
333
2,702
953
-
6,513
143
139,642
(71,903)
$
304
1,771
4,369
2,933
-
216
135,329
(71,979)
Total deferred tax assets
$
149,464
$
78,383
$
72,943
Transaction expenses
Deferred income
Other
$
(2,266)
(5,799)
(3,514)
$
(4,374)
(5,764)
(3,497)
-
$
(4,985)
(3,231)
Total deferred tax liabilities
$
(11,579)
$
(13,635)
$
(8,216)
Net deferred tax assets
$
137,885
$
64,748
$
64,727
On September 29, 1999 the Company effected a recapitalization and stock purchase agreement
with its former parent, Heinz. For U.S. tax purposes, the Transaction was treated as a taxable sale under
IRC section 338(h)(10), resulting in a step-up in the tax basis of net assets and, recognition of a deferred
tax asset in the amount of $144,200. At the time of the Transaction, the Company determined that it was
more likely than not that a portion of the deferred tax asset would not be utilized. 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 is
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 December 29, 2001, various foreign subsidiaries of the Company had net operating loss
carry forwards of approximately $13,953, 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. The Company will record a deferred tax liability or
asset, if any, based on the expected type of taxable or deductible amounts in future years, taking into
account any related foreign tax credits and withholding taxes. No deferred tax liability or asset was
required to be recorded for undistributed earnings of foreign subsidiaries as of December 29, 2001.
F-21
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. 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 19.8% of
WeightWatchers.com’s common stock while Artal owns approximately 72.2% of WeightWatchers.com’s
common stock. The Company accounts for its investment in Weighwatchers.com under the equity
method of accounting.
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.
On October 1, 2000, the Company amended its loan agreement with WeightWatchers.com,
increasing the aggregate principal amount from $10,000 to $23,500. On that date, the unpaid principal
and accumulated interest was rolled over into the new loan. The Company further amended the
agreement on May 3, 2001 and on September 10, 2001, increasing the aggregate amount to $28,500 and
$34,500, respectively. The principal amount may be advanced at any time or from time to time prior to
July 31, 2003. The note bears interest at 13% per year, beginning on January 1, 2002, which interest shall
be paid semi-annually starting on March 31, 2002. All principal outstanding under this note will be
payable in six semi-annual installments, starting on March 31, 2004. The note may be prepaid at any time
in whole or in part, without penalty. During the fiscal year ended December 29, 2001, the eight months
ended December 30, 2000, and the fiscal year ended April 29, 2000, the Company advanced
WeightWatchers.com $17,400, $14,800 and $2,000, respectively. The Company’s investment in
WeightWatchers.com has been reduced by the equity losses apportioned to the Company based upon its
ownership interest, which are classified in other expenses, net. The remaining loan balances have been
reviewed for impairment. As a result of such review, the Company has recorded a full valuation
allowance against the remaining loan balances.
The Company has guaranteed the performance of WeightWatchers.com’s lease of its office space
at 888 Seventh Avenue, New York, New York. The annual rent is $459,000 plus increases for operating
expenses and real estate taxes. The lease expires in September 2003.
Nellson Agreement:
On November 30, 1999, the Company entered into an agreement with Nellson Neutraceutical,
Inc. (“Nellson”), a wholly-owned subsidiary of Artal, to purchase nutrition bar products manufactured by
Nellson for sale at the Company’s meetings. 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-
F-22
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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 year ended December 29, 2001, the eight months ended December 30, 2000, and the
fiscal year ended April 29, 2000 were $18,706, $4,936 and $4,301, respectively.
Management Agreement:
Simultaneously with the closing of the Company’s acquisition by Artal, the Company entered
into a management agreement with The Invus Group, Ltd. (“Invus”), the independent investment advisor
to Artal. Under this agreement, Invus provides the Company with management, consulting and other
services in exchange for an annual fee equal to the greater of $1,000 or one percent of the Company’s
EBITDA (as defined in the indentures relating to the Company’s senior subordinated notes), plus any
related out-of-pocket expenses. This agreement is terminable at the option of Invus at any time or by the
Company at any time after Artal owns less than a majority of the Company’s voting stock.
Administrative expenses for the fiscal year ended December 29, 2001, the eight months ended December
30, 2000 and the fiscal year ended April 29, 2000 were $1,926, $683 and $583, respectively.
Heinz Licensing Agreement:
At the closing of the Transaction, the Company granted to Heinz an exclusive worldwide,
royalty-free license to use the Custodial Trademarks (or any portion covering food and beverage
products) in connection with Heinz licensed products. Heinz will pay the Company an annual fee of
$1,200 for five years in exchange for the Company serving as the custodian of the Custodial Trademarks.
Prior to the Transaction:
Certain of Heinz’ general and administrative expenses were allocated to the Company. Total
costs allocated include charges for salaries of corporate officers and staff and other Heinz corporate
overhead. Total costs charged to the Company for these services were $1,000 and $2,156 for the fiscal
years ended April 29, 2000 and April 24, 1999, respectively.
In addition, Heinz charged the Company for its share of group health insurance costs for eligible
Company employees based upon location specific costs, overall insurance costs and loss experience
incurred during a calendar year. In addition, various other insurance coverages were also provided to the
Company through Heinz’ consolidated programs. Workers compensation, auto, property, product
liability and other insurance coverages are charged directly based on the Company’s loss experience.
Amounts charged to the Company for insurance costs were $3,800 and $4,339 for the fiscal years ended
April 29, 2000 and April 24, 1999, respectively, and are recorded in selling, general and administrative
expenses in the accompanying statements of operations.
Total costs charged to the Company by Heinz for other miscellaneous services were $93 and
$520 for the fiscal years ended April 29, 2000 and April 24, 1999, respectively, and were recorded in
selling, general and administrative expenses in the accompanying statement of operations.
The Company maintained a cash management arrangement with Heinz. On a daily basis, all
available domestic cash was deposited and disbursements were withdrawn. Heinz charged the Company
interest on the average daily balance maintained in an intercompany account. Net interest expense related
to this arrangement included in the statements of operations was $1,700 and $3,081 for the fiscal years
ended April 29, 2000 and April 24, 1999, respectively. The interest rate charged to or received by the
F-23
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Company was 5.5% in the fiscal year ended April 29, 2000 and 6.25% in the fiscal year ended April 24,
1999.
Substantially all of the due from related parties of $133,783 at April 24, 1999 represents a note
receivable from an affiliate of Heinz which was repaid in June 1999. Interest income reflected in the
statements of operations related to this note receivable was $10,000 for the fiscal year ended April 24,
1999. The interest rate charged by the Company was LIBOR plus 25 basis points.
Short-term borrowings due to an affiliate of Heinz of $16,250 at April 24, 1999 represented a
note payable due April 28, 1999. Interest expense related to the note payable was $35 for the fiscal year
ended April 29, 2000 and $1,000 for the fiscal year ended April 24, 1999.
Pension costs and postretirement costs were also charged to the Company based upon eligible
employees participating in the Plans.
12. Employee Benefit Plans
Weight Watchers Sponsored Plans:
Effective September 29, 1999, the net assets of the Heinz sponsored employee savings plan were
transferred to the Weight Watchers sponsored plan upon execution of the Transaction. The Company
sponsors the Weight Watchers Savings Plan (the “Savings Plan”) for salaried and hourly employees. The
Savings Plan is a defined contribution plan which provides for employer matching contributions up to
100% of the first 3% of an employee’s eligible compensation. The Savings Plan also permits employees
to contribute between 1% and 13% of eligible compensation on a pre-tax basis. Company contributions
for the fiscal year end December 29, 2001, the eight months ended December 30, 2000 and the fiscal year
ended April 29, 2000 were $823, $433 and $316, respectively.
The Company sponsors the Weight Watchers Profit Sharing Plan (the “Profit Sharing Plan”) for
all full-time salaried employees who are eligible to participate in the Savings Plan (except for certain
senior management personnel). The Profit Sharing Plan provides for a guaranteed monthly employer
contribution on behalf of each participant based on the participant’s age and a percentage of the
participant’s eligible compensation. The Profit Sharing Plan has a supplemental employer contribution
component, based on the Company’s achievement of certain annual performance targets, which are
determined annually by the Company’s board of directors. The Company also reserves the right to make
additional discretionary contributions to the Profit Sharing Plan.
For certain senior management personnel, the Company sponsors the Weight Watchers Executive
Profit Sharing Plan. Under the Internal Revenue Service (“IRS”) definition, this plan is considered a
Nonqualified Deferred Compensation Plan. There is a promise of payment by the Company made on the
employees’ behalf instead of an individual account with a cash balance. The account is valued at the end
of each fiscal month, based on an annualized interest rate of prime plus 2%, with an annualized cap of
15%.
The Company is currently applying for a determination letter to qualify the Savings Plan under
Section 401(a) of the IRS Code. It is the Company’s opinion that the IRS will issue a favorable
determination letter as to the qualified status of the Savings Plan.
F-24
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Heinz Sponsored Plans – Prior to the Transaction:
Domestic employees participated in certain defined pension plans, a defined contribution 401(k)
savings plan and, for employees affected by certain IRS limits, a section 415 Excess Plan, all of which are
sponsored by Heinz. The Company also provided post-retirement health care and life insurance benefits
for employees who meet the eligibility requirements of the Heinz plans. Retirees share in the cost of
these benefits based on age and years of service.
Company contributions to the Heinz Savings Plan include a qualified age-related contribution and
a matching of the employee’s contribution, up to a specified amount.
The following amounts were included in the Company’s results of operations:
Defined Benefit Pension Plans
Defined Benefit Postretirement Medical
Savings Plan
April 29,
2000
$ 421
$ 253
$ 994
April 24,
1999
$ 1,456
577
$
$ 2,170
In addition, foreign employees participated in certain Company sponsored pension plans and such
charges, which are included in the results of operations, were not material.
13. Restructuring Charges
During the fourth quarter of fiscal 1997, the Company announced a reorganization and
restructuring program. The reorganization plan was designed to strengthen the Company’s classroom
business and improve profitability and global growth.
Charges related to the restructuring were recognized to reflect the exit from the Personal Cuisine
Food Option in United States company-owned locations, the relocation of classes from certain fixed retail
outlets to traveling locations, and other initiatives involving the exit of certain under-performing business
and product lines.
Restructuring and related costs recorded in fiscal 1997 totaled $51,694 pretax. Pretax charges of
$49,700 were classified as classroom operating expenses and $1,994 as selling, general and administrative
expenses. The major components of the fiscal 1997 charges and the remaining accrual balances were as
follows:
F-25
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Employee
Termination
and
Severance
Costs
Non-Cash
Asset
Write-downs
Exit Costs
Accrued
Exit
Costs
Implementation
Costs
Total
$
27,402
(27,402)
$
4,723
(339)
$
19,569
(46)
-
-
$
51,694
(27,787)
-
-
-
-
-
-
-
-
-
-
-
-
4,384
-
(3,709)
675
-
(186)
489
-
489
(489)
-
-
19,523
-
(8,553)
10,970
-
(3,769)
7,201
(2,904)
4,297
(1,812)
2,485
(2,202)
-
999
$
(999)
-
32
(32)
-
-
-
-
-
-
23,907
999
(13,261)
11,645
32
(3,987)
7,690
(2,904)
4,786
(2,301)
2,485
(2,202)
$
-
$
-
$
283
$
-
$
283
Initial charge –1997
Amounts utilized –1997
Accrued restructuring costs –
April 26, 1997
Implementation costs – 1998
Amounts utilized –1998
Accrued restructuring costs –
April 25, 1998
Implementation costs –1999
Amounts utilized –1999
Accrued restructuring costs –
April 24, 1999
Amounts utilized – 2000
Accrued restructuring costs –
April 29, 2000
Amounts utilized – April 30 - December 30, 2000
Accrued restructuring costs –
December 30, 2000
Amounts utilized – 2001
Accrued restructuring costs –
December 29, 2001
Asset write-downs of $16,900 consisted primarily of fixed assets and other long-term asset
impairments that were recorded as a direct result of the Company’s decision to exit businesses or
facilities. Such assets were written down based on management’s estimate of fair value. Write-downs of
$10,502 were also recognized for estimated losses from disposals of classroom inventories, packaging
materials and other assets related to product line rationalizations and process changes as a direct result of
the Company’s decision to exit businesses or facilities.
Employee severance costs include charges related to both voluntary terminations and involuntary
terminations. As part of the voluntary termination agreements, enhanced retirement benefits were offered
to the affected employees. These amounts were included in the Employee Termination and Severance
costs component of the restructuring charge.
Exit costs consist primarily of contract and lease termination costs associated with the Company’s
decision to exit the activities described above. The remaining accrued exit costs will be utilized in 2002.
F-26
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
14. Cash Flow Information
Net cash paid during the year for:
Interest expense
Income taxes
December 29,
2001
Eight Months
Ended
December 30,
2000
April 29,
2000
April 24,
1999
$54,556
$39,474
$31,639
$8,405
$31,402
$13,601
$2,748
$5,380
Noncash investing and financing activities were as follows:
Deferred tax asset recorded as a component of
shareholders' deficit in conjunction with the
recapitalization of the Company
Redeemable preferred stock issued to Heinz
Reduction of existing receivable in connection with the acquisition
of minority interest
Fair value of assets acquired in connection with the acquisitions
of Weighco and Weight Watchers of Oregon
Liabilities incurred in connection with the public equity offering
Liability incurred in connection with a noncompete
agreement
-
-
-
$3,709
$1,950
$1,200
-
-
$72,100
$25,875
$1,124
-
-
-
-
-
-
-
-
-
-
-
-
-
15. Commitments and Contingencies
Legal:
Due to the nature of its activities, the Company is, at times, subject to pending and threatened
legal actions which arise during the normal course of business. In the opinion of management, based in
part upon advice of legal counsel, the disposition of such matters is not expected to have a material effect
on the Company’s results of operations and consolidated financial condition.
Lease Commitments:
Minimum rental commitments under non-cancelable operating leases, primarily for office and
rental facilities at December 29, 2001, consist of the following:
2002
2003
2004
2005
2006
2007 and thereafter
Total
$ 13,000
9,056
5,913
3,891
2,424
15,882
$ 50,166
F-27
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Total rent expense charged to operations under these leases for the fiscal year ended December
29, 2001, the eight months ended December 30, 2000, and the fiscal years ended April 29, 2000 and April
24, 1999 was $14,818, $8,155, $12,300 and $11,000, respectively.
Repurchase Agreements:
The Company is a party to a repurchase agreement related to the 10% minority interest in the
classroom operation of Finland. Pursuant to this agreement, the Company may elect or be required to
repurchase the minority shareholders’ interest in this operation. If the Company repurchases the minority
interest within five years of the original sale, the repurchase price is based on the original sales price
times the increase in the consumer price index since the date of the sale. If the Company repurchases the
minority interest after five years from the original sale, the repurchase price is based on a multiple of the
average operating income during the last three years.
Franchise Profit Sharing Fund:
In October 2000, the Company reached an agreement with certain franchisees regarding the
sharing of profits of prior and future product sales. The settlement provided for a payment of
approximately $3,836, to be paid out through 2001, and releases the Company from any future
obligations to the franchisees under profit sharing arrangements dating back to 1969.
The Company’s franchise agreement with certain North American franchisees provides for an
annual franchise profit sharing distribution based upon specified formulas. Profit sharing expense under
this arrangement for the fiscal years ended December 29, 2001, April 29, 2000 and April 24, 1999 was
$40, $400 and $750, respectively.
F-28
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
16. Segment and Geographic Data
The Company is engaged principally in one line of business, weight control. The following table
presents information about the Company by geographic area. There were no material amounts of sales or
transfers among geographic areas and no material amounts of United States export sales.
External Sales
Eight Months
Ended
United States
United Kingdom
Continental Europe
Australia and New Zealand
United States
United Kingdom
Continental Europe
Australia and New Zealand
December 29, December 30,
$
$
$
$
December 29, December 30,
Long-Lived Assets
$
$
2000
150,199
55,945
48,306
18,725
273,175
2000
142,641
2,737
1,914
18,402
165,694
$
April 29,
2000
207,256
90,778
66,524
35,016
399,574
$
$
April 24,
1999
189,366
76,143
65,119
33,980
364,608
$
$
April 29,
2000
142,675
949
1,973
21,132
166,729
$
$
April 24,
1999
149,054
1,198
2,422
7,878
160,552
$
2001
397,434
97,594
97,421
31,421
623,870
2001
230,696
2,909
2,025
16,260
251,890
$
$
17. Financial Instruments
Fair value of Financial Instruments:
The Company’s significant financial instruments include cash and cash equivalents, short and
long-term debt, current and noncurrent notes receivable, currency exchange agreements and guarantees.
In evaluating the fair value of significant financial instruments, the Company generally uses
quoted market prices of the same or similar instruments or calculates an estimated fair value on a
discounted cash flow basis using the rates available for instruments with the same remaining maturities.
As of December 29, 2001, the fair value of financial instruments held by the Company approximated the
recorded value. Based on the current interest rates, management believes that the carrying amount of the
Company’s debt approximates fair market value.
F-29
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Derivative Instruments and Hedging:
The Company enters into forward and swap contracts to hedge transactions denominated in
foreign currencies to reduce currency risk associated with fluctuating exchange rates. These contracts are
used primarily to hedge certain intercompany cash flows and for payments arising from some of the
Company’s foreign currency denominated obligations. In addition, the Company enters into interest rate
swaps to hedge a substantial portion of its variable rate debt. As of December 29, 2001, December 30,
2000 and April 29, 2000, the Company held currency and interest rate swap contracts to purchase certain
foreign currencies totaling $204,276, $158,090 and $139,428, respectively. The Company also held
separate currency and interest rate swap contracts to sell foreign currencies of $207,730, $163,454 and
$138,942, respectively.
As of December 29, 2001, losses of $1,137 ($716 net of taxes) for qualifying hedges, were
reported as a component of accumulated other comprehensive loss. For the fiscal year ended December
29, 2001, the ineffective portion of changes in fair values of cash flow hedges was not material. In
addition, fair value adjustments for non-qualifying hedges resulted in a reduction of net income of $697
($1,125 before taxes) for the fiscal year ended December 29, 2001. The Company does not anticipate any
reclassification to earnings from accumulated other comprehensive loss within the next twelve months.
18. Quarterly Financial Information (Unaudited)
The change in the Company’s fiscal year end resulted in the elimination of the one month lag for
certain foreign subsidiaries and is effective retroactive to April 30, 2000 which results in the quarterly
data presented herein to differ from that previously reported on the July 29, 2000 and October 28, 2000
Form 10-Q’s. The change from the previous Form 10-Q’s for revenue is an increase of $469 and a
decrease of $6,469 for the quarters ended July 29, 2000 and October 28, 2000, respectively. The change
for operating income is an increase of $2,374 and an increase of $2,443 for the quarters ended July 29,
2000 and October 28, 2000, respectively. The change for net income is an increase of $1,736 and an
increase of $1,816 for the quarters ended July 29, 2000 and October 28, 2000, respectively.
In addition, the Company reclassified certain expenses from other expense, net to selling, general
and administrative expenses in the fourth quarter of the fiscal year ended December 29, 2001 which
resulted in the quarterly data presented herein to differ from that reported previously on Form 10-Q’s.
F-30
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Fiscal year ended December 29, 2001
Revenues
Operating income
Net income
Basic EPS:
Income before extraordinary item
Extraordinary item, net of taxes
Net income
Diluted EPS:
Income before extraordinary item
Extraordinary item, net of taxes
Net income
Eight months ended December 30, 2000
Revenues
Operating income
Net income (loss)
Basic EPS
Diluted EPS
Fiscal year ended April 29, 2000
Revenues
Operating income
Net income
Basic EPS
Diluted EPS
March 31,
For the Fiscal Quarters Ended
June 30,
September 29, December 29,
2001
2001
2001
2001
$ 171,951
$ 48,245
$ 23,238
$ 162,325
$ 57,496
$ 26,078
$ 144,064
$ 49,148
$ 16,118
$ 145,530
$ 39,800
$ 81,753
$ 0.20
$ -
$ 0.20
$ 0.23
$ -
$ 0.23
$ 0.15
$ -
$ 0.15
$ 0.80
$ (0.03)
$ 0.77
$ 0.20
$ -
$ 0.20
$ 0.23
$ -
$ 0.23
$ 0.14
$ -
$ 0.14
$ 0.78
$ (0.03)
$ 0.75
For the Fiscal
Quarters Ended
Two Months
Ended
July 29,
2000
October 28, December 30,
2000
2000
$ 103,073 $ 107,582
$ 35,803 $ 26,830
$ 13,705 $ 10,908
$ 62,520
$ 9,849
$ (9,594)
$ 0.12
$ 0.12
$ 0.09
$ 0.09
$ (0.09)
$ (0.09)
July 24,
1999
For the Fiscal Quarters Ended
October 23, January 22,
April 29,
1999
2000
2000
$ 92,174 $ 84,031
$ 27,669 $ 9,775
$ 17,095 $ 2,239
$ 90,507 $ 132,862
$ 13,922 $ 33,262
$ 912 $ 17,513
$ 0.06
$ 0.06
$ 0.01
$ 0.01
$ 0.00
$ 0.00
$ 0.15
$ 0.15
Basic and diluted EPS are computed independently for each of the periods presented.
Accordingly, the sum of the quarterly EPS amounts may not agree to the total for the year.
F-31
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
19. Subsequent Events
Acquisition:
On January 18, 2002, the Company completed the acquisition of one of its franchisees, Weight
Watchers of North Jersey, Inc. pursuant to the terms of the Asset Purchase Agreement executed on
December 31, 2001 among Weight Watchers of North Jersey, Inc., the Company and Weight Watchers
North America, Inc. a wholly-owned subsidiary of the Company. The Transaction will be accounted for
by the purchase method of accounting. Substantially all of the purchase price in excess of the net assets
acquired will be recorded as goodwill. The purchase price for the acquisition was $46,500. The
acquisition was financed through additional borrowings pursuant to the Company’s Amended and
Restated Credit Agreement, dated December 21, 2001.
Redemption of Preferred Stock:
On March 1, 2002, the Company redeemed all of the Company’s Series A Preferred Stock for
$25,000, plus accrued and unpaid dividends. The redemption was financed through additional borrowings
of $12,000 obtained from the Company’s Amended and Restated Credit Agreement, and cash from
operations.
20. Guarantor Subsidiaries
The Company’s payment obligations under the Senior Subordinated Notes are fully and
unconditionally guaranteed on a joint and several basis by the following wholly-owned subsidiaries: 58
WW Food Corp.; Waist Watchers, Inc.; Weight Watchers Camps, Inc.; W.W. Camps and Spas, Inc.;
Weight Watchers Direct, Inc.; W/W Twentyfirst Corporation; W.W. Weight Reduction Services, Inc.;
W.W.I. European Services Ltd.; W.W. Inventory Service Corp.; Weight Watchers North America, Inc.;
Weight Watchers UK Holdings Ltd.; Weight Watchers International Holdings Ltd.; Weight Watchers
(U.K.) Limited; Weight Watchers (Exercise) Ltd.; Weight Watchers (Accessories & Publications) Ltd.;
Weight Watchers (Food Products) Limited; Weight Watchers New Zealand Limited; BLTC Pty Ltd.;
LLTC Pty Ltd.; Weight Watchers Asia Pacific Finance Limited Partnership (APF); Weight Watchers
International Pty Limited; Fortuity Pty Ltd; and Gutbusters Pty Ltd. (collectively, the “Guarantor
Subsidiaries”). The obligations of each Guarantor Subsidiary under its guarantee of the Notes are
subordinated to such subsidiary’s obligations under its guarantee of the new senior credit facility.
Presented below is condensed consolidating financial information for Weight Watchers
International, Inc. (“Parent Company”), the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries
(primarily companies incorporated in European countries other than the United Kingdom). In the
Company’s opinion, separate financial statements and other disclosures concerning each of the Guarantor
Subsidiaries would not provide additional information that is material to investors. Therefore, the
Guarantor Subsidiaries are combined in the presentation below.
Investments in subsidiaries are accounted for by the Parent Company on the equity method of
accounting. Earnings of subsidiaries are, therefore, reflected in the Parent Company’s investments in
subsidiaries’ accounts. The elimination entries eliminate investments in subsidiaries and intercompany
balances and transactions.
F-32
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 29, 2001
(IN THOUSANDS)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Receivables, net
Inventories
Prepaid expenses
Deferred income taxes
Intercompany (payables) receivables
TOTAL CURRENT ASSETS
Investment in consolidated subsidiaries
Property and equipment, net
Notes and other receivables, noncurrent
Goodwill, net
Trademarks and other intangible assets, net
Deferred income taxes
Deferred financing costs
Other noncurrent assets
TOTAL ASSETS
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES
Short-term borrowings due to related party
Portion of long-term debt due within one year
Accounts payable
Salaries and wages
Accrued interest
Accrued restructuring costs
Foreign currency contract payable
Other accrued liabilities
Income taxes
Deferred revenue
TOTAL CURRENT LIABILITIES
Long-term debt
Deferred income taxes
Other
TOTAL LONG-TERM DEBT AND OTHER LIABILITIES
Parent
Company
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Eliminations
Consolidated
$
6,230
2,638
-
1,263
-
(157,902)
(147,771)
416,812
1,221
325
26,769
874
35,253
9,164
462
343,109
$
$
2,924
15,219
1,287
6,951
7,739
-
2,811
8,112
(11,694)
-
33,349
394,800
2,481
-
397,281
$
8,804
9,229
21,902
11,970
4,773
147,317
203,995
$
8,304
1,752
4,303
2,711
-
10,585
27,655
$
-
-
-
-
-
-
-
$
23,338
13,619
26,205
15,944
4,773
-
83,879
-
8,132
-
206,881
5,962
101,028
-
(537)
525,461
$
-
1,372
-
652
27
-
-
1,384
31,090
$
(416,812)
-
-
-
-
-
-
-
(416,812)
$
-
10,725
325
234,302
6,863
136,281
9,164
1,309
482,848
$
$
(36)
480
14,077
4,611
71
283
-
11,561
18,544
$
-
-
2,334
3,571
-
-
-
3,856
2,289
$
-
-
-
-
-
-
-
-
-
$
2,888
15,699
17,698
15,133
7,810
283
2,811
23,529
9,139
11,121
60,712
63,520
109
624
64,253
1,899
13,949
-
579
246
825
-
16,316
-
-
-
-
-
-
13,020
108,010
458,320
3,169
870
462,359
-
(416,812)
25,996
(113,517)
Redeemable preferred stock
Shareholders' (deficit) equity
TOTAL LIABILITIES, REDEEMABLE PREFERRED
25,996
(113,517)
-
400,496
STOCK AND SHAREHOLDERS' (DEFICIT) EQUITY
$
343,109
$
525,461
$
31,090
$
(416,812)
$
482,848
F-33
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 30, 2000
(IN THOUSANDS)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Receivables, net
Notes receivable, current
Foreign currency contract receivable
Inventories
Prepaid expenses
Deferred income taxes
Intercompany (payables) receivables
TOTAL CURRENT ASSETS
Investment in consolidated subsidiaries
Property and equipment, net
Notes and other receivables, noncurrent
Goodwill, net
Trademarks and other intangible assets, net
Deferred income taxes
Deferred financing costs
Other noncurrent assets
TOTAL ASSETS
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES
Short-term borrowings due to related party
Portion of long-term debt due within one year
Accounts payable
Salaries and wages
Accrued interest
Accrued restructuring costs
Other accrued liabilities
Income taxes
Deferred revenue
TOTAL CURRENT LIABILITIES
Long-term debt
Deferred income taxes
Other
TOTAL LONG-TERM DEBT AND OTHER LIABILITIES
Redeemable preferred stock
Shareholders' (deficit) equity
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK
Parent
Company
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
$
26,699
7,390
2,104
5,364
-
961
2,846
(10,921)
34,443
175,876
1,272
5,601
28,367
1,876
(44,713)
13,513
163
216,398
$
$
11,191
5,941
-
-
11,867
7,809
(2,198)
3,147
37,757
-
5,679
-
121,814
4,761
111,920
-
271
282,202
$
$
6,611
1,347
2
-
3,177
2,329
-
7,774
21,240
-
1,194
-
720
11
-
-
328
23,493
$
Eliminations
Consolidated
$
-
-
-
-
-
-
-
-
-
(175,876)
-
-
-
-
-
-
-
(175,876)
$
$
44,501
14,678
2,106
5,364
15,044
11,099
648
-
93,440
-
8,145
5,601
150,901
6,648
67,207
13,513
762
346,217
$
$
1,730
13,250
932
3,568
9,069
-
9,420
1,677
-
39,646
$
-
870
8,379
3,533
593
2,485
10,540
(414)
4,843
30,829
$
-
-
2,678
3,443
-
-
3,255
2,397
993
12,766
$
-
-
-
-
-
-
-
-
-
-
$
1,730
14,120
11,989
10,544
9,662
2,485
23,215
3,660
5,836
83,241
371,053
2,481
-
373,534
25,996
(222,778)
85,477
-
-
85,477
-
165,896
-
626
121
747
-
9,980
-
-
-
-
-
(175,876)
456,530
3,107
121
459,758
25,996
(222,778)
AND SHAREHOLDERS' (DEFICIT) EQUITY
$
216,398
$
282,202
$
23,493
$
(175,876)
$
346,217
F-34
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
AS OF APRIL 29, 2000
(IN THOUSANDS)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Receivables, net
Notes receivable, current
Inventories
Prepaid expenses
Deferred income taxes
Intercompany (payables) receivables
TOTAL CURRENT ASSETS
Investment in consolidated subsidiaries
Property and equipment, net
Notes and other receivables, noncurrent
Goodwill, net
Trademarks and other intangible assets, net
Deferred income taxes
Deferred financing costs
Other noncurrent assets
TOTAL ASSETS
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES
Short-term borrowings due to related party
Portion of long-term debt due within one year
Accounts payable
Salaries and wages
Accrued interest
Accrued restructuring costs
Foreign currency contract payable
Other accrued liabilities
Income taxes
Deferred revenue
TOTAL CURRENT LIABILITIES
Long-term debt
Deferred income taxes
Other
TOTAL LONG-TERM DEBT AND OTHER LIABILITIES
Redeemable preferred stock
Shareholders' (deficit) equity
TOTAL LIABILITIES, REDEEMABLE PREFERRED
Parent
Company
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
$
10,984
6,006
2,791
-
748
2,846
(32,114)
(8,739)
162,320
1,809
7,045
25,833
1,960
(9,854)
14,749
163
195,286
$
$
22,465
5,606
-
7,827
6,240
(2,752)
27,742
67,128
-
3,974
-
125,977
5,193
77,428
(83)
365
279,982
$
$
10,594
1,265
-
1,501
1,372
-
4,372
19,104
-
1,218
-
755
10
-
-
172
21,259
$
Eliminations
Consolidated
$
-
-
-
-
-
-
-
-
(162,320)
-
-
-
-
-
-
-
(162,320)
$
$
44,043
12,877
2,791
9,328
8,360
94
-
77,493
-
7,001
7,045
152,565
7,163
67,574
14,666
700
334,207
$
$
1,489
13,250
1,438
2,301
3,521
-
486
6,387
(1,846)
-
27,026
374,598
1,903
-
376,501
25,875
(234,116)
-
$
870
9,084
4,256
561
4,786
-
9,049
5,965
3,824
38,395
85,912
390
-
86,302
2,507
152,778
-
$
-
1,840
3,568
-
-
-
4,147
2,667
808
13,030
-
$
-
-
-
-
-
-
-
-
-
-
$
1,489
14,120
12,362
10,125
4,082
4,786
486
19,583
6,786
4,632
78,451
-
648
546
1,194
254
6,781
-
-
-
-
(2,761)
(159,559)
460,510
2,941
546
463,997
25,875
(234,116)
STOCK AND SHAREHOLDERS' (DEFICIT) EQUITY
$
195,286
$
279,982
$
21,259
$
(162,320)
$
334,207
F-35
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 29, 2001
(IN THOUSANDS)
Revenues, net
Cost of revenues
Gross profit
Marketing expenses
Selling, general and administrative expenses
Operating (loss) income
Interest expense (income)
Other expense (income), net
Equity in income of consolidated subsidiaries
Franchise commission income (loss)
Income before income taxes and minority interest
and extraordinary item
(Benefit from) provision for income taxes
Income before minority interest
Minority interest
Income before extraordinary item
Extraordinary charge on early extinguishment
of debt, net of taxes
Net income
Parent
Company
$
4,194
821
3,373
Guarantor
Subsidiaries
522,255
$
231,402
290,853
Non-
Guarantor
Subsidiaries
97,421
$
54,213
43,208
Eliminations Consolidated
623,870
-
$
286,436
-
337,434
-
$
-
17,780
(14,407)
40,714
14,983
109,285
47,823
87,004
(63,058)
150,062
-
150,062
57,117
39,735
194,001
14,692
3,592
-
(42,084)
133,633
34,431
99,202
-
99,202
12,599
15,514
15,095
(869)
(5,394)
-
(5,739)
15,619
5,429
10,190
107
10,083
-
-
-
-
-
(109,285)
-
(109,285)
-
(109,285)
-
(109,285)
69,716
73,029
194,689
54,537
13,181
-
-
126,971
(23,198)
150,169
107
150,062
2,875
147,187
$
-
99,202
$
-
10,083
$
-
(109,285)
$
2,875
147,187
$
F-36
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE EIGHT MONTHS ENDED DECEMBER 30, 2000
(IN THOUSANDS)
Revenues, net
Cost of revenues
Gross profit
Marketing expenses
Selling, general and administrative expenses
Operating (loss) income
Interest expense (income)
Other expense (income), net
Equity in income of consolidated subsidiaries
Franchise commission income (loss)
Income before income taxes and minority interest
(Benefit from) provision for income taxes
Income before minority interest
Minority interest
Net income
Parent
Company
$
20,794
4,571
16,223
Guarantor
Subsidiaries
204,074
$
105,444
98,630
Non-
Guarantor
Subsidiaries
48,307
$
29,268
19,039
Eliminations Consolidated
273,175
-
$
139,283
-
133,892
-
$
2,784
15,844
(2,405)
24,696
15,527
26,621
20,144
4,137
(10,882)
15,019
18,994
12,877
66,759
12,640
(1,171)
-
(17,647)
37,643
14,558
23,085
-
-
5,208
5,703
8,128
(211)
(22)
-
(2,497)
5,864
2,181
3,683
147
-
-
-
-
-
(26,621)
-
(26,621)
-
(26,621)
-
26,986
34,424
72,482
37,125
14,334
-
-
21,023
5,857
15,166
147
$
15,019
$
23,085
$
3,536
$
(26,621)
$
15,019
F-37
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED APRIL 29, 2000
(IN THOUSANDS)
Revenues, net
Cost of revenues
Gross profit
Marketing expenses
Selling, general and administrative expenses
Transaction costs
Operating (loss) income
Interest expense (income)
Other (income) expense, net
Equity in income of consolidated subsidiaries
Franchise commission income (loss)
Income before income taxes and minority interest
Provision for income taxes
Income before minority interest
Minority interest
Net income
Parent
Company
$
32,836
4,911
27,925
Guarantor
Subsidiaries
$
300,215
155,251
144,964
Non-
Guarantor
Subsidiaries
$
66,523
41,227
25,296
Eliminations Consolidated
399,574
$
-
201,389
-
198,185
-
$
7,417
24,487
8,247
(12,226)
27,642
(12,418)
44,441
21,686
38,677
918
37,759
35,707
21,926
98
87,233
4,607
(1,418)
-
(18,500)
65,544
24,090
41,454
8,329
7,346
-
9,621
(1,170)
469
-
(3,186)
7,136
3,315
3,821
-
-
-
-
-
-
(44,441)
-
(44,441)
-
(44,441)
-
834
-
-
51,453
53,759
8,345
84,628
31,079
(13,367)
-
-
66,916
28,323
38,593
834
$
37,759
$
40,620
$
3,821
$
(44,441)
$
37,759
F-38
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED APRIL 24, 1999
(IN THOUSANDS)
Revenues, net
Cost of revenues
Gross profit
Marketing expenses
Selling, general and administrative expenses
Operating income
Interest expense (income)
Other expense, (income) net
Equity in income of consolidated subsidiaries
Franchise commission income (loss)
Income before income taxes and minority interest
Provision for income taxes
Income before minority interest
Minority interest
Net income
Parent
Company
$
42,288
3,685
38,603
Guarantor
Subsidiaries
$
257,202
135,095
122,107
Non-
Guarantor
Subsidiaries
$
65,118
40,145
24,973
Eliminations Consolidated
364,608
$
-
178,925
-
185,683
-
$
8,815
23,720
6,068
2,922
1,925
37,310
8,697
47,228
7,944
39,284
-
35,381
20,353
66,373
(4,739)
802
-
(6,072)
64,238
22,860
41,378
1,108
8,660
7,428
8,885
(5,351)
(68)
-
(2,625)
11,679
5,556
6,123
385
-
-
-
-
-
(37,310)
-
(37,310)
-
(37,310)
-
52,856
51,501
81,326
(7,168)
2,659
-
-
85,835
36,360
49,475
1,493
$
39,284
$
40,270
$
5,738
$
(37,310)
$
47,982
F-39
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOW
FOR THE FISCAL YEAR ENDED DECEMBER 29, 2001
(IN THOUSANDS)
Operating activities:
Net income
Adjustments to reconcile net income to cash
provided by (used for) operating activities:
Depreciation and amortization
Amortization of deferred financing costs
Deferred tax (benefit) provision
Unrealized loss on derivative instruments
Accounting for equity investment
Allowance for doubtful accounts
Reserve for inventory obsolescence, other
Foreign currency exchange rate (gain) loss
Extraordinary charges from early extinguisment of debt
Other items, net
Changes in cash due to:
Receivables
Inventories
Prepaid expense
Intercompany receivables/payables
Due from related parties
Accounts payable
Accrued liabilities
Deferred revenue
Income taxes
Cash provided by (used for) operating activities
Investing activities:
Capital expenditures
Advances and interest to equity investment
Acquisitions
Other items, net
Cash used for investing activities
Financing activities:
Net increase in short-term borrowings
Proceeds from borrowings
Parent company investment in subsidiaries
Payment of dividends
Payments on long-term debt
Deferred financing costs
Net Parent (settlements) advances
Purchase of treasury stock
Cost of public equity offering
Proceeds from sale of common stock
Proceeds from stock options exercised
Cash (used for) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of fiscal year
Cash and cash equivalents, end of fiscal year
Parent
Company
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Eliminations Consolidated
$
147,187
$
99,202
$
10,083
$
(109,285)
$
147,187
2,311
2,097
(77,663)
1,125
17,344
6,123
-
(6,501)
2,875
-
4,279
-
(301)
151,062
1,194
180
1,352
-
(11,493)
241,171
(269)
(17,344)
-
310
(17,303)
175
60,042
(240,936)
(1,500)
(28,466)
(2,406)
-
(27,132)
(1,017)
525
198
(240,517)
(3,820)
(20,469)
10,346
-
6,594
-
-
207
2,718
29
-
46
(3,539)
(10,531)
(4,740)
(146,455)
(36)
5,173
(609)
6,295
19,057
(16,243)
(2,724)
-
(97,877)
(1,276)
(101,877)
573
-
-
(4,893)
(22,347)
-
142,449
-
-
-
-
115,782
(49)
(2,387)
586
-
-
-
-
-
-
(24)
-
145
(509)
(1,364)
(564)
(4,607)
-
(152)
1,242
995
90
5,921
(841)
-
-
(97)
(938)
-
-
-
(3,732)
-
-
995
-
-
-
-
(2,737)
(553)
1,693
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(109,285)
-
-
-
-
-
-
-
240,936
8,625
-
-
(143,444)
-
-
-
-
106,117
(3,168)
-
13,243
2,097
(71,069)
1,125
17,344
6,330
2,718
(6,496)
2,875
191
231
(11,895)
(5,605)
-
1,158
5,201
1,985
7,290
7,654
121,564
(3,834)
(17,344)
(97,877)
(1,063)
(120,118)
748
60,042
-
(1,500)
(50,813)
(2,406)
-
(27,132)
(1,017)
525
198
(21,355)
(1,254)
(21,163)
26,699
6,230
$
11,191
8,804
$
6,611
8,304
$
-
$
-
44,501
23,338
$
F-40
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOW
FOR THE EIGHT MONTHS ENDED DECEMBER 30, 2000
(IN THOUSANDS)
Operating activities:
Net income
Adjustments to reconcile net income to cash
provided by (used for) operating activities:
Depreciation and amortization
Bond issuance costs
Deferred tax provision
Unrealized gain on derivative instruments
Accounting for equity investment
Elimination of foreign subsidiaries one month reporting lag
Allowance for doubtful accounts
Reserve for inventory obsolescence, other
Other items, net
Changes in cash due to:
Receivables
Inventories
Prepaid expense
Intercompany receivables/payables
Due from related parties
Accounts payable
Accrued liabilities
Deferred revenue
Income taxes
Cash provided by (used for) operating activities
Investing activities:
Capital expenditures
Advances and interest to equity investment
Acquisitions of minority interest
Other items, net
Cash used for investing activities
Financing activities:
Net increase (decrease) in short-term borrowings
Parent company investment in subsidiaries
Payment of dividends
Payments on long-term debt
Net Parent advances
Cash used for financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Parent
Company
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries Eliminations Consolidated
$
15,019
$
23,085
$
3,536
$
(26,621)
$
15,019
1,930
1,282
-
(5,815)
17,604
1,137
-
-
(2,096)
-
(213)
(21,193)
241
(1,072)
9,327
-
38,960
55,111
(100)
(15,604)
(2,400)
(148)
(18,252)
566
(13,556)
(879)
(6,625)
-
(20,494)
(650)
15,715
10,984
4,266
-
104
-
-
86
198
3,981
(532)
(566)
(7,214)
(2,422)
24,595
-
(69)
(1,450)
858
(41,643)
3,277
(3,017)
-
-
147
(2,870)
(600)
-
(8,834)
(435)
-
(9,869)
(1,812)
(11,274)
22,465
411
-
-
-
-
1,120
-
12
(422)
(84)
(1,688)
(957)
(3,402)
-
838
(1,015)
185
(292)
(1,758)
(509)
-
-
4
(505)
-
-
(1,968)
-
421
(1,547)
(173)
(3,983)
10,594
-
-
-
-
-
(1,137)
-
-
-
-
-
-
-
-
-
-
-
-
(27,758)
-
-
-
-
-
-
13,556
10,802
-
(421)
23,937
3,821
-
-
6,607
1,282
104
(5,815)
17,604
1,206
198
3,993
(954)
-
(2,746)
(8,902)
(3,592)
-
241
(303)
6,862
1,043
(2,975)
28,872
(3,626)
(15,604)
(2,400)
3
(21,627)
(34)
-
(879)
(7,060)
-
(7,973)
1,186
458
44,043
Cash and cash equivalents, end of period
$
26,699
$
11,191
$
6,611
$
-
$
44,501
F-41
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOW
FOR THE FISCAL YEAR ENDED APRIL 29, 2000
(IN THOUSANDS)
Operating activities:
Net income
Adjustments to reconcile net income to cash
provided by (used for) operating activities:
Depreciation and amortization
Bond issuance costs
Deferred tax provision
Unrealized loss on derivative instruments
Allowance for doubtful accounts
Reserve for inventory obsolescence, other
Other items, net
Changes in cash due to:
Receivables
Inventories
Prepaid expense
Due from related parties
Accounts payable
Accrued liabilities
Deferred revenue
Income taxes
Cash provided by (used for) operating activities
Investing activities:
Capital expenditures
Acquisitions of minority interest
Other items, net
Cash used for investing activities
Financing activities:
Net increase (decrease) in short-term borrowings
Parent company investment in subsidiaries
Proceeds from borrowings
Repurchase of common stock
Payment of dividends
Payments on long-term debt
Deferred financing costs
Net Parent (settlements) advances
Cash (used for) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of fiscal year
Parent
Company
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries Eliminations Consolidated
$
37,759
$
40,620
$
3,821
$
(44,441)
$
37,759
2,326
1,112
3,785
499
(352)
-
-
5,205
-
108
(15,149)
807
4,039
90,650
130,789
(299)
-
(2,067)
(2,366)
-
(34,693)
404,260
(324,476)
(2,797)
(3,312)
(15,861)
(138,998)
(115,877)
(1,488)
11,058
(74)
6,028
-
4,685
-
(29)
3,332
(2,492)
(1,295)
(5,453)
(1,691)
384
(1,272)
(1,845)
(1,827)
(97,918)
(58,773)
(1,004)
(15,900)
116
(16,788)
1,235
-
87,000
-
(3,120)
(218)
-
14,552
99,449
(13,799)
10,089
12,376
932
-
71
-
-
(4)
28
9,514
276
782
-
(1,047)
3,087
74
4,776
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
22,310
(44,441)
(571)
-
84
(487)
(6,690)
-
-
-
(4,494)
-
-
(7,175)
(18,359)
(83)
3,381
7,213
-
-
-
-
-
34,693
-
-
7,615
-
-
591
42,899
1,542
-
-
9,286
1,112
8,541
499
(385)
3,360
(2,492)
13,424
(5,177)
(801)
(14,765)
(1,512)
5,281
(1,753)
(2,492)
49,885
(1,874)
(15,900)
(1,867)
(19,641)
(5,455)
-
491,260
(324,476)
(2,796)
(3,530)
(15,861)
(131,030)
8,112
(13,828)
24,528
19,515
Cash and cash equivalents, end of fiscal year
$
10,984
$
22,465
$
10,594
$
-
$
44,043
F-42
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOW
FOR THE FISCAL YEAR ENDED APRIL 24, 1999
(IN THOUSANDS)
Operating activities:
Net income
Adjustments to reconcile net income
to cash provided by operating
activities:
Depreciation and amortization
Deferred tax provision
Allowance for doubtful accounts
Reserve for inventory obsolescence, other
Other items, net
Changes in cash due to:
Receivables
Inventories
Prepaid expense
Intercompany receivables/payables
Due from related parties
Accounts payable
Accrued liabilities
Deferred revenue
Income taxes
Cash provided by operating activities
Investing activities:
Capital expenditures
Other items, net
Cash used for investing activities
Financing activities:
Net increase (decrease) in short-term borrowings
Payment of dividends
Payments on long-term debt
Net Parent (settlements) advances
Cash used for financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of fiscal year
Parent
Company
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries Eliminations Consolidated
$
39,284
$
40,270
$
5,738
$
(37,310)
$
47,982
2,378
1,735
84
-
-
(7,387)
-
(20)
38,494
(177)
(288)
1,003
-
(36,393)
38,713
(271)
(278)
(549)
-
(5,435)
(1,081)
(31,483)
(37,999)
(135)
30
(104)
6,609
4,345
30
1,824
153
1,318
(1,772)
(1,141)
(35,474)
80
3,698
(2,572)
(1,450)
38,362
54,280
(1,612)
(286)
(1,898)
1,262
(14,446)
-
(32,903)
(46,087)
281
6,576
5,800
599
3,199
4
99
(115)
(1,208)
(77)
(293)
(3,020)
3,790
(327)
(8,507)
734
1,602
2,218
(591)
(1)
(592)
(406)
(3,670)
-
3,316
(760)
214
1,080
6,133
-
-
-
-
-
-
-
-
-
-
-
-
-
(37,310)
-
-
-
-
13,183
-
23,994
37,177
133
-
-
9,586
9,279
118
1,923
38
(7,277)
(1,849)
(1,454)
-
3,693
3,083
(10,076)
(716)
3,571
57,901
(2,474)
(565)
(3,039)
856
(10,368)
(1,081)
(37,076)
(47,669)
493
7,686
11,829
Cash and cash equivalents, end of fiscal year
$
(74)
$
12,376
$
7,213
$
-
$
19,515
F-43
Report of Independent Accountants
To the Board of Directors and Shareholders of Weight Watchers International, Inc.:
In our opinion, the consolidated financial statements listed in the index appearing under Item
14(a) (1) on page F-1 present fairly, in all material respects, the consolidated financial position of
Weight Watchers International, Inc. and its subsidiaries at December 29, 2001, December 30,
2000 and April 29, 2000, and the results of their operations and their cash flows for the fiscal
year ended December 29, 2001, the eight months ended December 30, 2000, and for each of the
two years in the period ended April 29, 2000, in conformity with accounting principles generally
accepted in the United States of America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 14(a)(2) on page F-1, presents fairly, in all
material respects, the information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial statement schedule
are the responsibility of the Company’s management; our responsibility is to express an opinion
on these financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 19, 2002, except as to the last paragraph of Note 19, which is as of March 1, 2002
F-44
WEIGHT WATCHERS INTERNATIONAL, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
FISCAL YEAR ENDED DECEMBER 29, 2001
Allowance for doubtful accounts
Inventory reserves, other
EIGHT MONTHS ENDED DECEMBER 30, 2000
Allowance for doubtful accounts
Inventory reserves, other
FISCAL YEAR ENDED APRIL 29, 2000
Allowance for doubtful accounts
Inventory reserves, other
FISCAL YEAR ENDED APRIL 24, 1999
Allowance for doubtful accounts
Inventory reserves, other
Balance At
Beginning
of Period
Charged
to Costs
and Expenses
Balance at
Deductions (1)
End of
Period
$ 797 $ 6,330 $ (6,401) $ 726
2,532 2,718 (2,541) 2,709
$ 609 $ 198 $ (10) $ 797
1,557 3,993 (3,018) 2,532
$ 994 $ (385) $ - $ 609
1,436 3,360 (3,239) 1,557
$ 876 $ 118 $ - $ 994
3,961 1,923 (4,448) 1,436
(1) Primarily represents the utilization of established reserves, net of recoveries.
F-45
EXHIBIT INDEX
Exhibit
Number
**2.
*3.1
*3.2
*3.3
**4.1
**4.2
**4.3
Description
– Recapitalization and Stock Purchase Agreement, dated July 22, 1999, among Weight Watchers International,
Inc., H.J. Heinz Company and Artal International S.A. is incorporated herein by reference to Exhibit 2 filed
with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on
March 2, 2000.
–
– Amended and Restated Articles of Incorporation of Weight Watchers International, Inc.
– Amended and Restated By-laws of Weight Watchers International, Inc.
–
Articles of Amendment to the Articles of Incorporation, as Amended and Restated, of Weight Watchers
International, Inc., to Create a New Series of Preferred Stock Designated as Series B Junior Participating
Preferred Stock, adopted as of November 14, 2001.
Senior Subordinated Dollar Notes Indenture, dated as of September 29, 1999, between Weight Watchers
International, Inc. and Norwest Bank Minnesota, National Association is incorporated herein by reference to
Exhibit 4.1 filed with Amendment No. 1 to the Registrant’s Registration Statement on Form S-4 (File No. 333-
92005) as filed on March 2, 2000.
Guarantee Agreement, dated as of March 3, 2000, given by 58 WW Food Corp., Waist Watchers, Inc., Weight
Watchers Camps and Spas, Inc., Weight Watchers Direct, Inc., W/W Twentyfirst Corporation, W.W. Weight
Reductions Services, Inc., W.W.I. European Services, Ltd., W.W. Inventory Service Corp., Weight Watchers
North America, Inc., Weight Watchers UK Holdings Ltd., Weight Watchers International Holdings, Ltd.,
Weight Watchers U.K. Limited , Weight Watchers (Accessories & Publications) Ltd., Weight Watchers (Food
Products) Limited, Weight Watchers New Zealand Limited, Weight Watchers International Pty Limited,
Fortuity Pty Ltd. and Gutbusters Ltd. is incorporated herein by reference to Exhibit 4.2 with Amendment No. 1
to the Registrant’s Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000.
– Senior Subordinated Euro Notes Indenture, dated as of September 29, 1999, between Weight Watchers
–
**4.4
–
**4.5
**4.6
–
–
*10.1
–
**10.2
–
International Inc. and Norwest Bank Minnesota, National Association is incorporated herein by reference to
Exhibit 4.3 with Amendment No. 1 to the Registrant’s Registration Statement on Form S-4 (File No. 333-
92005) as filed on March 2, 2000.
Guarantee Agreement, dated as of March 3, 2000, given by 58 WW Food Corp., Waist Watchers, Inc., Weight
Watchers Camps and Spas, Inc., Weight Watchers Direct, Inc., W/W Twentyfirst Corporation, W.W. Weight
Reductions Services, Inc., W.W.I. European Services, Ltd., W.W. Inventory Service Corp., Weight Watchers
North America, Inc., Weight Watchers UK Holdings Ltd., Weight Watchers International Holdings, Ltd.,
Weight Watchers U.K. Limited , Weight Watchers (Accessories & Publications) Ltd., Weight Watchers (Food
Products) Limited, Weight Watchers New Zealand Limited, Weight Watchers International Pty Limited,
Fortuity Pty Ltd. and Gutbusters Ltd. is incorporated herein by reference to Exhibit 4.4 with Amendment No. 1
to the Registrant’s Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000.
Form of Rights Agreement between Weight Watchers International Inc. and Equiserve Trust Company, N.A. is
incorporated herein by reference to Exhibit 4.5 with Amendment No. 2 to the Registrant’s Registration
Statement on Form S-1 (File No. 333-69362) as filed on November 9, 2001.
Specimen of stock certificate representing Weight Watchers International Inc.’s common stock, no par value is
incorporated herein by reference to Exhibit 4.6 with Amendment No. 2 to the Registrant’s Registration
Statement on Form S-1 (File No. 333-69362) as filed on November 9, 2001.
Second Amended and Restated Credit Agreement, dated as of December 21, 2001, among Weight Watchers
International, Inc., WW Funding Corp., Credit Suisse First Boston, BHF (USA) Capital Corporation and Fortis
(USA) Finance LLC, The Bank of Nova Scotia and various financial institutions.
Preferred Stock Stockholders’s Agreement, dated as of September 29, 1999, among Weight Watchers
International, Inc., Artal Luxembourg S.A. and H.J. Heinz Company is incorporated herein by reference to
Exhibit 10.2 filed with Amendment No. 1 to the Registrant’s Registration Statement on Form S-4 (File No.
333-92005) as filed on March 2, 2000.
**10.3
– Stockholders' Agreement, dated as of September 29, 1999, among Weight Watchers International, Inc., Artal
Luxembourg S.A. and H.J. Heinz Company is incorporated herein by reference to Exhibit 10.3 filed with
Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on
March 2, 2000.
**10.4
– License Agreement, dated as of September 29, 1999, between WW Foods, LLC and Weight Watchers
International, Inc. is incorporated herein by reference to Exhibit 10.4 filed with Amendment No. 1 to the
Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000.
**10.5
– License Agreement, dated as of September 29, 1999, between Weight Watchers International, Inc. and
**10.6
H.J. Heinz Company is incorporated herein by reference to Exhibit 10.5 filed with Amendment No. 1 to the
Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000.
– License Agreement, dated as of September 29, 1999, between WW Foods, LLC and H.J. Heinz Company is
incorporated herein by reference to Exhibit 10.6 filed with Amendment No. 1 to the Registrant's Registration
Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000.
**10.7
– LLC Agreement, dated as of September 29, 1999, between H.J. Heinz Company and Weight Watchers
International, Inc. is incorporated herein by reference to Exhibit 10.7 filed with Amendment No. 1 to the
Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000.
**10.8
– Operating Agreement, dated as of September 29, 1999, between Weight Watchers International, Inc. and H.J.
**10.9
**10.10
Heinz Company is incorporated herein by reference to Exhibit 10.8 filed with Amendment No. 1 to the
Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000.
– Subscription Agreement, dated as of September 29, 1999, among WeightWatchers.com, Inc., Weight Watchers
International, Inc., Artal Luxembourg S.A. and H.J. Heinz Company is incorporated herein by reference to
Exhibit 10.9 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-
92005) as filed on March 2, 2000.
– Registration Rights Agreement, dated September 29, 1999, among WeightWatchers.com, Weight Watchers
International, Inc., H.J. Heinz Company and Artal Luxembourg S.A. is incorporated herein by reference to
Exhibit 10.10 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No.
333-92005) as filed on March 2, 2000.
**10.11
– Stockholders' Agreement, dated September 29, 1999, among WeightWatchers.com, Weight Watchers
**10.12
–
*10.13
**10.14
–
–
International, Inc., Artal Luxembourg S.A., H.J. Heinz Company is incorporated herein by reference to Exhibit
10.11 filed with Amendment No. 1 to the Registrant's Registration Statement on Form S-4 (File No. 333-
92005) as filed on March 2, 2000.
Letter Agreement, dated as of September 29, 1999, between Weight Watchers International, Inc. and The Invus
Group, Ltd. is incorporated herein by reference to Exhibit 10.12 filed with Amendment No. 1 to the
Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000.
Amendment to Letter Agreement, dated as of October 19, 2001, between Weight Watchers International, Inc.
and The Invus Group, Ltd.
Agreement of Lease, dated as of August 1, 1995, between Industrial & Research Associates Co. and Weight
Watchers International, Inc. is incorporated herein by reference to Exhibit 10.13 filed with Amendment No. 1 to
the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000.
**10.15
– Lease Agreement, dated as of April 1, 1997, between Junto Investments and Weight Watchers North America,
Inc. is incorporated herein by reference to Exhibit 10.14 filed with Amendment No. 1 to the Registrant's
Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000.
**10.16
– Lease Agreement, dated as of August 31, 1995, between 89 State Line Limited Partnership and Weight
Watchers North America, Inc. is incorporated herein by reference to Exhibit 10.15 filed with Amendment No. 1
to the Registrant's Registration Statement on Form S-4 (File No. 333-92005) as filed on March 2, 2000.
*10.17
**10.18
– Weight Watchers Savings Plan, dated as of October 3, 1999, as amended.
– Weight Watchers Executive Profit Sharing Plan, dated as of October 4, 1999 is incorporated herein by
**10.19
reference to Exhibit 10.18 filed with Registrant’s Annual Report on Form 10-K for the fiscal year ended April
29, 2000.
– 1999 Stock Purchase and Option Plan of Weight Watchers International, Inc. and Subsidiaries is incorporated
herein by reference to Exhibit 10.19 filed with Registrant’s Annual Report on Form 10-K for the fiscal year
ended April 29, 2000.
**10.20
– Weight Watchers.com Stock Incentive Plan of Weight Watchers International, Inc. and Subsidiaries is
**10.21
–
**10.22
–
**10.23
–
**10.24
–
incorporated herein by reference to Exhibit 10.20 filed with Registrant’s Annual Report on Form 10-K for the
fiscal year ended April 29, 2000.
Warrant Agreement, dated as of November 24, 1999, between WeightWatchers.com, Inc. and Weight Watchers
International, Inc. is incorporated herein by reference to Exhibit 10.20 filed with Amendment No. 1 to the
Registrant’s Registration Statement on Form S-1 (File No. 333-69362) as filed on October 29, 2001.
Warrant Certificate of WeightWatchers.com No. 1, dated as of November 24, 1999 is incorporated herein by
reference to Exhibit 10.22 filed with Amendment No. 1 to the Registrant’s Registration Statement on Form S-1
(File No. 333-69362) as filed on October 29, 2001.
Warrant Agreement, dated as of October 1, 2000, between WeightWatchers.com, Inc. and Weight Watchers
International, Inc. is incorporated herein by reference to Exhibit 10.2 filed with Weight Watchers International,
Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended October 28, 2000.
Warrant Certificate of WeightWatchers.com, Inc. No. 2, dated as of October 1, 2000 is incorporated herein by
reference to Exhibit 10.2 filed with Weight Watchers International, Inc.’s Quarterly Report on Form 10-Q for
the quarterly period ended October 28, 2000.
**10.25
–
**10.26
–
**10.27
–
**10.28
–
**10.29
–
**10.30
–
**10.31
–
**10.32
–
**10.33
–
**10.34
–
**10.35
–
**10.36
–
**10.37
–
**10.38
–
**21
–
Warrant Agreement, dated as of May 3, 2001, between WeightWatchers.com, Inc. and Weight Watchers
International, Inc. is incorporated herein by reference to Exhibit 10.2 filed with Weight Watchers International,
Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30,2001.
Warrant Certificate of WeightWatchers.com, Inc., No. 3, dated as of May 3, 2001 is incorporated herein by
reference to Exhibit 10.3 filed with Weight Watchers International, Inc.’s Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 2001.
Warrant Agreement, dated as of September 10, 2001 between WeightWatchers.com, Inc. and Weight Watchers
International, Inc. is incorporated herein by reference to Exhibit 10.29 filed with Amendment No. 1 to the
Registrant’s Registration Statement on Form S-1 (File No. 333-69362) as filed on October 29, 2001.
Warrant Certificate Weightwatchers.com, Inc. No. 4, dated as of September 10, 2001 is incorporated herein by
reference to Exhibit 10.30 filed with Amendment No. 1 to the Registrant’s Registration Statement of Form S-1
(File No. 333-69362) as filed on October 29, 2001.
Second and Amended Restated Note, dated as of September 10, 2001, by WeightWatchers.com, Inc. to Weight
Watchers International, Inc. is incorporated herein by reference to Exhibit 10.24 filed with Amendment No. 1 to
Registrant’s Registration Statement on Form S-1 (File No. 333-69362) as filed on October 29, 2001.
Put/Call Agreement, dated April 18, 2001, between Weight Watchers International, Inc. and H.J. Heinz
Company is incorporated herein by reference to Exhibit 10.4 filed with Weight Watchers International, Inc.’s
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001.
Second Amended and Restated Collateral Assignment and Security Agreement, dated as of September 10,
2001, by WeightWatchers.com, Inc. in favor of Weight Watchers International, Inc. is incorporated herein by
reference to Exhibit No. 10.31 filed with Amendment No. 1 to the Registrant’s Registration Statement on Form
S-1 (File No. 333-69362) as filed on October 29, 2001.
Termination Agreement, dated as of November 5, 2001, between Weight Watchers International, Inc. and Artal
Luxembourg S.A. is incorporated herein by reference to Exhibit No. 10.32 filed with Amendment No. 2 to the
Registrant’s Registration Statement on Form S-1 (File No. 333-69362) as filed on November 9, 2001.
Amended and Restated Co-Pack Agreement, dated as of September 13, 2001, between Weight Watchers
International, Inc. and Nellson Nutraceutical, Inc. is incorporated herein by reference to Exhibit No. 10.33 filed
with Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 (File No. 333-69362) as filed
on October 29, 2001.
Amended and Restated Intellectual Property License Agreement, dated as of September 10, 2001, between
Weight Watchers International, Inc. and WeightWatchers.com, Inc. is incorporated herein by reference to
Exhibit No. 10.34 filed with Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (File
No. 333-69362) as filed on November 9, 2001.
Service Agreement, dated as of September 10, 2001, between Weight Watchers International, Inc. and
WeightWatchers.com, Inc. is incorporated herein by reference to Exhibit No. 10.35 filed with Amendment No.
2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-69362) as filed on November 9, 2001.
Corporate Agreement, dated as of September 10, 2001, between Weight Watchers International, Inc. and
WeightWatchers.com, Inc. and Artal Luxembourg S.A. is incorporated herein by reference to Exhibit No. 10.36
filed with Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-69362) as
filed on November 9, 2001.
Guaranty of Sublease, dated as of September 12, 2000, by Weight Watchers International, Inc. of the
Agreement of Sublease between RDR Associates, Inc. and WeightWatchers.com, Inc. is incorporated herein
by reference to Exhibit No. 10.37 filed with Amendment No. 2 to the Registrant’s Registration Statement on
Form S-1 (File No. 333-69362) as filed on November 9, 2001.
Registration Rights Agreement, dated as of September 29, 1999, among Weight Watchers International, Inc.,
H.J. Heinz Company and Artal Luxembourg S.A. is incorporated herein by reference to Exhibit No. 10.38 filed
with Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-69362) as filed
on November 9, 2001.
Subsidiaries of Weight Watchers International, Inc. is incorporated herein by reference to Exhibit 21 filed with
Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 (File No. 333-69362) as filed on
October 29, 2001.
*
**
Filed herewith.
Previously filed.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on his behalf by the undersigned, thereunto duly
authorized.
Date: March 27, 2002
WEIGHT WATCHERS INTERNATIONAL, INC.
By: /s/
Linda Huett
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: March 27, 2002
Date: March 27, 2002
Date: March 27, 2002
Date: March 27, 2002
Date: March 27, 2002
Date: March 27, 2002
Date: March 27, 2002
Date: March 27, 2002
By: /s/
Linda Huett
President and Director
(Principal Executive Officer)
By: /s/
Thomas S. Kiritsis
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
By: /s/
Raymond Debbane
Director
By: /s/
Jonas M. Fajgenbaum
Director
By: /s/
Sacha Lainovic
Director
By: /s/
Christopher J. Sobecki
Director
By: /s/
Sam K. Reed
Director
By: /s/
Marsha Johnson Evans
Director