2005 Annual Report
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Success Stories
“
Joining Weight Watchers
meetings was the best decision
I ever made, in so many ways. I
went from unmotivated to super
enthusiastic. I started following
the POINTS® Weight-Loss System
and began tracking every bite
I ate. Within two months I had
lost enough weight to keep me
hooked. The new me is way
more energetic!
“
“
One day I was driving home
and I decided I had had enough.
My uncle had joined Weight
Watchers and lost a lot of
weight. So, I joined with a friend.
I was hesitant at fi rst knowing it
would be primarily women, but I
got over that pretty quickly. Stick
to the Weight Watchers basics.
It’s simple: if you follow the plan,
it works.
“
“
I work in retail and don’t
have time to go to a meet-
ing, so subscribing to Weight
Watchers Online meant I could
have resources on hand 24
hours. It was easy to use. I
signed up and logged on every
day. I used the Weight Tracker
tool which created a graph of
my weight loss. It’s inspiring to
see the graph going down!
“
Meetings Member
From United States
Age 36
Before 263.8 lbs
After 171.6 lbs
Meetings Member
From Canada
Age 34
Before 326.0 lbs
After 191.6 lbs
Online Subscriber
From United Kingdom
Age 22
Before 189.0 lbs
After 135.0 lbs
Audrey
Lost 92.2 lbs
Andrew
Lost 134.4 lbs
Christina
Lost 54.0 lbs
Letter to Shareholders
This powerful witness to success and corresponding referral
process is an integral part of why Weight Watchers has con-
tinued to grow and evolve as the world’s leading provider of
weight-loss management for over 40 years.
The past year was a continuation of that story. In 2005, we
remained steadfast in our core beliefs and approaches to
weight management, while further developing a host of
product enhancements and innovative services that build on
our market leadership, expand our audiences and strength-
en our outlook over the long-term.
In 2005, we generated over $1.15 billion in total revenue,
up 12.3% over 2004. In addition to double digit revenue
growth, we achieved gross margin expansion of 230 basis
points, further demonstrating the strength of our business
model.
Underpinning our success is the unrivaled effi cacy of our
products and services. With the continued rise in worldwide
obesity, people of all cultures continue to search for help in
achieving their weight loss goals. Weight Watchers remains
the only commercial weight management plan whose ef-
fi cacy is clinically proven. The core of our strategy is to fur-
ther strengthen our scientifi cally based weight management
approaches, while seeking complimentary channels that ex-
pand our audiences and accelerate our growth potential.
Our meetings business remains our core approach because
attending a Weight Watchers meeting is a time proven
method of helping our members lose weight. In 2005, with
Linda Huett
President and
Chief Executive Offi cer
Dear Shareholders,
In this year’s annual report, we have highlighted weight loss
success stories from Audrey, Andrew and Christina. I would
like to thank them for giving us the opportunity to tell their
stories. I would also like to thank all of our other successful
members and subscribers, as their stories continue to make
our business meaningful and fulfi lling.
At Weight Watchers®, we celebrate the success and triumphs
of each of our members and subscribers in their weight loss
journeys because they are a testament to the effectiveness
of our weight loss plans. When our customers successfully
lose weight, people notice. Family members, friends, col-
leagues and acquaintances inquire about how they achieved
such amazing results. The answer is Weight Watchers.
a full year behind us since the launch of TurnAround®, we
saw a return to attendance growth in North America. In
2005, worldwide company-owned meeting attendance in-
creased by over one million attendances, up 1.7% to 60.9
million, with North America witnessing attendance growth
of 3.5% to 33.5 million.
Beyond focusing on our core meetings business, in 2005 we
continued to pursue a host of promising initiatives such as in-
creasing our online presence, expanding our licensing agree-
ments, developing the corporate channel, and innovating
our product lines. Going forward, in addition to contributing
incrementally to the top-line, these revenue streams will also
increase our brand recognition and awareness among new
demographics and expand our potential customer reach.
In addition to being the gateway to our online subscription
products, the Weight Watchers Web site is an important
global promotional channel for our businesses and contrib-
utes signifi cantly to our meetings business by promoting our
brand, advertising Weight Watchers meetings, and keeping
members involved with the latest from Weight Watchers. In
an average month during 2005, our Web site had 4 million
unique visitors and 161 million page views in the U.S. alone.
Compared to the other online weight management Web
sites, people who come to WeightWatchers.com tend to
stay longer and become more engaged, a testament to our
focus on providing customers the best experience possible.
Perhaps the most important event of 2005 was our acquisi-
tion of 100% ownership of WeightWatchers.com. Through
WeightWatchers.com, we offer Internet weight manage-
ment subscription products to consumers while maintain-
ing a worldwide online presence for the Weight Watchers
brand. The integration of this online business has gone very
smoothly and we are thrilled with its performance to date.
WeightWatchers.com generates revenues primarily from its
online subscription products, which were available during
2005 in the United States, Canada, the United Kingdom,
and Germany. In addition, in late 2005, WeightWatchers.com
launched its products in Australia and New Zealand and is
constantly evaluating other market opportunities.
As a result of its efforts, WeightWatchers.com is the clear
market leader in online weight management subscription
products, with a market share that is twice its next largest
Internet competitor. Moreover, WeightWatchers.com grew
its subscriber base to approximately 535,000 active subscrib-
ers as of the end of 2005, from 105,000 at the end of 2001,
resulting in a record $109.7 million in revenue in 2005 and
continuously improving profi tability.
Also in 2005, we took steps to improve our range of prod-
ucts that complement our approach to weight management
and help our members and subscribers in their weight man-
agement efforts. We introduced new fl avors of our popular
Just2POINTS!TM snack bars, added several terrifi c new cook-
books, and rolled out a line of savory snacks. We are now
seeing the benefi ts from our enhancements, with product
sales per meeting attendee up 5% to $3.88. In December,
we launched our online store in the United States, which
now gives our Weight Watchers Online subscribers access to
a range of our best products.
We also continued to drive our licensing business in 2005.
This activity has grown tremendously in the past two years,
and most importantly, incremental licensing revenues are
almost completely accretive to the bottom line. Given the
credibility we have built over the past four decades, it’s no
surprise that our brand resonates with consumers. For in-
stance, our snacks, cakes and muffi n licensee, Dawn Foods,
generated product sales that exceeded expectations at every
retailer where they placed our products.
Through our sales and marketing initiative, Corporate So-
lutions, Weight Watchers is starting to make signifi cant
in-roads with companies who want to offer – and in some
cases want to subsidize – our services and products for their
employees. Studies have shown that the obesity epidemic
negatively impacts employee productivity and continues to
drive up health care costs, with employers spending up to
52% more in annual healthcare costs on obese employees
versus healthy-weight employees†. As a result, the fi nancial
benefi ts of intervention at the employer level are becoming
increasingly attractive to corporate America. Corporate So-
lutions brings Weight Watchers tried and true approaches to
weight management to an entirely new group of potential
customers in the corporate arena.
“ Our business model
off ers investors tangible results today
and attractive growth potential
in the years ahead.”
As our 2005 results indicate, we are achieving success in
building upon the strength of our brand through product
enhancements and innovative services. We are listening to
our customers and making the right decisions on how to
serve them better. We are introducing new customers to
Weight Watchers by expanding our points of contact; and
we are converting our operating success into increased re-
turns for our shareholders.
Our business model offers investors tangible results today
and attractive growth potential in the years ahead. We gen-
erated over $296 million in cash from operating activities in
2005.
As we look to the future, obesity remains a serious health
problem. According to the World Health Organization,
nearly 1 billion people worldwide are overweight, with 300
million people considered obese. In the United States, the
American Heart Association estimates that 65% of the adult
population is overweight or obese. Further, scientifi c studies
have linked obesity to a series of conditions including several
forms of cancer, stroke, type 2 diabetes and heart disease.
† Burton WN, et al. The Economic Costs Associated with Body Mass Index
in a Workplace. J Occup Environ Med. Sep 1998:40(9): 786-792.
WeightWatchers.com
Just2POINTS!™ Chocolate Chip &
Peanut Butter Bars, sold exclusively
by Weight Watchers
One of the many products
available through retail outlets
“Everyone Loves Chicken” cookbook,
sold exclusively by Weight Watchers
Our scientifi c approach to weight management is highlight-
ed in “The Science Center.” This is a free resource where
consumers can access from our Web site the latest weight
loss studies and gain a practical understanding of the sci-
ence behind weight loss. If you haven’t already visited the
Science Center, I would strongly encourage you to do so.
It is our scientifi c foundation that gives our members and
subscribers the tools and knowledge to tackle the problem
of obesity and weight control.
We have a proven approach that works year-in and year-
out. In 2006 and beyond, we will continue to capitalize on
the various opportunities before us through innovative pro-
grams, enhancements to the member and subscriber expe-
riences, newly licensed products and aggressive marketing
strategies.
With the continued strengthening of the North American
market, we fully expect 2006 attendance growth to increase
over 2005. Further, even with its impressive performance this
year, WeightWatchers.com is still in an early stage of growth.
We will continue to target this important and largely un-
tapped online market in the years ahead.
Weight Watchers is a great organization. We are the clear
market leader with tremendous brand equity, strong cus-
tomer satisfaction and loyalty, and extremely dedicated staff.
Building on the success of individuals like Audrey, Andrew
and Christina, we have never been more confi dent about
our future.
Sincerely,
Linda Huett
President and
Chief Executive Offi cer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(cid:2) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005.
(cid:3)
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.)
11 Madison Avenue, 17th Floor, New York, New York 10010
(Address of principal executive offices)
(Zip code)
Registrant’s telephone number, including area code: (212) 589-2700
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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes (cid:2)
No (cid:3)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act.
Yes (cid:3)
No (cid:2)
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 (cid:2)
No (cid:3)
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. (cid:3)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of ‘‘accelerated filer and large accelerated filer’’ in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer (cid:2)
Accelerated filer (cid:3)
Non-accelerated filer (cid:3)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes (cid:3)
No (cid:2)
The aggregate market value of the registrant’s common stock held by non-affiliates as of July 1, 2005, (based upon the
closing price of $51.03 per share of common stock as quoted on the New York Stock Exchange), was $1,980,805,281. For
purposes of this computation, it is assumed that shares of common stock held by our directors, officers and our controlling
shareholders would be deemed stock held by affiliates.
The number of shares outstanding of common stock as of January 31, 2006 was 100,454,369.
Weight Watchers International, Inc.
2005 Annual Report on Form 10-K
Table of Contents
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . .
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Officers and Directors of the Company . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
1
13
19
19
19
19
20
22
25
46
46
47
47
47
48
54
59
61
64
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
66
The following terms used in this Annual Report on Form 10-K are our trademarks: Weight
Watchers(cid:4), WeightWatchers.com(cid:4), POINTS(cid:4), TurnAround(cid:4), Core Plan(cid:5) and Weight Watchers
On-the-Go(cid:5).
i
WEIGHT WATCHERS INTERNATIONAL, INC.
Weight Watchers International, Inc. is a Virginia corporation with its principal executive offices in
New York, New York. In this report, unless the context indicates otherwise: ‘‘we’’, ‘‘us’’, and ‘‘our’’
refers to Weight Watchers International, Inc. and all subsidiaries consolidated for purposes of its
financial statements, including WeightWatchers.com, Inc. and its subsidiaries; ‘‘Weight Watchers
International’’ refers to Weight Watchers International, Inc. and all of its subsidiaries other than
WeightWatchers.com, Inc. and subsidiaries of WeightWatchers.com, Inc.; and ‘‘WeightWatchers.com’’
refers to WeightWatchers.com, Inc. and its subsidiaries.
Item 1. Business
Overview
PART I
We are a leading global branded consumer company and the leading global provider of weight
management services, with a presence in 30 countries around the world. With over four decades of
weight management experience, expertise and know-how, we have established Weight Watchers as one
of the most recognized and trusted brand names among weight conscious consumers. In 2005,
consumers spent over $3.0 billion on Weight Watchers branded products and services, including
meetings conducted by us and our franchisees, products sold at meetings, Internet subscription products
sold by WeightWatchers.com, licensed products sold in retail channels and magazine subscriptions and
other publications.
The high awareness and credibility of our brand among all types of weight-conscious consumers—
women and men, consumers online and offline, the support-inclined and the self-help inclined—provide
us with a significant competitive advantage and growth opportunity. As the number of overweight and
obese people worldwide grows, we believe our global presence and brand awareness uniquely position
us to capture an increasing share of the global weight management market through our core meeting
business and our additional growth vehicles, such as WeightWatchers.com and our licensing efforts.
In the more than 40 years since our founding, we have built our meeting business by helping
millions of people around the world lose weight through a sensible and sustainable diet, exercise,
behavior modification and group support. Each week, approximately 1.5 million members attend
approximately 48,000 Weight Watchers meetings around the world, which are run by more than 15,000
leaders—each of whom has lost weight on our programs. We are constantly improving our scientifically
based weight management approaches, and we are the only commercial weight management program
whose efficacy has been clinically proven. Our strong brand, together with the effectiveness of our
programs, loyal customer base and unparalleled network and infrastructure, enable us to attract new
and returning members efficiently. Our customer acquisition costs remain relatively low due to both
word of mouth referrals and our efficient mass marketing programs.
Through WeightWatchers.com, we offer Internet subscription weight management products to
consumers and maintain an interactive presence on the Internet for the Weight Watchers brand. We
believe WeightWatchers.com is the leader in weight management Internet subscription products and has
twice the market share of its next largest Internet competitor. Currently, we provide two subscription
offerings: Weight Watchers Online and Weight Watchers eTools. Weight Watchers Online provides
interactive and personalized resources that allow users to follow our weight management plans via the
Internet. Weight Watchers eTools is the Internet weight management companion for Weight Watchers
meetings members who want to interactively manage the day-to-day aspects of their weight
management plans on the Internet. We currently offer these two products in the United States, the
United Kingdom, Canada, Germany and Australia/New Zealand.
1
Our licensing revenues have been rapidly growing in both the United States and internationally.
Companies are showing an increased interest in licensing our brand and other intellectual property as a
platform to build their businesses since the Weight Watchers brand brings high credibility and access to
the weight conscious consumer. By partnering with carefully selected companies in categories relevant
and helpful to weight conscious consumers, we have created a highly profitable business as well as a
powerful vehicle to reinforce the Weight Watchers brand in the minds of our target consumers.
The Global Weight Management Market
We participate in the global weight management market. According to Marketdata Enterprises, the
weight management industry had revenue of approximately $46 billion in 2004 in the United States
alone. The number of overweight and obese people around the world has steadily increased over the
past 20 years and is now estimated at over 1 billion, primarily driven by improving living standards and
changing eating patterns, along with increasingly sedentary lifestyles. According to the Centers for
Disease Control and Prevention, between 1999 and 2002, 65% of Americans over the age of 19 were
considered overweight and almost half of these were obese. Numerous diseases, including heart disease,
high blood pressure and Type II diabetes, are associated with being overweight or obese. We believe
the growing population of overweight people who are motivated by both an increasing awareness of the
health benefits of weight loss and the desire to improve their appearance is fueling the growth in
demand for weight management programs. This growth is also a result of an increasing willingness of
employers and governments to promote and contribute towards the cost of weight management
programs.
Our Services and Products
Our Weight Management Plans
In each of our markets, we offer services and products that are built upon weight management
systems tailored to local tastes and habits. These weight management systems are comprised of a range
of nutritional, exercise and behavioral tools and approaches. For instance, we currently offer
TurnAround in the United States and Canada. One of the features of TurnAround is to give consumers
the choice of two weight management plans to follow, the Flex Plan, also known as the POINTS weight
management system, and the Core Plan.
Under the Flex Plan, each food has a POINTS value determined by a patented formula based on
the food’s calories, fat and dietary fiber. Subject to certain nutritional guidelines, consumers on this
plan can eat any food as long as their total food consumption stays within their POINTS value
‘‘budget’’ for the week. Since nutritious foods generally have low POINTS values, this approach guides
consumers toward healthier eating habits.
Under the Core Plan, consumers eat from a list of wholesome foods from all the food groups, i.e.,
core foods that provide eating satisfaction without the need to count POINTS values. These core foods
are intended to satisfy consumers’ hunger by directing them to foods with low calorie density that do
not trigger over-eating. The Core Plan also permits consumers to eat non-core foods within an allotted
weekly POINTS value.
Meetings
Clinical studies have shown that consumers who attend Weight Watchers meetings are more likely
to lose weight than those who diet on their own. Our group support system remains the cornerstone of
our meetings. Members provide each other support by sharing their experiences, their encouragement
and empathy with other people experiencing similar weight management challenges. This group support
provides the reassurance that no one must overcome their weight management challenge alone. Group
support assists members in dealing with issues such as emotional eating and finding time to exercise.
2
We facilitate this support through interactive meetings that encourage learning through group activities
and discussions.
We present our program in a series of weekly meetings of approximately one hour in duration.
Meetings are conveniently scheduled throughout the day. Typically, we hold meetings in either meeting
rooms rented from civic or other community organizations or in leased locations.
In our meetings, our leaders present our program that combines group support and education with
a structured approach to food, activity and lifestyle modification developed by credentialed weight
management experts. Our more than 15,000 leaders run our meetings and educate members on the
Weight Watchers method of successful and sustained weight management. Our leaders also provide
inspiration and motivation for our members and are examples of our program’s effectiveness because
they have lost weight and maintained their weight loss on our program.
Meetings typically begin with registration and a confidential weigh-in to track each member’s
progress. Leaders and receptionists are trained to engage the members at the weigh-in to talk about
their weight management efforts during the previous week and to provide encouragement and advice.
Part of the meeting is educational, where the leader uses personal anecdotes, games or open questions
to demonstrate some of our core weight management strategies, such as self-belief and discipline. For
the remainder of the meeting, the leader focuses on a variety of topics pre-selected by us, such as
seasonal weight management topics, achievements people have made in the prior week and celebrating
and applauding individual successes. Discussions can range from dealing with a holiday office party to
making time to exercise. The leader encourages substantial participation and discusses supporting
products and materials as appropriate. At the end of the meeting, new members are given special
instruction in our current weight management plan.
Our leaders help set a member’s weight goal within a healthy range based on body mass index.
When members reach their weight goal and maintain it for six weeks, they achieve lifetime member
status. This gives them the privilege to attend our 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
leaders. Field management and current leaders constantly identify new leaders from members who have
strong interpersonal skills and are personable. Leaders are usually paid on a commission basis.
Our most popular payment structure in our meeting business is a ‘pay-as-you-go’ arrangement. A
new member pays an initial registration fee and then a weekly fee for each meeting attended, although
free registration is often offered as a promotion. We also offer discounted prepayment plans.
We have enjoyed a mutually beneficial relationship with our franchisees over many years. In our
early years, we used an aggressive franchising strategy to quickly establish a meeting infrastructure to
pre-empt competition. Since then we have acquired a large number of franchises and we do not intend
to award new franchise territories. In fiscal 2005, franchised operations represented approximately 21%
of our total worldwide attendance. We estimate that, in fiscal 2005, these franchised operations
attracted attendance of over 16 million. Franchisees typically pay us a fee equal to 10% of their
meeting fee revenues.
Our franchisees are responsible for operating classes in their franchise class territory using the
program and marketing guidelines we have developed. We provide a central support system for the
program and our brand. Franchisees purchase products from us at wholesale prices for resale directly
to members. Franchisees are obligated to adhere strictly to our program content guidelines, with the
freedom to control pricing, class locations, operational structure and local promotions. Franchisees
provide local operational expertise, advertising and public relations. Franchisees are required to keep
accurate records that we audit on a periodic basis. Most franchise agreements are perpetual and can be
terminated only upon a material breach or bankruptcy of the franchisee.
3
Product Sales
We sell a range of products, including bars, snacks, cookbooks, POINTS value guides, Weight
Watchers magazines and POINTS calculators, that complement our weight management plans and help
our customers in their weight management efforts. Our emphasis has been on consumables that drive
recurring purchases. Our products are designed to be high quality, to offer benefits related to the
Weight Watchers plans, to be competitively priced and to be easy to merchandise. We continuously
update our product range and share best practices around the globe.
We sell our products primarily through our meeting operations and to our franchisees. Recently,
we have grown our product sales per attendee by updating our selection of products. In fiscal 2005,
sales of our proprietary products represented 25% of our revenues. We intend to continue to optimize
our product offerings by updating existing products and selectively introducing new products.
Our WeightWatchers.com Offerings
Through WeightWatchers.com, we are well positioned to benefit from the large self-help market as
well as several trends taking place in the Internet marketplace including an increased willingness to
access and pay for web content, the proliferation of broadband access and the growth of e-Commerce
and Internet advertising. According to comScore, the U.S. paid Internet content market has nearly
quadrupled from 2001 to 2005, increasing from $265 million in the first half of 2001 to over
$985 million in the first half of 2005, with almost 80% of U.S. Internet content revenue in the first half
of 2005 coming from subscriptions as opposed to individual sales.
Since 2001, we have offered two Internet subscription products in the United States—Weight
Watchers Online and Weight Watchers eTools.
Weight Watchers Online
Weight Watchers Online is a product based on the Weight Watchers approach to weight
management and is designed to attract self-help-inclined consumers. Weight Watchers Online
helps consumers adopt a healthier lifestyle, with a view toward long-term behavior
modification—a key aspect of the Weight Watchers approach toward sustainable weight loss.
Weight Watchers Online allows consumers to learn how to make healthier food choices and to
lead a more active lifestyle by providing them with online content, functionality, resources and
interactive web-based weight management plans.
Weight Watchers eTools
Weight Watchers eTools is an Internet weight management offering available only to
consumers who are Weight Watchers meetings members. Weight Watchers eTools allows users
to interactively manage the day-to-day aspects of their weight management plan online,
discover different food options, stay informed and motivated, and keep track of their weight
management efforts.
In the third quarter of 2002, WeightWatchers.com launched its two Internet subscription products
on our U.K. and Canadian websites. In January 2004, WeightWatchers.com launched its Internet
subscription products on our German website, and, in December 2005, WeightWatchers.com launched
its Internet subscription products on our Australia/New Zealand website. These products have similar
functionality to the existing U.S. products, but are tailored specifically to each of our local markets.
As of December 31, 2005, WeightWatchers.com had approximately 535,000 active subscribers, of
which approximately 75% were subscribers to Weight Watchers Online.
4
As Weight Watchers Online and Weight Watchers eTools reflect different value propositions, the
subscriptions are priced differently. Both subscription products currently offer an initial pre-paid
subscription term of one or three months, continuing thereafter on a pre-paid month-to-month basis
until canceled. In the United States, Weight Watchers Online costs $65.00 for the initial 3-month term
or $46.90 for the initial one-month term. The ongoing monthly fee for Weight Watchers Online is
$16.95. In the United States, Weight Watchers eTools costs $29.95 for the initial 3-month term or
$12.95 for the initial one-month term. The ongoing monthly fee for Weight Watchers eTools is $12.95.
We believe WeightWatchers.com’s personalized and interactive Internet subscription products
provide consumers with an engaging weight management experience. Our Internet subscription
products help customers monitor their weight management efforts, encourage exercise and healthier
living, and provide guidance toward healthier eating habits by offering the following interactive
resources:
(cid:129) POINTS Tracker
(cid:129) POINTS Calculators
(cid:129) Weight Tracker and Progress Charts
(cid:129) Recipe Database
(cid:129) Recipe Builder
(cid:129) Meal Ideas
(cid:129) Restaurant Guides
In July 2004, WeightWatchers.com launched its first mobile subscription product—Weight Watchers
On-the-Go—which is available as an add-on product for subscribers to our Internet products. Weight
Watchers On-the-Go offers software tools and features for Palm-based handheld devices. Through a
two-way synchronization, subscribers can track their POINTS value, food consumption or physical
activities either on their handheld device or through the website and have their results automatically
uploaded to their Internet subscription account or downloaded to their handheld device. Weight
Watchers On-the-Go is currently only offered in the United States and is free for Weight Watchers
eTools subscribers. Weight Watchers Online subscribers can currently purchase Weight Watchers
On-the-Go for an additional $5 per month.
We believe men represent an important market opportunity for us and we are developing a version
of our Internet subscription products customized for men. Based on our internal research, we believe
many men trust the Weight Watchers brand as a source of sensible weight management advice. We
believe web-based offerings, combined with appropriate content and imagery, will be ideally suited for
men.
We believe we can continue to expand our Internet revenues from sources other than our Internet
subscription products. For example, in December 2005 we launched in the United States an online
store that sells our products (such as bars, snacks and POINTS calculators) to our Weight Watchers
Online subscribers. We are also exploring options to increase our Internet advertising sales.
5
Corporate Solutions
We believe there is an increasing demand by companies for services and products that can improve
the health and well-being of their employees. In response, we recently launched our Corporate
Solutions sales and marketing initiative. We believe our broad range of services and products uniquely
positions us to serve this market and help companies reduce their healthcare costs and improve the
well-being of their employees. Our Corporate Solutions initiative typically leverages a company’s
internal communications to promote our services and products directly to its employees. As part of this
strategy, we have built a dedicated national sales and account management team focused on engaging
national clients.
The Corporate Solutions initiative promotes four differentiated offerings, any of which can
generally be offered by companies to their employees:
(cid:129) Onsite Weekly Meetings: For employees who want support from fellow colleagues, guidance
from an experienced leader and the convenience of attending meetings at their workplace.
(cid:129) Local Meeting Vouchers: For employees who want guidance from a leader but want to attend
meetings away from work.
(cid:129) Weight Watchers Online: For employees who cannot attend meetings, or are self-help inclined,
but want access to Weight Watchers.
(cid:129) At Home Kits: For employees who prefer an offline self-help approach.
This national approach to serving companies supplements our existing local efforts to target the
corporate market. We intend to leverage our existing local relationships into expanded national
relationships.
Licensing and Publishing
Licensing
We license the Weight Watchers brand and other intellectual property in certain categories of food
and other consumer products to carefully selected partners. We seek to increase our licensing revenues
by targeting sizeable product categories where the Weight Watchers brand can add real value. We have
recently expanded our global licensing team in order to focus on increasing the number of categories
and geographies of our licensed products.
We typically partner with licensees that excel at new product development and have strong
marketing and sales expertise, manufacturing and distribution capabilities, financial strength, prior
performance in previous licensing deals and senior management commitment to building the Weight
Watchers brand. In addition, in connection with our acquisition from the H.J. Heinz Company, or
Heinz, in September 1999, Heinz received a perpetual royalty-free license to continue using our brand
in its core food categories. We plan to continue to choose our licensing partners carefully after
identifying and prioritizing categories that enhance the Weight Watchers brand and have long-term
growth potential.
6
Selected licensees include:
LICENSEE
PRODUCT
. . . . . . . . . . . . . . . . . . . . Casual Dining Restaurant Menu
United States
Applebee’s
Conair . . . . . . . . . . . . . . . . . . . . . . . .
Dawn Foods . . . . . . . . . . . . . . . . . . .
Organic Milling . . . . . . . . . . . . . . . . . Ready to Eat Cereals
Russell Stover . . . . . . . . . . . . . . . . . . Chocolate Candies
Wells Dairy . . . . . . . . . . . . . . . . . . . .
Weston Bakeries . . . . . . . . . . . . . . . . Fresh Bread
Scales
Snack Cakes & Muffins
Ice Cream
United Kingdom
Anthony Alan Foods . . . . . . . . . . . . .
Conair . . . . . . . . . . . . . . . . . . . . . . . .
Yoplait
Snack Cakes
Scales
. . . . . . . . . . . . . . . . . . . . . . . Yogurt
Continental Europe
Anthony Alan Foods . . . . . . . . . . . . .
COOP . . . . . . . . . . . . . . . . . . . . . . . . COOP ‘‘Healthy for You’’ Range
Sara Lee . . . . . . . . . . . . . . . . . . . . . . Meats
Senoble . . . . . . . . . . . . . . . . . . . . . . . Yogurt
Snack Cakes
Australia
Conair . . . . . . . . . . . . . . . . . . . . . . . .
Scales
Nestle . . . . . . . . . . . . . . . . . . . . . . . . Yogurt
Each licensee is required to include on their packaging information about our services and our
products, including our toll-free numbers and a URL for WeightWatchers.com. This marketing and
promotional support reinforces the value of our brand.
We continue to believe there are significant opportunities both in the United States and
internationally to take advantage of the strength of the Weight Watchers brand and other intellectual
property through additional licensing agreements.
Weight Watchers Magazine
Weight Watchers magazines are published in all of our major markets. In the United States,
Weight Watchers Magazine is an important branded marketing channel that is experiencing strong
growth. We re-acquired the rights to publish the magazine without the subscriber list in February 2000
and re-launched its publication in May 2000. Since then, we have grown paid circulation from zero to
over one million. As of fall 2005, our U.S. magazine had a readership of 6.61 readers per copy,
according to MediaMark, an industry tracking service. In addition to generating revenues from
subscription sales and advertising, Weight Watchers Magazine also reinforces the value of our brand
and serves as a powerful tool for marketing to both existing and potential customers.
Marketing and Promotion
Word of Mouth
The word-of-mouth generated by our current and former customers is an important source of new
customers. Over our more than 40-year operating history, we have created a powerful referral network
of loyal customers. These referrals, combined with our strong brand and the effectiveness of our plans,
enable us to efficiently attract new and returning customers.
7
Media Advertising
Our advertising enhances our brand image and awareness and motivates both former and potential
new customers to join Weight Watchers. We have historically taken advantage of a range of traditional
offline advertising vehicles such as television, radio and print. Over the past five years,
WeightWatchers.com has developed a strong capability and presence in Internet advertising. Our
advertising schedule supports the three key diet seasons of the year: winter, spring and fall. We allocate
our media advertising on a market-by-market basis, as well as by media vehicle (television, radio,
Internet, magazines and newspapers), taking into account the target market and the effectiveness of the
medium.
Direct Mail and Email
Direct mail is a critical element of our marketing because it targets potential returning members.
We maintain databases of current and former customers in each country in which we operate, which we
use to focus our direct mailings and email. During fiscal 2005, our North American company-owned
meeting operations, or NACO, sent over 21 million pieces of direct mail. Most of these mailings are
timed to coincide with the start of the diet seasons and are intended to encourage former meeting
members to re-enroll. WeightWatchers.com has made a substantial investment in developing email
targeting capabilities and its email promotional vehicles and programs will be an increasingly important
customer acquisition vehicle for both our Internet and offline businesses.
WeightWatchers.com Website
The WeightWatchers.com website is an important global promotional channel for our brand and
businesses. The website has become an important vehicle for communicating our services and products
in greater detail than could be achieved in more traditional advertising vehicles. In addition to being a
gateway for our Internet subscription products, the website contributes value to our meeting business
by promoting our brand, advertising Weight Watchers meetings and keeping members involved with
Weight Watchers outside of meetings through useful offerings, such as a meeting locator, low calorie
recipes, weight management articles, success stories and Internet forums. In 2005, our Meeting Finder
feature generated on average over 850,000 meeting searches per month in the United States alone. The
Meeting Finder makes it easier than ever for our existing and potential members to find a convenient
meeting place and time. WeightWatchers.com now attracts an average of approximately 4.0 million
unique visitors per month in the United States alone.
Public Relations
The focus of our public relations efforts is through our current and former members who have
successfully lost weight on our program. Leaders and successful members engage in local promotions,
information presentations and charity events to promote Weight Watchers and demonstrate the
program’s efficacy. We currently have over 300 trained media ‘‘ambassadors’’ in the United States as
part of our grass roots public relations network.
Recently, we launched a science-based public relations initiative to capitalize on Weight Watchers
position as the only clinically proven commercial weight management program. This has included an
increased investment in third party scientific research, the launch of a science center on our website
and increased efforts to share our consumer and program insights with leaders in the scientific and
medical communities as well as the general public.
8
Weight Watchers Magazine
In addition to generating revenues from subscription sales and advertising, Weight Watchers
Magazine reinforces the value of our brand and serves as an important marketing tool to both existing
and potential customers. We offer Weight Watchers magazines in all of our major markets.
Entrepreneurial Management
We run our company in a decentralized and entrepreneurial manner that allows us to develop and
test new ideas on a local basis and then implement the most successful ideas across our network. We
believe local country and regional managers are best able to develop new strategies and plans to meet
the needs of their markets. For example, local managers in the United Kingdom were responsible for
developing our POINTS-based program. In addition, many of our meeting products were developed
locally and then introduced successfully in other countries. Local managers have strong incentives to
adopt and implement the best practices of other regions and to continue to develop innovative new
plans.
While having strong local leadership has always been a cornerstone of our strategy, we have also
been investing in building our global corporate management team. Our management team plays a
critical role in driving and facilitating the global coordination necessary to optimize our international
assets and share best practices across geographies.
Competition
The weight management market includes self-help weight management regimens and other
self-help weight management products and publications such as books, tapes and magazines;
commercial weight management programs; Internet weight management approaches; dietary
supplements and meal replacement products; weight management services administered by doctors,
nutritionists and dieticians; surgical procedures; the pharmaceutical industry; government agencies and
non-profit groups that offer weight management services; and fitness centers.
Competition among commercial weight management programs is largely based on program
recognition and reputation and the effectiveness, safety and price of the program. In the United States,
we compete with several other companies in the commercial weight management industry, although we
believe that the businesses are not comparable. For example, many of these competitors’ businesses are
based on the sale of pre-packaged meals and meal replacements. Our meetings use group support,
education and behavior modification to help our members change their eating habits, in conjunction
with flexible food plans that allow members the freedom to choose what they eat. There are no
significant group education-based competitors in any of our major markets, except in the United
Kingdom. Even there, we have an almost 50% market share, which is more than 60% larger than that
of our nearest competitor.
We believe that food manufacturers that produce meal replacement products are not comparable
competition because these businesses’ meal replacement products do not engender behavior
modification through education in conjunction with a flexible, healthy diet.
We also compete with various self-help diets, products and publications. Beginning in 2003,
low-carb diets gained in popularity and media exposure. These diets advocate dramatic reductions in
carbohydrates that result in calorie reduction. We believe that the appeal of these programs has peaked
and the low carb phenomenon is now in decline.
9
History
Early Development
In 1961, Jean Nidetch, the founder of our company, attended a New York City obesity clinic and
took what she learned from her personal experience at the obesity clinic and began weight-loss
meetings with a group of her overweight friends in the basement of a New York apartment building.
Under Ms. Nidetch’s leadership, the group members supported each other in their weight-loss efforts,
and word of the group’s success quickly spread. Ms. Nidetch and Al and Felice Lippert, who all
successfully lost weight through these efforts, formally launched our business in 1963. Weight Watchers
International, Inc. was incorporated as a Virginia corporation in 1974 and succeeded to the business
started in New York in 1963. Heinz acquired us in 1978.
Artal Ownership
In September 1999, Artal Luxembourg, S.A. (Artal Luxembourg), an indirect subsidiary of Artal
Group, S.A. (together with its parent and its subsidiaries, Artal), acquired us from Heinz. Subsequent
to Artal’s acquisition of us, Artal Luxembourg transferred ownership of its shares in us to Artal
Participations and Management S.A. and Artal Holdings Sp. z o.o., each also members of Artal.
WeightWatchers.com Acquisition
On June 13, 2005, we entered into an agreement to acquire control of our licensee and affiliate,
WeightWatchers.com. On July 1 and 2, 2005, we increased our ownership interest in
WeightWatchers.com from approximately 20% to approximately 53% by (i) exercising warrants to
purchase WeightWatchers.com common stock for a total purchase price of approximately $45.7 million,
(ii) acquiring shares of WeightWatchers.com common stock owned by the employees of
WeightWatchers.com and other parties not related to Artal through a merger of a subsidiary of ours
with WeightWatchers.com for a total purchase price of approximately $28.4 million and (iii) acquiring
additional shares of WeightWatchers.com common stock, representing outstanding stock options then
held by WeightWatchers.com employees, for a total purchase price of approximately $62.3 million.
On June 13, 2005, WeightWatchers.com also entered into a redemption agreement with Artal to
purchase all of the shares of WeightWatchers.com owned by Artal at the same price per share as we
paid in the merger. Subsequently, on December 16, 2005, WeightWatchers.com redeemed all of its
outstanding common stock held by Artal for a total price of approximately $304.8 million as provided
in the redemption agreement. WeightWatchers.com used cash on hand and the proceeds of two credit
facilities in the aggregate amount of $215.0 million to finance this redemption as well as pay related
fees and expenses. As a result of this redemption, we now own 100% of WeightWatchers.com.
The merger and the redemption transactions were evaluated, negotiated and recommended by a
Special Committee of Weight Watchers International’s Board of Directors consisting of its independent
directors.
10
Regulation
A number of laws and regulations govern our advertising, franchise operations and relations with
consumers, employees and other service providers in the countries in which we operate. The Federal
Trade Commission, or FTC, and certain states and foreign jurisdictions regulate advertising, disclosures
to consumers, privacy, consumer pricing or billing arrangements, and other consumer matters.
During the mid-1990s, the FTC filed complaints against a number of commercial weight
management providers alleging violations of federal law in connection with the use of advertisements
that featured testimonials, claims for program success and program costs. In 1997, we entered into a
consent order with the FTC settling all contested issues raised in the complaint filed against us. The
consent order requires us to comply with certain procedures and disclosures in connection with our
advertisements of services and products.
Since we operate our meetings business both in the United States and internationally, we are
subject to many distinct employment, labor and benefits laws in each country in which we operate,
including regulations affecting our employment practices and our relations with our employees and
service providers.
Laws and regulations directly applicable to communications or commerce over the Internet such as
those governing intellectual property, privacy, libel and taxation, are becoming more prevalent and
remain unsettled.
Employees and Service Providers
As of December 31, 2005, we had approximately 46,000 employees and service providers. We
consider our relations with our employees and service providers to be satisfactory.
Financial Information About Segments and Financial Information About Geographic Areas
Information concerning our operating segments and our geographic areas is set forth in Note 15 of
our Consolidated Financial Statements, contained in Part IV, Item 15 of this Annual Report on
Form 10-K.
Available Information
Corporate information, press releases and our periodic reports (e.g. 10-K’s, 10-Q’s, 8-K’s) and
amendments thereto are available free of charge at www.weightwatchersinternational.com as soon as
reasonably practical after such material is electronically filed with or furnished to the SEC (i.e.,
generally the same day as the filing). Moreover, we also make available free of charge at that site the
Section 16 reports filed electronically by our officers, directors and 10 percent shareholders. Usually
these are publicly accessible no later than the business day following the filing.
Shareholders may request a free copy of our Code of Business Conduct and Ethics and our
Corporate Governance Guidelines at: Weight Watchers International, Inc., Attn: Corporate Secretary,
11 Madison Avenue, 17th Floor, New York, NY 10010, (212) 589-2700.
11
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, this Annual Report on Form 10-K, includes
‘‘forward-looking statements,’’ within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, including, in particular, the statements about our
plans, strategies and prospects under the headings ‘‘Business’’ and ‘‘Management’s Discussion and
Analysis of Financial Condition and Results of Operations.’’ We have used the words ‘‘may,’’ ‘‘will,’’
‘‘expect,’’ ‘‘anticipate,’’ ‘‘believe,’’ ‘‘estimate,’’ ‘‘plan,’’ ‘‘intend’’ and similar expressions in this Annual
Report on Form 10-K and the documents incorporated by reference to identify forward-looking
statements. We have based these forward-looking statements on our 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:
(cid:129) competition, including price competition and competition with self-help, pharmaceutical, surgical,
dietary supplements and meal replacement products, and other weight management brands,
diets, programs and products;
(cid:129) risks associated with the relative success of our marketing and advertising;
(cid:129) risks associated with the continued attractiveness of our plans;
(cid:129) risks associated with general economic conditions and consumer confidence; and
(cid:129) the other factors discussed under Item 1A ‘‘Risk Factors’’.
You should not put undue reliance on any forward-looking statements. You should understand that
many important factors, including those discussed under the headings ‘‘Risk Factors’’ and
‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations,’’ could
cause our results to differ materially from those expressed or suggested in any forward-looking
statements. Except as required by law, we do not undertake any obligation to publicly release any
revisions to these forward-looking statements to reflect events or circumstances that occur after the
date of this Annual Report on Form 10-K or to reflect the occurrence of unanticipated events.
12
Item 1A. Risk Factors
You should consider carefully, in addition to the other information contained in this Annual Report on
Form 10-K and the exhibits hereto, the following risk factors in evaluating our business. Our business,
financial condition or results of operations could be materially adversely affected by any of these risks.
Competition from a variety of other weight management industry participants or the development of
more effective or more favorably perceived weight management methods could result in decreased
demand for our products and services.
The weight management industry is highly competitive. We compete against a wide range of
providers of weight management products and services. Our competitors include: self-help weight
management regimens and other self-help weight management products and publications such as books,
tapes and magazines; commercial weight management programs; Internet weight management
approaches; dietary supplements and meal replacement products; weight management services
administered by doctors, nutritionists and dieticians; surgical procedures; the pharmaceutical industry;
government agencies and non-profit groups that offer weight management services; and fitness centers.
Additional competitors may emerge as new or different products or methods of weight management
are developed and marketed. More effective or more favorably perceived diet and weight management
methods, including pharmaceutical treatments, fat and sugar substitutes or other technological and
scientific advances in weight management, also could be developed. This competition may reduce
demand for our products and services. Any such decrease may adversely affect our business, financial
condition and results of operations.
The purchasing decisions of weight management customers are highly subjective and can be
influenced by many factors, such as brand image, marketing programs, cost and perception of the
efficacy of the product and service offerings. Moreover, customers can, and frequently do, change
weight management approaches easily and at little cost. For example, in fiscal 2003 and fiscal 2004, our
revenue growth was adversely affected by increased popularity and media exposure of low-carbohydrate
diets.
Our operating results depend on the effectiveness of our marketing and advertising programs.
Our business success depends on our ability to attract and retain members to our meetings and
subscribers to WeightWatchers.com. The effectiveness of our marketing practices, in particular our
advertising campaigns, is important to our financial performance. If our marketing and advertising
campaigns do not generate a sufficient number of members and subscribers, our results of operations
will be adversely affected.
If we do not continue to develop innovative new products and services or if our products and services
are not accepted by the market, our business may suffer.
The weight management industry is subject to changing customer demands based, in large part, on
the efficacy and popular appeal of weight management programs. Our future success depends on our
ability to continue to develop and market new products and services and to enhance our existing
products and services on a timely basis to respond to new and evolving customer demands, achieve
market acceptance and keep pace with new nutritional and weight management developments. We may
not be successful in developing, introducing on a timely basis or marketing any new or enhanced
products and services, and we cannot assure you that any new or enhanced products or services will be
accepted by the market. Our failure to develop new and innovative products and services or the failure
of our products and services to be accepted by the market would have an adverse impact on our
business, financial condition and results of operations.
13
The Weight Watchers brand could be impaired due to actions taken by our franchisees and licensees.
We believe that the Weight Watchers brand is one of our most valuable assets and that our
reputation provides us with a competitive advantage. Our franchisees operate their businesses under
our brand. In addition, we license the Weight Watchers brand to third-party manufacturers of a variety
of goods, including food products. Because our franchisees and licensees are independent third parties
with their own financial objectives, actions taken by them, including breaches of their contractual
obligations, such as not following our diets or not maintaining our quality standards, could harm our
brand or reputation. Also, the products we license to third parties may be subject to product recalls or
other deficiencies. Any negative publicity associated with these actions would adversely affect our
reputation and may result in decreased products sales, meeting attendance and Internet subscriptions
and, as a result, lower revenues and profits.
Our international operations expose us to economic, political and social risks in the countries in which
we operate.
The international nature of our operations involves a number of risks, including changes in U.S.
and foreign government regulations, tariffs, taxes and exchange controls, economic downturns, inflation
and political and social instability in the countries in which we operate and our dependence on foreign
personnel. Foreign government regulations may also restrict our ability to operate in those countries,
acquire new businesses or repatriate dividends from foreign subsidiaries back to the United States. We
cannot be certain that we will be able to enter and successfully compete in additional foreign markets
or that we will be able to continue to compete in the foreign markets in which we currently operate.
We are exposed to foreign currency risks from our international operations that could adversely affect
our financial results.
A significant portion of our revenues and operating costs are denominated in foreign currencies.
We are therefore exposed to fluctuations in the exchange rates between the U.S. dollar and the
currencies in which our foreign operations receive revenues and pay expenses. We do not currently
hedge, and have not historically hedged, our operational exposure to foreign currency fluctuations. Our
consolidated financial results are denominated in U.S. dollars and therefore, during times of a
strengthening U.S. dollar, our reported international revenues and earnings will be reduced because the
local currency will translate into fewer U.S. dollars. In addition, the assets and liabilities of our
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 average exchange rate for the
period. Translation adjustments arising from the use of differing exchange rates from period to period
are recorded in shareholders’ equity as accumulated other comprehensive income (loss). Translation
adjustments arising from intercompany receivables with our foreign subsidiaries are generally recorded
as a component of other expense (income). Accordingly, changes in currency exchange rates will cause
our net income and shareholders’ equity to fluctuate.
We may not successfully make or integrate acquisitions.
As part of our growth strategy, we intend to pursue selected acquisitions. We cannot assure you
that we will be able to effect acquisitions on commercially reasonable terms or at all. Even if we enter
into these transactions, we may not realize the benefits we anticipate or we may experience: difficulties
in integrating any acquired companies and products into our existing business; attrition of key
personnel from acquired businesses; significant charges or expenses; higher costs of integration than we
anticipated; or unforeseen operating difficulties that require significant financial and managerial
resources that would otherwise be available for the ongoing development or expansion of our existing
operations.
14
Consummating these transactions could also result in the incurrence of additional debt and related
interest expense, as well as unforeseen contingent liabilities, all of which could have a material adverse
effect on our business, financial condition and results of operations. We may also issue additional
equity in connection with these transactions, which would dilute our existing shareholders.
Disputes with our franchise operators could divert our management’s attention from their ordinary
responsibilities.
In the past, we have had disputes with our franchisees regarding operations and other contractual
issues. We continue to have disputes with some of our franchisees regarding the interpretation of
franchisee rights as they relate to the Internet and mail-order products. These disputes and any future
disputes could divert the attention of our management from their ordinary responsibilities.
Our results of operations may decline as a result of a downturn in general economic conditions or
consumer confidence.
Our results of operations are highly dependent on meeting fees, product sales and Internet product
subscriptions. A downturn in general economic conditions or consumer confidence and spending in any
of our major markets, including as a result of a terrorist attack, could result in people curtailing their
discretionary spending, which, in turn, could reduce attendance at our meetings, product sales and
Internet product subscriptions. Any such reduction would adversely affect our results of operations. In
addition, any event that discourages people from gathering with others, including as a result of a health
epidemic, could adversely affect our business.
The seasonal nature of our business could cause our operating results to fluctuate.
We have experienced and expect to continue to experience fluctuations in our quarterly results of
operations. Our business is seasonal with revenues generally decreasing at year end and during the
summer months. This seasonality could cause our share price to fluctuate as the results of an interim
financial period may not be indicative of our full year results. Seasonality also impacts relative revenue
and profitability of each quarter of the year, both on a quarter-to-quarter and year-over-year basis. The
timing of certain holidays, particularly Easter, which precedes the spring diet season and occurs
between March 22 and April 25, may affect our results of operations and the year-to-year comparability
of our results. For example, in 2006, Easter will fall on April 16, which means that the pre-summer diet
season will begin later than it did in 2005. This seasonality could cause our stock price to fluctuate as
the comparative change in our results for an interim financial period may not be indicative of our full
year results.
In addition, our meeting operations are subject to local conditions beyond our control, including
weather, natural disasters and other extraordinary events, that may prevent current or prospective
members from attending or joining meetings. For example, our NACO attendance was adversely
affected in the third quarter of fiscal 2005 by the impact of Hurricane Katrina and its aftermath. The
inability of prospective members to join our meetings at the beginning of a diet season could adversely
affect our results of operations throughout the entire diet season.
Third parties may infringe on our brand name and other intellectual property rights, which may have
an adverse impact on our business.
We currently rely on a combination of trademark, copyright, trade secret, patent and other
intellectual property laws and confidentiality procedures to establish and protect our proprietary rights,
including our brand name. If we fail to successfully enforce our intellectual property rights, the value of
our brand name, products and services could be diminished and our business may suffer. Our
precautions may not prevent misappropriation of our intellectual property, particularly in foreign
countries where laws or law enforcement practices may not protect our proprietary rights as fully as in
the United States. Any legal action that we may bring to protect our brand name and other intellectual
15
property could be unsuccessful and expensive and could divert management’s attention from other
business concerns. In addition, legal standards relating to the validity, enforceability and scope of
protection of intellectual property, especially in Internet-related businesses, are uncertain and evolving.
We cannot assure you that these evolving legal standards will sufficiently protect our intellectual
property rights in the future.
We may in the future be subject to intellectual property rights claims.
Third parties may in the future make claims against us alleging infringement of their intellectual
property rights. Any intellectual property claims, regardless of merit, could be time-consuming and
expensive to litigate or settle and could significantly divert management’s attention from other business
concerns. In addition, if we were unable to successfully defend against such claims, we may have to pay
damages, stop selling the product or service or stop using the software, technology or content found to
be in violation of a third party’s rights, seek a license for the infringing product, service, software,
technology or content or develop alternative non-infringing products, services, software, technology or
content. If we cannot license, develop alternatives or stop using the product, service, software,
technology or content for any infringing aspects of our business, we may be forced to limit our product
and service offerings. Any of these results could reduce our revenues and our ability to compete
effectively, increase our costs and harm our business.
Any failure of our technology or systems to perform satisfactorily could result in expenditure of
significant resources, impair our operations or damage our reputation.
We rely on software, hardware, network systems and similar technology that is either developed by
us or licensed from third parties to operate our websites and subscription offerings. As much of this
technology is relatively new and complex, there may be future errors, defects or performance problems,
including when we update our technology to expand and enhance our capabilities. Our technology may
malfunction or suffer from defects that become apparent only after extended uses. In addition, our
operations depend on our ability to protect our information technology systems against damage from
fire, power loss, water, earthquakes, telecommunications failures, vandalism and other malicious acts
and similar unexpected adverse events. Interruptions in our offerings or websites could result from
unknown hardware defects, insufficient capacity or the failure of our website hosting and
telecommunications providers to provide continuous and uninterrupted service. We do not have a fully
redundant system that includes an instant back-up hosting facility. As a result of these possible defects
or problems, our websites or subscription products could be rendered unreliable or be perceived as
unreliable by customers. Any failure of our technology or systems could result in the expenditure of
significant resources, impair our operations or damage our reputation.
Our reputation and the appeal of our products and services offerings may be harmed by security
breaches.
Unauthorized users who penetrate our information security could misappropriate proprietary
information or cause interruptions to the subscription offerings on our websites. As a result, it may
become necessary to expend significant additional amounts of capital and resources to protect against,
or to alleviate, problems caused by unauthorized users. These expenditures, however, may not prove to
be a timely remedy against unauthorized users who are able to penetrate our information security. In
addition to purposeful security breaches, the inadvertent transmission of computer viruses could
adversely affect our computer systems and, in turn, harm our business.
An increasing number of states require that customers be notified if a security breach results in the
disclosure of their personal financial account or other information. Other states and governmental
entities are considering such ‘‘notice’’ laws. In addition, other public disclosure laws may require that
material security breaches be reported. If we experience a security breach and such notice or public
disclosure is required in the future, our reputation and our business may be harmed. Privacy concerns
16
among prospective and existing customers regarding our use of personal information collected on our
websites or through our products and services, such as weight management information, financial data,
e-mail addresses and home addresses, could keep them from using our websites or purchasing our
products or services. Industry-wide events or events with respect to our websites, including
misappropriation of third-party information, security breaches or changes in industry standards,
regulations or laws could deter people from using our websites or purchasing our offerings, which could
harm our business.
Our businesses are subject to legislative and regulatory restrictions.
A number of laws and regulations govern our advertising, franchise operations and relations with
consumers, employees and other service providers in the countries in which we operate. The FTC and
certain states and foreign jurisdictions regulate advertising, disclosures to consumers, privacy, consumer
pricing or billing arrangements, and other consumer matters.
During the mid-1990s, the FTC filed complaints against a number of commercial weight
management providers alleging violations of federal law in connection with the use of advertisements
that featured testimonials, claims for program success and program costs. In 1997, we entered into a
consent order with the FTC settling all contested issues raised in the complaint filed against us. The
consent order requires us to comply with certain procedures and disclosures in connection with our
advertisements of products and services.
Since we operate our meetings business both in the United States and internationally, we are
subject to many distinct employment, labor and benefits laws in each country in which we operate,
including regulations affecting our employment practices and our relations with our employees and
service providers. If we are required to comply with new regulations or new interpretations of existing
regulations, or if we are unable to comply with these regulations or interpretations, our business could
be adversely affected.
Laws and regulations directly applicable to communications or commerce over the Internet such as
those governing intellectual property, privacy, libel and taxation, are becoming more prevalent and
remain unsettled.
Future legislation or regulations, including legislation or regulations affecting our marketing and
advertising practices, relations with consumers or franchisees or our food and weight management
products and services, may have an adverse impact on us.
Our debt service obligations and the restrictions of our debt covenants could impede our operations
and flexibility.
Our financial performance could be affected by our level of debt. As of December 31, 2005, our
total debt was $746.1 million. Weight Watchers International had, as of December 31, 2005, total debt
of $531.1 million and additional availability under its revolving credit facility of $112.2 million. As of
December 31, 2005, WeightWatchers.com had total debt of $215.0 million which was incurred to
finance its redemption of its shares held by Artal in December 2005.
We expect to generate the cash necessary to pay our expenses and to pay the principal and interest
on all of our outstanding debt primarily from our operations. Our ability to meet our expenses and
debt service obligations thus depends on our future performance, which may be affected by financial,
business, economic, demographic and other factors, such as attitudes toward weight management and
pressure from our competitors. If we do not have enough money to pay our debt service obligations,
we may be required to refinance all or part of our existing debt, sell assets, borrow more money or
raise equity. In such an event, we may not be able to refinance our debt, sell assets, borrow more
money or raise equity on terms acceptable to us or at all. In fiscal 2006, our interest expense will
increase as a result of the increase in our amount of debt.
17
Our credit facilities contain customary covenants, including covenants that in certain circumstances
restrict our ability to incur additional indebtedness, pay dividends on and redeem capital stock, make
other restricted payments, including investments, sell our assets and enter into consolidations, mergers
and transfers of all or substantially all of our assets. Our credit facilities also require us to maintain
specified financial ratios and satisfy financial condition tests, certain of which become more restrictive
under WeightWatchers.com’s credit facilities over time. Our ability to meet those financial ratios and
tests can be affected by events beyond our control and we cannot assure you that we will meet those
ratios and tests. A breach of any of these covenants, ratios, tests or restrictions could result in an event
of default under the credit facilities. If an event of default exists under the credit facilities, the lenders
could elect to cease making loans and declare all amounts outstanding thereunder to be immediately
due and payable. If the lenders under the credit facilities accelerate the payment of the indebtedness,
our assets may not be sufficient to repay in full that indebtedness and our other indebtedness that
would become due as a result of any acceleration.
Artal controls us and may have conflicts of interest with other shareholders in the future.
Artal controls us and is able to control the election and removal of our directors and determine
our corporate and management policies, including potential mergers or acquisitions, payment of
dividends, asset sales, the amendment of our articles of incorporation or bylaws and other significant
corporate transactions. This concentration of our ownership may delay or deter possible changes in
control of our company, which may reduce the value of an investment in our common stock. Even if
Artal beneficially owns less than 50% but 10% or more of our common stock, Artal will have the right
pursuant to an agreement with us to nominate directors to our Board of Directors in proportion to its
stock ownership. The interests of Artal may not coincide with the interests of other holders of our
common stock.
We are a ‘‘controlled company’’ within the meaning of the New York Stock Exchange rules and, as a
result, qualify for exemptions from certain corporate governance requirements.
Artal controls a majority of the voting power of our outstanding common stock. Under the New
York Stock Exchange rules, a listed company of which more than 50% of the voting power is held by
another person or group of persons acting together is a ‘‘controlled company’’ and such a company may
elect not to comply with certain New York Stock Exchange corporate governance requirements,
including (1) the requirement that a majority of the Board of Directors consist of independent
directors, (2) the requirement that the nominating and corporate governance committee be composed
entirely of independent directors with a written charter addressing the committee’s purpose and
responsibilities, (3) the requirement that the compensation committee be composed entirely of
independent directors with a written charter addressing the committee’s purpose and responsibilities
and (4) the requirement for an annual performance evaluation of the nominating and corporate
governance and compensation committees. We have elected to be treated as a ‘‘controlled company’’.
Accordingly, our shareholders may not have the same protections afforded to shareholders of
companies that are subject to all of the New York Stock Exchange corporate governance requirements.
Our articles of incorporation and bylaws and Virginia corporate law contain provisions that may
discourage a takeover attempt.
Provisions contained in our articles of incorporation and bylaws and the laws of Virginia, the state
in which we are incorporated, could make it more difficult for a third party to acquire us, even if doing
so might be beneficial to our shareholders. Provisions of our articles of incorporation and bylaws
impose various procedural and other requirements, which could make it more difficult for shareholders
to effect certain corporate actions. For example, our articles of incorporation authorize our Board of
Directors to determine the rights, preferences, privileges and restrictions of unissued series of preferred
stock, without any vote or action by our shareholders. Thus, our Board of Directors can authorize and
issue shares of preferred stock with voting or conversion rights that could adversely affect the voting or
18
other rights of holders of our common stock. These rights may have the effect of delaying or deterring
a change of control of our company. In addition, a change of control of our company may be delayed
or deterred as a result of our having three classes of directors or as a result of the shareholders’ rights
plan adopted by our Board of Directors. These provisions could limit the price that certain investors
might be willing to pay in the future for shares of our common stock.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We are currently headquartered in New York, New York in leased office space. Each of our four
regions of NACO has a small regional office under a short-term lease. Each of our foreign country
operations generally has leased office space.
We typically hold our classes in third-party locations (typically meeting rooms in well-located civic
or other community organizations) or space leased in retail centers (typically leased spaces in strip
malls for short terms, generally less than five years). As of December 31, 2005, there were
approximately 4,300 North America meeting locations, including approximately 3,500 third-party
locations and 800 retail centers. In the United Kingdom, there were approximately 4,700 meeting
locations, with approximately 100% in third-party locations. In Continental Europe, there were
approximately 5,600 meeting locations, with approximately 99% in third-party locations. In Australia
and New Zealand, there were approximately 1,100 meeting locations, with approximately 96% in third-
party locations.
Item 3. Legal Proceedings
We are not a party to any material pending litigation. Due to the nature of our activities, we are at
times subject to pending or threatened legal actions that arise out of the normal course of business. We
have had and continue to have disputes with certain of our franchisees. 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 our results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of our shareholders during the last quarter of the fiscal year
ended December 31, 2005.
19
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities
Our common stock is listed on the New York Stock Exchange, or the NYSE. Our common stock
trades on the NYSE under the symbol ‘‘WTW.’’
The following table sets forth, for the period indicated, the high and low sales prices per share for
our common stock as reported on the NYSE consolidated tape.
Fiscal 2005 (Year ended December 31, 2005)
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$47.49
$54.00
$58.95
$53.81
$40.51
$40.07
$50.88
$44.69
High
Low
Fiscal 2004 (Year ended January 1, 2005)
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$43.95
$43.26
$41.95
$46.35
$35.82
$31.83
$34.05
$35.04
Below is a summary of our stock repurchases during the quarter ended December 31, 2005:
High
Low
October 2 - November 5 . . . . . . . . . . . . . . . . . . .
November 6 - December 3 . . . . . . . . . . . . . . . . .
December 4 - December 31 . . . . . . . . . . . . . . . .
Total
Number of
Shares
Purchased(1)
291,400
2,428,000
125,500
Average
Price Paid
per Share
$50.89
46.37
47.91
Total Number
of Shares
Purchased
as Part of
Publicly
Announced
Plan(1)
291,400
2,428,000
125,500
Approximate
Dollar
Value of Shares
that May Yet be
Purchased
Under
the Plan
$236,723,308
124,137,172
118,124,266
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,844,900
$46.90
2,844,900
(1) On October 9, 2003, our Board of Directors authorized a plan to repurchase up to $250.0 million
of our outstanding common stock. On June 13, 2005, our Board of Directors authorized adding an
additional $250.0 million to this plan. Under this plan, we will not purchase shares held by Artal.
This plan currently has no expiration date.
Holders
The approximate number of holders of record of our common stock as of January 31, 2006 was
319. This number does not include beneficial owners of our securities held in the name of nominees.
Dividends
On February 16, 2006, our Board of Directors authorized the initiation of a quarterly cash
dividend of $0.175 per share of our outstanding common stock, which corresponds to an annual
20
dividend rate of $0.70 per share. The initial quarterly dividend will be payable on April 7, 2006 to
shareholders of record at the close of business on March 24, 2006. Prior to this recently announced
dividend, we had not declared or paid any cash dividends on our common stock since our acquisition
by Artal in 1999.
Any decision to declare and pay dividends in the future will be made at the discretion of our
Board of Directors, after taking into account our financial results, capital requirements and other
factors they may deem relevant. Our Board of Directors may decide at any time to decrease the
amount of dividends or discontinue the payment of dividends based on these factors. The Weight
Watchers International credit facility also contains restrictions on our ability to pay dividends on our
common stock. See ‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources—Dividends’’ for a description of these restrictions.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table summarizes our equity compensation plan information as of December 31,
2005:
Plan category
Equity Compensation Plan Information
Number of securities
to be issued upon
exercise
of outstanding
options,
warrants and
rights(1)
Weighted average
exercise price of
outstanding options,
warrants and rights(2)
Number of securities
remaining available
for future issuance
Equity compensation plans approved by
shareholders . . . . . . . . . . . . . . . . . . . . .
Equity compensation plans not approved by
shareholders . . . . . . . . . . . . . . . . . . . . .
3,006,250
—
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,006,250
$28.14
—
$28.14
2,201,141
—
2,201,141
(1) Consists of 2,824,851 shares of our common stock issuable upon the exercise of outstanding
options and 181,399 shares of our common stock issuable upon the vesting of restricted stock units
awarded under our 2004 Stock Incentive Plan and our 1999 Stock Purchase and Option Plan.
(2) Includes weighted average exercise price of stock options outstanding of $28.14 and restricted stock
units of $0.
21
Item 6. Selected Financial Data
The following schedule sets forth our selected financial data for fiscal 2005, 2004, 2003, 2002 and
2001.
SELECTED FINANCIAL DATA
(in millions, except per share amounts)
Revenues, net . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . .
Working capital (deficit) . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term obligations . . . . . . . . . . . . . . . . .
Earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . .
Items Affecting Comparability
Fiscal 2005
Fiscal 2004
Fiscal 2003
Fiscal 2002
Fiscal 2001
(52 weeks)
$1,151.3
174.4
(38.2)
835.5
741.4
(52 weeks)
$1,024.9
183.1
(26.8)
816.2
466.1
(53 weeks)
$943.9
143.9
(19.5)
770.7
454.3
(52 weeks)
$809.6
143.7
22.1
609.9
436.3
(52 weeks)
$623.9
147.2
(24.1)
482.9
484.3
$
$
1.70
1.67
$
$
1.75
1.71
$ 1.35
$ 1.31
$ 1.35
$ 1.31
$ 1.34
$ 1.31
Several events occurred during fiscal 2005, 2004, 2003, 2002 and 2001 that affect the comparability
of our financial statements. The nature of these events and their impact on underlying business trends
are as follows:
Consolidation/Acquisition of WeightWatchers.com
On April 3, 2004, we adopted the provisions of FASB Interpretation No. 46R, ‘‘Variable Interest
Entities,’’ and began consolidating the results of WeightWatchers.com. Upon adoption, we recorded a
charge of $11.9 million, including a tax charge of $9.9 million, in the fiscal quarter ended April 3, 2004
for the cumulative effect of this accounting change. This charge reflects the cumulative impact to our
results of operations had WeightWatchers.com been consolidated since its inception in September 1999.
Beginning on April 3, 2004, our consolidated balance sheet includes the balance sheet of
WeightWatchers.com. Effective at the beginning of the second quarter of fiscal 2004, our consolidated
statement of operations and statement of cash flows include the results of WeightWatchers.com. All
intercompany balances have been eliminated.
As of December 16, 2005, WeightWatchers.com became a wholly-owned subsidiary of Weight
Watchers International. In connection with the acquisition of WeightWatchers.com, described more fully
in Item 1 of this Annual Report on Form 10-K, we recognized $46.1 million and $0.3 million of
expenses during the second and third quarters of fiscal 2005, respectively.
Debt Refinancing
On January 16, 2001, Weight Watchers International entered into a credit facility, as amended and
restated, or the WWI Credit Facility, which consists of Term Loans and a revolving line of credit, or a
Revolver.
On August 21, 2003, we successfully completed a tender offer and consent solicitation to purchase
97%, or approximately $144.9 million, of our $150.0 million U.S. dollar denominated and 92%, or
approximately A91.6 million, of our A100.0 million euro denominated 13% Senior Subordinated Notes.
The consideration for the tender offer and consent solicitation was funded from cash on hand of
$57.3 million and $227.3 million of additional borrowings under the WWI Credit Facility.
22
On August 21, 2003, in connection with the purchase of the majority of our 13% Senior
Subordinated Notes, we refinanced the WWI Credit Facility as follows: Term Loans B and D and the
transferable loan certificate, or TLC, in the aggregate amount of $204.7 million were repaid and
replaced with a new Term Loan B in the amount of $382.9 million and a new TLC in the amount of
$49.1 million. Term Loan A in the amount of $30.0 million remained in place, along with a Revolver
with available borrowings up to $45.0 million. Due to this early extinguishment of debt, we recognized
expenses of $47.4 million in the third quarter of fiscal 2003.
On January 21, 2004, we refinanced the WWI Credit Facility as follows: the Term Loan A, Term
Loan B and the TLC in the aggregate amount of $454.2 million were repaid and replaced with a new
Term Loan B in the amount of $150.0 million and borrowings under the Revolver of $310.0 million. In
connection with this refinancing, available borrowings under the Revolver increased from $45.0 million
to $350.0 million. Due to the early extinguishment of the Term Loans resulting from this refinancing,
we recognized expenses of $3.3 million in the first quarter of fiscal 2004.
On October 1, 2004, we repurchased and retired the remaining balance of our 13% Senior
Subordinated Notes in the amounts of $5.1 million U.S. dollar denominated and A8.4 million euro
denominated. Due to this early extinguishment of debt, we recognized expenses of $1.0 million in the
third quarter of fiscal 2004 related to the tender premiums associated with this redemption.
On October 19, 2004, we increased our net borrowing capacity by adding an Additional Term Loan
B to our existing WWI Credit Facility in the amount of $150.0 million. Coterminous with the previously
existing WWI Credit Facility, these funds were initially used to reduce borrowings under our Revolver,
resulting in no increase in our net borrowing.
On June 24, 2005, Weight Watchers International amended certain provisions of the WWI Credit
Facility to allow for the December 16, 2005 redemption by WeightWatchers.com of shares held by
Artal.
On December 16, 2005, WeightWatchers.com borrowed $215.0 million pursuant to two credit
facilities, or the WW.com Credit Facilities, consisting of (i) a five year, senior secured first lien term
loan facility in an aggregate principal amount of $170.0 million and (ii) a five and one-half year, senior
secured second lien term loan facility in an aggregate principal amount of $45.0 million.
Franchise Acquisitions
Acquisitions of Washington, D.C. and Fort Worth. On May 9, 2004, we acquired certain assets of
our Washington, D.C. area franchisee for a purchase price of $30.5 million. On August 22, 2004, we
acquired certain assets of our Fort Worth franchisee for a purchase price of $30.0 million. These
acquisitions were financed through cash from operations. The acquisitions were accounted for as
purchases and, accordingly, earnings from these franchises have been included in our consolidated
operating results since the respective dates of the acquisitions.
Acquisitions of The WW Group and Dallas/New Mexico. On March 30, 2003, we acquired certain
assets of eight of the fifteen franchises of The WW Group, Inc. and its affiliates, or The WW Group,
for an aggregate purchase price of $180.7 million. The acquisition was financed through cash and
additional borrowings of $85 million. On November 30, 2003, we acquired certain assets of our
franchises in Dallas and New Mexico for a total purchase price of $27.2 million. This acquisition was
financed through cash from operations. The acquisition was accounted for as a purchase and,
accordingly, earnings from these franchises have been included in our consolidated operating results
since the date of acquisition.
Acquisitions of North Jersey, San Diego and Eastern North Carolina. On January 18, 2002, we
acquired the franchise territory and certain business assets of our franchise in North Jersey for an
aggregate purchase price of $46.5 million. The acquisition was financed through additional borrowings
23
that were subsequently repaid by the end of the second quarter of 2002. On July 2, 2002 and
September 1, 2002, we acquired the assets of our franchises in San Diego and eastern North Carolina
for a total purchase price of $11.0 million and $10.6 million, respectively. These acquisitions were
financed through cash from operations. The acquisitions were accounted for as purchases and,
accordingly, earnings from these franchises have been included in our consolidated operating results
since the respective dates of the acquisitions.
Acquisition of Oregon. On September 4, 2001, we acquired certain business assets of Weight
Watchers of Oregon, Inc. for an aggregate purchase price of $13.5 million. The acquisition was financed
through cash from operations. The acquisition has been accounted for as a purchase and, accordingly,
earnings have been included in our consolidated operating results since the date of acquisition.
Acquisition of Weighco. On January 16, 2001, we acquired certain business assets of Weighco for
an aggregate purchase price of $83.8 million. The acquisition was financed through additional
borrowings under the WWI Credit Facility of $60.0 million and cash from operations. The acquisition
has been accounted for as a purchase and, accordingly, Weighco’s earnings have been included in our
consolidated operating results since the date of acquisition.
Reversal of Tax Valuation Allowances and Tax Reserves
During the fourth quarter of fiscal 2001, we reversed the remaining tax valuation allowance set up
in conjunction with the acquisition of us by Artal in 1999. At the time of the acquisition, we
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 our performance since the acquisition, we determined that
the valuation allowance was no longer required. Accordingly, the provision for taxes for fiscal 2001
included a one-time reversal (credit) of the remaining balance of the valuation allowance of
$71.9 million.
During the third quarter of fiscal 2004, we recorded a tax benefit by reversing a $5.5 million
accrued but no longer necessary tax liability resulting from the September 1999 recapitalization and
stock repurchase transaction with Heinz. In the fourth quarters of fiscal 2005 and fiscal 2004, we
recorded a tax benefit by reversing a $0.9 million and $2.8 million state tax reserve, respectively, with
respect to accrued but no longer necessary state tax liabilities. During the fourth quarter of fiscal 2004,
WeightWatchers.com received a benefit of $5.5 million from its deferred tax asset as a result of the
utilization of net operating loss carryforwards. Also in the fourth quarter of fiscal 2004, due to the then
recent trend in profitability of WeightWatchers.com, it was concluded that it was more likely than not
that WeightWatchers.com would fully realize the benefit of its deferred tax assets. As such,
WeightWatchers.com reversed all of its remaining valuation allowance, except for $1.5 million relating
to its foreign operations. Also in the fourth quarter of fiscal 2005, due to the recent trend in
profitability of certain of WeightWatchers.com’s foreign operations, it was concluded that it was more
likely than not that these foreign operations would fully realize the benefit of its deferred tax assets. As
such, WeightWatchers.com reversed all but $0.6 million of its remaining valuation allowance relating to
its foreign operations.
24
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the ‘‘Selected Financial Data’’ included in
Item 6 of this Annual Report on Form 10-K and our consolidated financial statements and related notes
included in Item 15 of this Annual Report on Form 10-K. This discussion contains forward-looking
statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and
intentions. The cautionary statements discussed in ‘‘Cautionary Notice Regarding Forward-Looking
Statements’’ and elsewhere in this Annual Report on Form 10-K should be read as applying to all related
forward-looking statements wherever they appear in this Annual Report on Form 10-K. Our actual results
could differ materially from those discussed here. Factors that could cause or contribute to these differences
include, without limitation, those discussed in ‘‘Risk Factors’’ included in Item 1A of this Annual Report on
Form 10-K.
Overview
We are a leading global branded consumer company and the leading global provider of weight
management services, with a presence in 30 countries around the world. With over four decades of
weight management experience, expertise and know-how, we have established Weight Watchers as one
of the most recognized and trusted brand names among weight conscious consumers. In 2005,
consumers spent over $3.0 billion on Weight Watchers branded products and services, including
meetings conducted by us and our franchisees, products sold at meetings, Internet subscription products
sold by WeightWatchers.com, licensed products sold in retail channels and magazine subscriptions and
other publications. On a consolidated basis, from fiscal 2001 through fiscal 2005, our revenues and
operating income have grown at a compound annual growth rate of 17% and 12%, respectively.
We currently have two operating segments: Weight Watchers International and
WeightWatchers.com. Since April 3, 2004, we have consolidated WeightWatchers.com, initially pursuant
to FASB Interpretation No. 46R, ‘‘Variable Interest Entities,’’ or, FIN 46R and beginning with the
second quarter of fiscal 2005, pursuant to Accounting Research Bulletin No. 51, ‘‘Consolidated
Financial Statements’’, as a result of increasing our ownership interest in WeightWatchers.com to a
controlling interest as of July 2, 2005 and to a 100% interest as of December 16, 2005.
We derive our revenues principally from:
(cid:129) Meeting fees. Members pay us a weekly fee to attend our meetings.
(cid:129) Product sales. We sell proprietary products that complement our weight management plans, such
as bars, snacks, cookbooks, POINTS value guides, Weight Watchers magazines and POINTS
calculators, primarily to members in our meetings and to our franchisees.
(cid:129) Online revenues. We generate revenue from our Internet subscription products and from the sale
of Internet advertising.
(cid:129) Licensing, franchise royalties and other. We license the Weight Watchers brand and other
intellectual property for certain foods and other products. In addition, our franchisees typically
pay us a royalty fee of 10% of their meeting fee revenues. We also generate revenues from our
magazines and third-party advertising in our publications.
Other than online revenues, all of the foregoing sources of revenue are included in our Weight
Watchers International operating segment.
25
The following table sets forth our revenues by category for fiscal 2001, 2002, 2003, 2004 and 2005.
Revenue Sources
(in millions)
Meeting fees . . . . . . . . . . . . . . . . . . . . . . .
Product sales . . . . . . . . . . . . . . . . . . . . . .
Online revenues . . . . . . . . . . . . . . . . . . . .
Licensing, franchise royalties and other . . .
Fiscal 2001
Fiscal 2002
Fiscal 2003
Fiscal 2004
Fiscal 2005
(52 weeks)
$415.7
170.4
—
37.8
(52 weeks)
$520.7
237.6
—
51.3
(53 weeks)
$607.2
276.8
—
59.9
(52 weeks)
$ 629.1
274.6
65.0
56.2
(52 weeks)
$ 681.1
285.5
109.7
75.0
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
$623.9
$809.6
$943.9
$1,024.9
$1,151.3
From fiscal 2001 through fiscal 2005, our revenues have increased at a compound annual growth
rate of 17%. This increase is principally a result of:
(cid:129) Increased NACO meeting attendance. Our NACO meeting attendance, including the impact of
our acquisitions, grew from 23.5 million for fiscal 2001 to 33.5 million for fiscal 2005, a
compound annual growth rate of 9.2%. This growth resulted from our program innovations, as
well as our acquisitions of franchise operations over that period.
(cid:129) Accelerated growth in Continental Europe. From fiscal 2001 to fiscal 2005, attendance in our
Continental European operations grew at a compound annual rate of 7.5% as a result of
adapting our business model to local conditions, implementing more aggressive marketing
programs tailored to the local markets and increasing the number of meetings ahead of
anticipated demand.
(cid:129) Increased product sales. Global product sales have grown at a compound annual rate of 13.8%
from fiscal 2001 to fiscal 2005 as a result of our growing attendance and launching new products
successfully. In our meetings, we have increased average product sales per attendee from $2.75
to $3.88 over the same period.
(cid:129) Consolidation of WeightWatchers.com. Effective April 3, 2004, we began consolidating
WeightWatchers.com. As a result of this consolidation, we have included $65.0 million and
$109.7 million of WeightWatchers.com revenues in our results of operations for fiscal 2004 and
fiscal 2005, respectively.
(cid:129) Increased licensing revenues. Licensing revenues grew at a compound annual rate of 99.9% from
fiscal 2001 to fiscal 2005 primarily as a result of our increased focus on expanding the number of
Weight Watchers branded products worldwide and the reversion to us at the end of the third
quarter of fiscal 2004 of revenues from certain third party licenses which had been paid to Heinz
up until that time.
As shown in the chart below, our worldwide annual attendance (including the aforementioned
acquisitions of franchise operations) in our company-owned operations has grown by 29.6%, from
47.0 million for fiscal 2001 to 60.9 million for fiscal 2005.
26
Meeting Attendance in Company-Owned Operations
(in millions)
Fiscal 2005
Fiscal 2004
Fiscal 2003
Fiscal 2002
Fiscal 2001
North America . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . .
Continental Europe . . . . . . . . . . . . .
Other International . . . . . . . . . . . . .
(52 weeks)
33.5
12.6
11.6
3.2
(52 weeks)
32.3
13.0
11.2
3.4
(53 weeks)
34.6
12.8
10.1
3.3
(52 weeks)
30.8
11.9
9.2
3.4
Total
. . . . . . . . . . . . . . . . . . . . . . .
60.9
59.9
60.8
55.3
(52 weeks)
23.5
11.6
8.7
3.2
47.0
Beginning in late 2003, our NACO attendance growth was adversely affected by increased media
exposure to and the resulting popularity of low-carbohydrate diets, which continued through 2004.
Beginning in the third quarter of fiscal 2004 through the first quarter of fiscal 2005, the declines in
organic NACO attendance (excluding the impact of acquisitions) versus prior year periods steadily
improved from minus 16.7% in the second quarter of fiscal 2004 to minus 13.9% in the third quarter of
fiscal 2004 to minus 8.7% in the fourth quarter of fiscal 2004 and to minus 5.1% in the first quarter of
fiscal 2005. After that, NACO attendance versus prior year periods moved into positive territory and
has posted increases since, up 5.3%, 2.5% and 6.5% in the second, third and fourth quarters of fiscal
2005, respectively. The third quarter of fiscal 2005 grew at a slower pace due to the impact of
Hurricane Katrina and its aftermath. With the decline in the low-carb diet phenomenon, we believe
that weight conscious consumers are now moving back to healthier, more balanced approaches to
weight management, which should continue to benefit our business.
In the United Kingdom, after four years of attendance increases, attendance declined to
12.6 million, a decrease of 3.1%, in fiscal 2005, primarily as a result of the added complexity of a new
program innovation. We do not expect our U.K. attendance trend to improve until the second half of
fiscal 2006. In Continental Europe, attendance increased 1.1 million in fiscal 2004 primarily as a result
of a program innovation in the third quarter. We maintained this increased attendance in Continental
Europe in fiscal 2005.
We have maintained an annual gross margin in the Weight Watchers International operating
segment of 50% or more since fiscal 2001. Our staff is usually paid on a commission basis and space is
typically rented as needed. Moreover, we adjust the number of meetings according to demand,
including seasonal fluctuations. This variable cost structure has enabled us to maintain these high
margins even as we have expanded the number of our meetings over this period. When our attendance
growth outpaces our meeting growth, our gross margins typically improve.
The Weight Watchers International operating segment has consistently generated operating income
margin of 30% or more since fiscal 2001 even while making significant investments in strengthening our
management teams particularly in North America and Continental Europe and putting in place a
stronger global marketing infrastructure.
Performance Indicators and Market Trends
Our management reviews and analyzes several key performance indicators in order to manage our
business and assess the quality of and potential variability of our cash flows and earnings. These key
performance indicators include:
(cid:129) net revenues, which are an indicator of our overall business growth;
(cid:129) attendance;
(cid:129) meeting fee revenue per attendee and in-meeting product sales per attendee;
27
(cid:129) the number of WeightWatchers.com subscribers; and
(cid:129) operating expenses as a percentage of revenue, which is an indicator of the efficiency of our
business and our ability to manage our business to budget.
We believe that our revenues and profitability can be sensitive to major trends in the weight
management industry. In particular, we believe that our business could be adversely impacted by:
(cid:129) the development of more favorably perceived or more effective weight management methods,
including pharmaceuticals;
(cid:129) the temporary emergence of fad diets;
(cid:129) a failure to develop innovative new products and services;
(cid:129) a decrease in the effectiveness of our marketing and advertising programs; and
(cid:129) an impairment of the Weight Watchers brand and other intellectual property.
Acquisitions
Acquisition of WeightWatchers.com
On June 13, 2005, we entered into an agreement to acquire control of our licensee and affiliate,
WeightWatchers.com. On July 1 and 2, 2005, we increased our ownership interest in
WeightWatchers.com from approximately 20% to approximately 53% by (i) exercising warrants to
purchase WeightWatchers.com common stock for a total purchase price of approximately $45.7 million,
(ii) acquiring shares of WeightWatchers.com common stock owned by the employees of
WeightWatchers.com and other parties not related to Artal through a merger of a subsidiary of ours
with WeightWatchers.com for a total purchase price of approximately $28.4 million and (iii) acquiring
additional shares of WeightWatchers.com common stock, representing outstanding stock options then
held by WeightWatchers.com employees, for a total purchase price of approximately $62.3 million.
On June 13, 2005, WeightWatchers.com also entered into a redemption agreement with Artal to
purchase all of the shares of WeightWatchers.com owned by Artal at the same price per share as we
paid in the merger. Subsequently, on December 16, 2005, WeightWatchers.com redeemed all of its
outstanding common stock held by Artal for a total price of approximately $304.8 million as provided
in the redemption agreement. WeightWatchers.com used cash on hand and the proceeds of the
WW.com Credit Facilities in the aggregate amount of $215.0 million to finance this redemption, as well
as pay related fees and expenses. As a result of this redemption, we now own 100% of
WeightWatchers.com.
The transactions described above relating to WeightWatchers.com were evaluated, negotiated and
recommended by a Special Committee of Weight Watchers International’s Board of Directors consisting
of its independent directors.
Franchise Acquisitions
From time to time, we repurchase franchise territories. Since the beginning of fiscal 2001, we have
acquired nine franchise operations for a total of approximately $433.8 million. These acquisitions are
typically accretive to our earnings per share. For fiscal 2005, the attendance of our remaining franchise
operations accounted for approximately 21% of total worldwide attendance at Weight Watchers
meetings.
28
Critical Accounting Policies
‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ is
based upon our consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America (‘‘U.S. GAAP’’). The
preparation of these financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those
related to inventories, the impairment analysis for goodwill and other indefinite-lived intangible assets,
income taxes, and contingencies and litigation. We base our estimates on historical experience and on
various other factors and assumptions that we believe to be reasonable under the circumstances, the
results of which form the bases for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions.
We believe the following accounting policies are most important to the portrayal of our financial
condition and results of operations and require our most significant judgments and estimates.
Revenue Recognition
We earn revenue by conducting meetings, selling products in our meetings and to our franchisees,
selling Internet subscription products, collecting commissions from franchisees, collecting royalties
related to licensing agreements and selling advertising space in and copies of our magazine. We charge
non-refundable registration fees in exchange for an introductory information session and materials we
provide to new members in our meeting business. Revenue from these registration fees is recognized
when the service and products are provided, which is generally at the same time payment is received
from the customer. Revenue from meeting fees, product sales, commissions and royalties is recognized
when services are rendered, products are shipped to customers and title and risk of loss pass to the
customer, and commissions and royalties are earned. Advertising revenue is recognized when ads are
published. Revenue from magazine sales is recognized when the magazine is sent to the customer.
Deferred revenue, consisting of prepaid meeting fees and magazine subscription revenue, is amortized
into income over the period earned. Discounts to customers, including free registration offers, are
recorded as a deduction from gross revenue in the period such revenue was recognized.
WeightWatchers.com primarily generates revenue from monthly Internet subscriptions. Subscription
fee revenues are recognized over the period that products are provided. One time sign up fees are
deferred and recognized over the expected customer relationship period. Subscription fee revenues that
are paid in advance are deferred and recognized on a straight-line basis over the subscription period.
We grant refunds under limited circumstances and at aggregate amounts that historically have not
been material. Because the period of payment of the refund generally approximates the period revenue
was originally recognized, refunds are recorded as a reduction of revenue when paid.
Goodwill and Other Indefinite-lived Intangible Assets
Finite-lived intangible assets are being amortized using the straight-line method over their
estimated useful lives of three to 20 years. Effective December 30, 2001, we adopted SFAS No. 141,
‘‘Business Combinations’’ and SFAS No. 142, ‘‘Goodwill and Other Intangible Assets.’’ As a result, we
no longer amortize goodwill and other indefinite-lived intangible assets, but instead, review these assets
for potential impairment on at least an annual basis. We performed fair value impairment testing as of
December 31, 2005 and January 1, 2005 on our goodwill and other indefinite-lived intangible assets and
determined that the carrying amounts of these assets did not exceed their respective fair values and
therefore, no impairment existed. When determining fair value, we utilize various assumptions,
including projections of future cash flows. A change in these underlying assumptions will cause a
29
change in the results of the tests and, as such, could cause fair value to be less than the carrying
amounts. Upon such an event, we would be required to record a corresponding charge, which would
impact earnings. We would also be required to reduce the carrying amounts of the related assets on
our balance sheet. We continue to evaluate these estimates and assumptions and believe that these
assumptions, which included an estimate of future cash flows based upon the anticipated performance
of the underlying business units, were appropriate.
Derivative Instruments and Hedging
Prior to the extinguishment of our euro denominated 13% Senior Subordinated Notes in 2004, we
entered into forward and swap contracts to hedge transactions denominated in foreign currencies in
order to reduce currency risk associated with fluctuating exchange rates. These contracts were used
primarily to hedge payments arising from those foreign currency denominated obligations. We currently
enter into interest rate swaps to hedge a substantial portion of our variable rate debt. These contracts
are used primarily to reduce the risk associated with variable interest rate debt obligations.
We account for our hedging instruments under the provisions of SFAS No. 133, ‘‘Accounting for
Derivative Instruments and Hedging Activities,’’ and its related amendments, SFAS No. 138,
‘‘Accounting for Certain Derivative Instruments and Certain Hedging Activities’’ and SFAS No. 149,
‘‘Amendment of Statement on Derivative Instruments and Hedging Activities,’’ which require that all
derivative financial instruments be recorded on the consolidated balance sheet at fair value as either
assets or liabilities. Fair value adjustments for qualifying derivative instruments are recorded as a
component of other comprehensive income and will be included in earnings in the periods in which
earnings are affected by the hedged item. Fair value adjustments for non-qualifying derivative
instruments are recorded in our results of operations.
Consolidation
On January 17, 2003, the Financial Accounting Standards Board (‘‘FASB’’) issued Interpretation
No. 46 (‘‘FIN 46’’), to clarify when an entity should consolidate another entity known as a variable
interest entity (‘‘VIE’’). The standard required that, under certain circumstances, separate businesses
with some common ownership be consolidated for financial reporting purposes. Upon adoption of the
original FIN 46, we did not meet those circumstances, and we therefore did not consolidate
WeightWatchers.com’s financial statements into our 2003 and prior reported financial statements.
On December 24, 2003, the FASB issued FIN 46R, which replaced FIN 46. FIN 46R is applicable
for financial statements issued for reporting periods after March 15, 2004. FIN 46R requires that an
entity consolidate a VIE if that enterprise has a variable interest that will absorb a majority of the
VIE’s expected losses, will receive a majority of the VIE’s expected residual returns, or both.
Based on the revisions in FIN 46R, we were required to reevaluate our relationship with our
affiliate and licensee, WeightWatchers.com. In the course of this reevaluation, we determined that
WeightWatchers.com was a VIE under FIN 46R and that we were its primary beneficiary under this
regulation. Effective April 3, 2004, we consolidated WeightWatchers.com. In accordance with the
provisions of FIN 46R, we recorded a charge of $11.9 million, including a tax charge of $9.9 million, in
the fiscal quarter ended April 3, 2004 for the cumulative effect of this accounting change. This charge
reflects the cumulative impact to our results of operations had WeightWatchers.com been consolidated
since its inception in September 1999. Beginning in our first fiscal quarter ended April 3, 2004, our
consolidated balance sheet includes the balance sheet of WeightWatchers.com. Effective at the
beginning of the second quarter of fiscal 2004, our consolidated statement of operations and statement
of cash flows include the results of WeightWatchers.com. All intercompany balances have been
eliminated in consolidation.
30
As discussed above, WeightWatchers.com is now a wholly-owned subsidiary of Weight Watchers
International. Therefore, we consolidate 100% of the results of WeightWatchers.com under the
traditional rules of consolidation rather than under the provisions of FIN 46R. Since we adopted FIN
46R on the last day of the first quarter of fiscal 2004, commencing in the second quarter of fiscal 2005
and forward, our quarterly consolidated results are comparable with respect to the inclusion of
WeightWatchers.com’s results.
Income Taxes
Deferred income taxes result primarily from temporary differences between financial and tax
reporting. If it is more likely than not that some portion of a deferred tax asset will not be realized, a
valuation allowance is recognized. We consider historic levels of income, estimates of future taxable
income and feasible tax planning strategies in assessing the need for a tax valuation allowance. We also
establish an appropriate level of additional provisions for income taxes in the event that certain
positions, which we believe are fully supportable, are challenged by the tax authorities. We adjust these
additional provisions in light of changing facts and circumstances. If our filing positions are ultimately
upheld under audits by respective taxing authorities, the provision for income taxes in future years will
reflect favorable adjustments.
Capitalized Software Development
We follow the provisions of AICPA Statement of Position 98-1, ‘‘Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use’’, or SOP 98-1, which requires the
capitalization of certain costs incurred in connection with developing or obtaining software for internal
use. These costs are amortized to cost of revenue over a period of three years, the estimated useful life
of the software. We periodically evaluate for impairment capitalized software development costs by
considering, among other factors, whether the software is still expected to provide substantive service
potential, and whether a significant change is being made or will be made to the software.
Weight Watchers International Results of Operations
As explained above under ‘‘—Critical Accounting Policies,’’ since April 3, 2004, we have
consolidated WeightWatchers.com, initially pursuant to FIN 46R and beginning with the second quarter
of fiscal 2005, pursuant to Accounting Research Bulletin No. 51, ‘‘Consolidated Financial Statements’’
as a result of our increased ownership interest in WeightWatchers.com.
Comparison of Fiscal 2005 (52 weeks) to Fiscal 2004 (52 weeks)
As a result of the July 2, 2005 transaction which increased Weight Watchers International’s
ownership in WeightWatchers.com from approximately 20% to approximately 53%, our consolidated
results for fiscal 2005 include certain transaction-related expenses.
31
The table below shows the consolidated income statements for fiscal 2005 and fiscal 2004 on a
comparable basis adjusted for these 2005 transaction expenses.
Fiscal 2005
Reported Results
Reported Transaction Less Transaction
Results
Expenses
Expenses
Less
Fiscal
2004
Increase/
(Decrease)
Consolidated Results
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,151.3
520.7
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . .
630.6
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . .
158.3
Marketing expenses . . . . . . . . . . . . . . . . . . . . .
169.8
Selling, general and administrative expenses . . .
302.5
Operating income . . . . . . . . . . . . . . . . . . . . .
21.0
Interest expense, net . . . . . . . . . . . . . . . . . . . .
2.2
Other (income)/expense, net . . . . . . . . . . . . . . .
Early extinguishment of debt . . . . . . . . . . . . . .
—
Income before taxes and cumulative effect of
(in millions, except per share data)
$ —
—
—
—
46.4
(46.4)
—
—
—
$1,151.3
520.7
630.6
158.3
123.4
348.9
21.0
2.2
—
$1,024.9
487.1
537.8
134.8
97.1
305.9
16.8
(4.7)
4.3
$126.4
33.6
92.8
23.5
26.3
43.0
4.2
6.9
(4.3)
accounting change . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . .
Income before cumulative effect of accounting
279.3
104.9
(46.4)
(18.8)
325.7
123.7
289.5
94.5
36.2
29.2
174.4
change . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative effect of accounting change . . . . . .
—
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 174.4
(27.6)
—
$(27.6)
202.0
—
$ 202.0
195.0
(11.9)
$ 183.1
7.0
11.9
$ 18.9
Weighted averge diluted common shares
outstanding . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . $
104.2
1.67
104.2
$(0.27)
104.2
1.94
$
107.0
1.71
$
$ 0.23
Our consolidated reported net income was $174.4 million for fiscal 2005. This included transaction
expenses of $46.4 million, $27.6 million net of taxes. Absent these expenses, net income was
$202.0 million as compared to $183.1 million in fiscal 2004.
While our fiscal 2005 consolidated results included 12 months of WeightWatchers.com results, our
fiscal 2004 consolidated results included only nine months of WeightWatchers.com due to the timing of
the adoption of FIN 46R at the beginning of the second quarter of fiscal 2004. The impact of
consolidating WeightWatchers.com for all four quarters in fiscal 2005 compared to the three quarters in
fiscal 2004 represented $24.3 million of the increase in total revenues, and $17.6 million and
$5.6 million of the increase in gross profit and operating income, respectively, as described in more
detail below.
Net revenues were $1,151.3 million for fiscal 2005, an increase of $126.4 million, or 12.3%, from
$1,024.9 million for fiscal 2004. The $126.4 million increase was driven by a $52.0 million increase in
meeting fees, a $44.7 million increase in online revenues (including $26.3 million attributable to the
first quarter of fiscal 2004 which, as mentioned above, was not included in the consolidated results for
the full fiscal year 2004), a $21.5 million increase in licensing revenues, and a $10.8 million increase in
product sales. Due to the timing of the adoption of FIN 46R, our fiscal 2004 consolidated results
included one quarter of WeightWatchers.com royalty income of $2.0 million. Included in the
$126.4 million increase in net revenues is a benefit of approximately $3.8 million from foreign currency
exchange rates.
For fiscal 2005, total meeting fees were $681.1 million, an increase of $52.0 million, or 8.3%, from
$629.1 million in fiscal 2004. Total attendances increased 1.7% reaching 60.9 million versus 59.9 million
in the prior year period. Meeting fee growth outpaced attendance growth primarily as a result of price
increases in NACO and the United Kingdom.
32
In NACO, meeting fees for fiscal 2005 were $417.0 million, up 11.8% from $373.1 million in the
prior year. NACO meeting fee growth was primarily driven by a price increase in approximately 40% of
NACO for the full year of fiscal 2005, and an additional approximately 20% of NACO beginning in
September 2005; and by a 3.5% increase in NACO attendance over the comparable prior year period.
International company-owned meeting fees were $264.2 million for fiscal 2005, an increase of
$8.2 million, or 3.2%, from $256.0 million for fiscal 2004. International meeting fee growth was
primarily driven by attendance and meeting fee per attendee growth in Continental Europe, and by a
price increase in the United Kingdom. On a local currency basis, international meeting fee revenues
grew 3.5%. Meeting fee growth in the United Kingdom was negatively impacted due to lower
attendances of 3.1%, decreasing from 13.0 million in fiscal 2004 to 12.6 million in fiscal 2005.
Worldwide product sales for fiscal 2005 were $285.4 million, an increase of $10.8 million, or 3.9%,
from $274.6 million for fiscal 2004. Domestically, product sales rose $6.0 million, or 4.3%, to
$144.4 million in fiscal 2005, despite the stronger growth in sales that occurred in the third quarter of
fiscal 2004 related to the launch of the TurnAround innovation in NACO as is typical with a new
innovation. Domestic product sales grew 9.7% in the first half of fiscal 2005 and 13.5% in the fourth
quarter of fiscal 2005 primarily as a result of refreshing our in-meeting consumables and adding new
offerings which have been well received. Internationally, product sales increased 3.5%, or $4.8 million,
to $141.1 million, also on the strength of new product introductions.
Online revenues were $109.7 million for fiscal 2005 as compared to $65.0 million in fiscal 2004
which included only nine months of WeightWatchers.com results due to the timing of our adoption of
FIN 46R. Growth in online revenues from the second to the fourth quarter of fiscal 2005 period versus
the comparable nine months of 2004 was $18.4 million, or 20.2%, due to an 18.6% increase in active
end-of-period subscribers and a price increase in July 2004. Our first quarter of fiscal 2005 consolidated
results included $26.3 million of online revenues.
Other revenue, comprised primarily of licensing revenues and our publications, was $55.7 million
for fiscal 2005, an increase of $18.3 million, or 48.9%, from $37.4 million for fiscal 2004. Licensing
revenues increased $21.5 million, or 129.5%, due to the continued growth of our licensees around the
world, the addition of new licensees and the full year benefit from the third party license royalties
which reverted to us from Heinz at the end of September 2004. On a comparable basis, excluding the
impact of the reversion, licensing revenues increased 87.7%. Additionally, as mentioned above, our
fiscal 2004 consolidated results included $2.0 million of WeightWatchers.com royalty income, due to the
timing of the adoption of FIN 46R.
Franchise royalties were $12.5 million domestically and $6.9 million internationally for fiscal 2005.
Total franchise royalties were $19.4 million, up from $18.8 million in the prior year. Excluding the
franchises acquired in fiscal 2004, domestic franchise royalties increased 8.1%, while international
franchise royalties rose 8.6%.
Cost of revenues was $520.7 million for fiscal 2005, an increase of $33.6 million, or 6.9%, from
$487.1 million for fiscal 2004. Gross profit margin of 54.8% of sales in fiscal 2005 increased 230 basis
points from 52.5% of sales in the prior year. A number of factors contributed to this margin expansion:
price increases in NACO and U.K. meeting fees and in the WeightWatchers.com subscription fee; less
frequent discounting of product sales; and strong growth in our high margin licensing business. Further,
WeightWatchers.com’s margin has increased as it has leveraged its existing infrastructure while growing
its business.
Marketing expenses increased $23.5 million, or 17.4%, to $158.3 million for fiscal 2005 from
$134.8 million for fiscal 2004. The inclusion of WeightWatchers.com in the first quarter of fiscal 2005,
typically when our highest marketing spend occurs, contributed nearly one third of the increase—
$8.3 million versus the prior year. The remainder of the increase in marketing spend is largely driven by
timing. In fiscal 2005, we resumed in Continental Europe and the United Kingdom our practice of
launching, and therefore expensing, our January winter diet season direct marketing campaign in late
33
December. This practice had been interrupted in fiscal 2004. As a result, fiscal 2005 included two years of
winter diet season direct marketing costs. The costs for fiscal 2005 were expensed in first quarter of fiscal
2005, and costs for fiscal 2006 were expensed in the fourth quarter of fiscal 2005. As a percentage of net
revenues, marketing expenses were 13.7% for fiscal 2005, as compared to 13.2% in the prior fiscal year.
Selling, general and administrative expenses were $169.8 million for fiscal 2005, an increase of
$72.7 million from $97.1 million for fiscal 2004. During fiscal 2005, we recorded $46.4 million of
non-recurring transaction-related expenses related to the acquisition of the additional ownership
interest in WeightWatchers.com. These transaction related expenses were primarily compensation
charges associated with the buyout of employee stock options, and expenses associated with the
relocation of WeightWatchers.com’s headquarters. In addition, there are certain recurring transaction
related expenses which will be ongoing, but declining, for the next few years. These recurring expenses
include amortization related to the acquired intangible assets with a definite life and compensation
expense for restricted stock units granted to WeightWatchers.com employees in exchange for unvested
WeightWatchers.com stock options. During fiscal 2005, we recorded $2.5 million for these expenses.
Excluding non-recurring transaction-related expenses, our selling, general and administrative
expense increased $26.3 million, or 27.1%, over the comparable period in fiscal 2004, and from 9.5% of
revenues in fiscal 2004 to 10.7% of revenues in fiscal 2005. This increase comes primarily from the
impact of strengthening our management team and higher performance bonuses for staff in most of our
regions. In addition, the consolidation of an additional quarter of WeightWatchers.com in fiscal 2005 as
compared to fiscal 2004 added $3.8 million.
Operating income was $302.5 million for fiscal 2005. Adjusted for non-recurring transaction related
expenses, operating income for fiscal 2005 rose to $348.9 million, an increase of $43.0 million, or
14.1%, from $305.9 million for fiscal 2004. The operating income margin for fiscal 2005 was 26.3%. On
the adjusted basis, the operating income margin for fiscal 2005 was 30.3%, as compared to 29.8% in
fiscal 2004.
Net interest charges increased 25.1%, or $4.2 million, to $21.0 million for fiscal 2005, as compared
to $16.8 million in fiscal 2004. This increase was due to higher interest rates, partially offset by the
reduction in interest expense due to the redemption of the remaining $15.5 million of our 13% Senior
Subordinated Notes in October 2004, and by slightly lower average debt balances in fiscal 2005 as
compared to fiscal 2004.
For fiscal 2005, we reported other expense of $2.2 million as compared to other income of
$4.7 million for fiscal 2004. The variance of $6.9 million is primarily due to a first quarter fiscal 2004
loan repayment, made prior to our adoption of FIN 46R, from WeightWatchers.com of $4.9 million.
In fiscal 2004, $4.3 million of expenses were recorded associated with the early extinguishment of
debt as a result of the first quarter fiscal 2004 refinancing of the WWI Credit Facility, undertaken to
move a large portion of our fixed Term Loans to the Revolver, and the third quarter fiscal 2004
repurchase and retirement of the remaining $15.5 million of our 13% Senior Subordinated Notes.
These expenses included the write-off of unamortized debt issuance costs from prior refinancings and
the recognition of fees associated with these refinancing transactions.
Our effective tax rate for fiscal 2005 was 37.6%, as compared to 32.6% for fiscal 2004. We
recorded a tax benefit in the third quarter of fiscal 2004 by reversing a $5.5 million accrued tax liability
recorded as a result of the September 1999 recapitalization and stock purchase transaction with Heinz.
Additionally, WeightWatchers.com benefited throughout fiscal 2005 from the utilization of net operating
loss carryforwards, for which a full valuation allowance had previously been recorded, thus largely
eliminating its income tax expense for that year. In addition, in the fourth quarter of fiscal 2004,
WeightWatchers.com recorded a $5.0 million reversal of its deferred tax valuation allowance which
resulted in a $4.8 million tax expense benefit in that quarter.
34
Comparison of Fiscal 2004 (52 weeks) to Fiscal 2003 (53 weeks)
Impact of FIN 46R
As a result of our adoption of FIN 46R, we began consolidating the results of our affiliate and
licensee, WeightWatchers.com, at the beginning of the second quarter of fiscal 2004. The table below
shows the impact this adoption had on our consolidated income statement for fiscal 2004.
WWI
Stand-Alone
Results
Fiscal 2004
Impact of
Adopting
FIN 46R
Consolidated
Results
(in millions, except per share data)
$58.8
$966.1
18.9
468.2
$1,024.9
487.1
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (income)/expense, net
. . . . . . . . . . . . . . . . . . . . .
Early extinguishment of debt . . . . . . . . . . . . . . . . . . . . .
Income before taxes and cumulative effect of
accounting change . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . .
Income before cumulative effect of accounting change .
Cumulative effect of accounting change . . . . . . . . . . . . .
497.9
120.2
87.8
289.9
14.6
(9.3)
4.3
280.3
101.1
179.2
—
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$179.2
Weighted average diluted common shares outstanding . . .
106.9
Diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1.68
39.9
14.6
9.3
16.0
2.2
4.6
—
9.2
(6.6)
15.8
(11.9)
$ 3.9
106.9
$0.03
537.8
134.8
97.1
305.9
16.8
(4.7)
4.3
289.5
94.5
195.0
(11.9)
$ 183.1
106.9
$
1.71
Because the requirement to consolidate WeightWatchers.com’s income statement with ours began
in the second quarter of fiscal 2004, the impact on fiscal 2004 included WeightWatchers.com’s results of
operations, net of intercompany eliminations, for only the nine months ended January 1, 2005.
The impact of the consolidation on fiscal 2004 was to add $58.8 million in revenues and
$39.9 million of gross profit. Operating income for the year increased by $16.0 million after incremental
marketing expenses of $14.6 million and selling, general and administrative expenses of $9.3 million. A
scheduled loan repayment of $4.9 million and interest income of $2.2 million, which Weight Watchers
International earned from WeightWatchers.com, was eliminated in the consolidation of intercompany
activity.
In accordance with the provisions of FIN 46R, we recorded a charge of $11.9 million, including
taxes, in the first quarter of fiscal 2004. This charge reflects the cumulative impact to our results of
operations had WeightWatchers.com been consolidated since its inception in September 1999.
For fiscal 2004, the consolidation combined with the first quarter of fiscal 2004 cumulative effect of
accounting change, including taxes, related to the adoption of FIN 46R, resulted in an increase to
diluted earnings per share of $0.03.
35
Weight Watchers International on a Stand-Alone Basis
The remaining sections of this discussion will address only the results of Weight Watchers
International and its majority-owned subsidiaries and will exclude the impact of FIN 46R and the
consolidation of WeightWatchers.com.
The chart below compares Weight Watchers International’s fiscal 2004 results to the prior year
comparable period:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (income)/expense, net . . . . . . . . . . . . . . . . . . . . . .
Early extinguishment of debt . . . . . . . . . . . . . . . . . . . . . .
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$179.2
Diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1.68
Weight Watchers International
Fiscal 2004
Fiscal 2003
Increase/
(Decrease)
(in millions, except per share data)
$22.2
$943.9
$966.1
27.8
440.4
468.2
497.9
120.2
87.8
289.9
14.6
(9.3)
4.3
280.3
101.1
503.5
113.6
73.8
316.1
33.7
2.8
47.4
232.2
88.3
$143.9
$ 1.31
(5.6)
6.6
14.0
(26.2)
(19.1)
(12.1)
(43.1)
48.1
12.8
$35.3
$0.37
Net income for fiscal 2004 was $179.2 million, up from $143.9 million in fiscal 2003. Diluted
earnings per share were $1.68 in fiscal 2004 as compared to $1.31 in fiscal 2003. Excluding the impact
of the early extinguishment of debt in both years, diluted earnings per share were $1.70 in fiscal 2004
compared to $1.59 in fiscal 2003. Fiscal 2003 included a 53rd week versus only 52 weeks in fiscal 2004.
Accordingly, our reported results are not fully comparable for the two years.
Net revenues were $966.1 million for fiscal 2004, an increase of $22.2 million, or 2.4%, from
$943.9 million for fiscal 2003. The 2.4% increase in net revenues was driven by international attendance
growth and more favorable foreign currency rates, partially offset by a decline in North America
attendance. On a worldwide basis, attendance at company-owned meetings declined 1.5%. Compared to
the fiscal 2003, meeting fees increased $21.9 million, licensing revenues rose $7.0 million, advertising
revenue increased $2.4 million, and we earned an additional $1.1 million of royalties from our licensee,
WeightWatchers.com. Franchise commissions were $6.1 million lower than in fiscal 2003 as we
continued our franchise acquisition program, adding two more in fiscal 2004. Product sales declined
$2.2 million, as did publishing and other revenue by $1.9 million. Included in the total $22.2 million
increase in net revenues was a benefit of approximately $42.5 million from foreign currency exchange
rates. On a local currency basis, meeting fees and product sales in our international operations
increased 5.4%.
For fiscal 2004, total meeting fees were $629.1 million, an increase of $21.9 million, or 3.6%, from
$607.2 million in the prior year. Attendances declined slightly to 59.9 million from 60.8 million in fiscal
2003. In NACO, meeting fees were $373.1 million for fiscal 2004, down 4.9% from $392.4 million in
fiscal 2003. Including acquisitions, NACO attendance for the year was 6.5% lower than fiscal 2003.
NACO organic attendance declined 12.1%. The organic attendance comparison excludes the additional
36
week in fiscal 2003 and any franchises that were acquired during either year. We made four franchise
acquisitions since the beginning of fiscal 2003: certain franchise territories of The WW Group at the
beginning of the second quarter of fiscal 2003, Dallas and New Mexico during the fourth quarter of
fiscal 2003, the Washington D.C. area during the second quarter of fiscal 2004 and Fort Worth during
the third quarter of fiscal 2004. The low-carb diet fad, which escalated over the course of fiscal 2003,
and was extended during fiscal 2004 by food manufacturers’ heavily marketed introductions of related
food products, had an impact on our North America business. We believe that the appeal of these
low-carb diets has peaked and the phenomenon is now in decline. The introduction of our TurnAround
program contributed to the improving attendance trends we saw in fiscal 2004. The declines in organic
attendances in fiscal 2004 versus fiscal 2003 improved from minus 16.7% in the second quarter to
minus 13.9% in the third quarter and minus 8.7% in the fourth quarter.
International company-owned meeting fees were $256.0 million for fiscal 2004, an increase of
$41.2 million, or 19.2%, from $214.8 million for fiscal 2003. The growth in meeting fees was primarily
driven by attendance increases in Continental Europe of 11.4% coupled with the favorable impact of
foreign currency exchange rates.
Product sales were $274.6 million for fiscal 2004, a decrease of $2.2 million from $276.8 million for
fiscal 2003. While total domestic product sales declined $19.8 million to $138.4 million in fiscal 2004
from $158.2 million in fiscal 2003, primarily driven by the attendance decline, internationally, product
sales increased 14.8% to $136.2 million. International product sales rose 2.7% on a local currency basis.
Franchise royalties were $12.5 million domestically and $6.3 million internationally in fiscal 2004.
Total franchise royalties of $18.8 million were down $6.1 million, or 24.5%, from $24.9 million in fiscal
2003. The decrease resulted from the impact of having acquired four franchises in the United States
since fiscal 2003 and from the general slowdown in the U.S. business. Excluding the recently acquired
franchises, domestic franchise royalties declined 17.1%, while international franchise royalties rose
1.0%.
Revenue from advertising, licensing and other sources was $43.6 million for fiscal 2004, an increase
of $8.6 million, or 24.6%, from $35.0 million for fiscal 2003. Licensing revenue increased $7.0 million,
up 72.2% over fiscal 2003, due to our continued focus on introducing a range of Weight Watchers
branded products worldwide. Revenues from advertising, our WeightWatchers.com licensee and other
sources contributed to the remainder of the increase.
Cost of revenues was $468.2 million for fiscal 2004, an increase of $27.8 million, or 6.3%, from
$440.4 million for fiscal 2003. For fiscal 2004, the gross profit margin of 51.5% remained above the
50% level, but was lower than the 53.3% level of fiscal 2003. We made the strategic decision to keep
the vast majority of our NACO meetings open, despite the negative impact on our gross margin
resulting from lower attendances per meeting due to our expectation of the decline in the low-carb
phenomenon. We believe this expectation has proven to be correct.
Marketing expenses increased $6.6 million, or 5.8%, to $120.2 million for fiscal 2004 from
$113.6 million in fiscal 2003, with the majority of the increase resulting from currency translation. As a
percentage of net revenue, marketing expenses were 12.4% for fiscal 2004, as compared to 12.0% in
fiscal 2003, driven by the softness in revenues.
Selling, general and administrative expenses were $87.8 million for fiscal 2004, an increase of
$14.0 million, or 19.0%, from $73.8 million in fiscal 2003. Expenses were driven up by professional fees
and expenses related to compliance with Sarbanes-Oxley, as well as by a strengthening of our
management team and increase in our headcount to drive the future growth of our business. Selling,
general and administrative expenses were 9.1% of revenues for fiscal 2004, as compared to 7.8% in
fiscal 2003.
37
Operating income was $289.9 million for fiscal 2004, a decrease of $26.2 million, or 8.3%, from
$316.1 million for fiscal 2003. Our operating income margin for fiscal 2004 on this stand-alone basis
was 30.0%, as compared to 33.5% in fiscal 2003.
Net interest charges were down 56.7%, or $19.1 million, to $14.6 million for fiscal 2004 from
$33.7 million for fiscal 2003. The repurchase and retirement in fiscal 2003 of most of our 13% Senior
Subordinated Notes and the refinancing of the WWI Credit Facility at that time and again in fiscal
2004 lowered our interest expense significantly.
For fiscal 2004, we reported other income of $9.3 million, as compared to other expense of
$2.8 million for fiscal 2003. In fiscal 2004, we received higher loan repayments from
WeightWatchers.com, which increased our other income by $4.8 million. In fiscal 2003, we incurred
unrealized currency translation gains and losses associated with our 13% Senior Subordinated Notes
until the majority were retired in the third quarter of fiscal 2003. This has resulted in a $9.2 million
decrease in this expense.
We recognized early extinguishment of debt expenses of $4.3 million for fiscal 2004 as a result of
the refinancing of the WWI Credit Facility and the repurchase and retirement of the balance of our
13% Senior Subordinated Notes. These expenses included the write-off of unamortized debt issuance
costs from prior refinancings and the recognition of tender premiums and fees associated with these
transactions. In fiscal 2003, when we repurchased and retired the majority of our 13% Senior
Subordinated Notes, we recognized early extinguishment of debt expenses of $47.4 million. These
included tender premiums of $42.6 million, the write-off of unamortized debt issuance costs of
$4.4 million and $0.4 million of fees associated with the transaction.
Our effective tax rate for fiscal 2004 was 36.1% as compared to 38.0% for fiscal 2003. We recorded
a tax benefit in fiscal 2004 by reversing a $5.5 million accrued but no longer necessary tax liability
recorded as a result of the September 1999 recapitalization and stock purchase transaction with Heinz.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2005 and January 1, 2005, the balance sheets of WeightWatchers.com are fully
consolidated with Weight Watchers International, and therefore the consolidated balance sheets for
both periods are comparable.
Balance Sheet
Comparing the balance sheet at December 31, 2005 with that at January 1, 2005, our cash balance
decreased by $3.7 million from $35.2 million to of $31.5 million. Our working capital deficit at
December 31, 2005 was $38.2 million compared to $26.8 million at January 1, 2005. Excluding cash, the
working capital deficit increased by $7.7 million. Higher accrued expenses and accounts payable is the
result of timing of salaries and other accruals as well as higher bonuses. Higher deferred revenue is
primarily the result of the successful sale of our Seasons Pass prepayment plans for meetings in NACO
of $11.4 million. Inventory and prepaids were lower in fiscal 2005. Program and meeting room material
inventory was built up at a high rate in fiscal 2004 consistent with the timing of our innovation
launches, and has been distributed and utilized throughout fiscal 2005. These decreased amounts were
offset by increases in our accounts receivable, primarily the result of our growing licensing revenues
and changes in income taxes totaling $25.1 million, the result of tax benefits associated with
WeightWatchers.com net operating loss carryforwards, stock option exercises and a reclassification of
tax reserves to long term.
Capital spending has averaged approximately $9.8 million annually over the last three years and
has consisted primarily of leasehold improvements, furniture and equipment for meeting locations and
information system and web-site development expenditures. In fiscal 2005, capital spending was
38
$17.8 million as compared to $6.7 million in fiscal 2004. The increase in capital spending is due
primarily to our new corporate office space, consisting primarily of leasehold improvements, furniture
and equipment.
Cash Flow
For fiscal 2005, the statement of cash flows for WeightWatchers.com is fully consolidated with our
statement of cash flows. For fiscal 2004, the statement of cash flows for WeightWatchers.com was fully
consolidated only for the nine months ended January 1, 2005. For the first quarter of fiscal 2004, the
cash flows for WeightWatchers.com were reflected on a single line entitled ‘‘Impact of Consolidating
WeightWatchers.com’’ in the amount of $5.7 million. For fiscal 2003, WeightWatchers.com is not
consolidated with Weight Watchers International.
CASH FLOW
Consolidated
Results
Fiscal 2005
Consolidated
Results
Fiscal 2004
Increase/
(Decrease)
(in millions)
Cash provided by operating activities . . . . . . . . . .
Cash used for investing activities . . . . . . . . . . . . .
Cash used for financing activities . . . . . . . . . . . . .
Effect of exchange rate changes on cash . . . . . . .
Impact of consolidating WeightWatchers.com . . . .
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . . .
Cash/cash equivalents, beginning of period . . . . . .
$ 296.8
(400.3)
103.2
(3.4)
—
(3.7)
35.2
$ 252.4
(65.8)
(180.4)
(0.1)
5.7
$ 44.4
(334.5)
283.6
(3.3)
(5.7)
11.8
23.4
(15.5)
11.8
Cash/cash equivalents, end of period . . . . . . . . . .
$ 31.5
$ 35.2
$ (3.7)
Consolidated
Results
Fiscal 2004
$252.4
(65.8)
(180.4)
(0.1)
Less
Impact
of
FIN 46R
$ 18.4
(7.6)
—
—
WWI Stand Alone
(excluding impact of FIN 46R
in 2004)
Fiscal 2004
Fiscal 2003
(in millions)
$ 234.0
(58.2)
(180.4)
(0.1)
$ 233.1
(211.6)
(59.5)
3.9
Increase/
(Decrease)
$
0.9
153.4
(120.9)
(4.0)
Cash provided by operating activities . . . .
Cash used for investing activities . . . . . . .
Cash used for financing activities . . . . . . .
Effect of exchange rate changes on cash . .
Impact of consolidating
WeightWatchers.com . . . . . . . . . . . . . .
5.7
5.7
—
—
—
Net increase (decrease) in cash/cash
equivalents . . . . . . . . . . . . . . . . . . . .
Cash/cash equivalents, beginning of period
11.8
23.4
16.5
—
(4.7)
23.4
(34.1)
57.5
29.4
(34.1)
Cash/cash equivalents, end of period . . . . .
$ 35.2
$ 16.5
$ 18.7
$ 23.4
$ (4.7)
39
Sources and Uses of Cash
Fiscal 2005
At the end of fiscal 2005, cash and cash equivalents were $31.5 million, a decrease of $3.7 million
from the end of the fiscal 2004. Cash flows provided by operating activities in fiscal 2005 were
$296.8 million, including $46.2 million of cash provided by WeightWatchers.com’s operating activities.
Investing activities utilized $400.3 million of cash, including $380.8 million for the acquisition of the
remaining interests in WeightWatchers.com and $17.8 million for capital spending. Net cash provided
for financing activities totaled $103.2 million, comprised of net borrowings of $277.0 million and the
use of $176.0 million for the repurchase of 3.7 million shares of our common stock pursuant to our
stock repurchase plan. See Part II, Item 5 of this Annual Report on Form 10-K for more information
regarding our stock repurchase plan.
Fiscal 2004
At the end of fiscal 2004, cash and cash equivalents were $35.2 million, an increase of
$11.8 million from the end of fiscal 2003. Cash flows provided by operating activities were
$252.4 million and the net use of funds for investing and financing activities totaled $246.3 million.
Investing activities used cash of $65.8 million, primarily comprised of the $60.5 million cash paid for
the acquisitions of our Fort Worth and Washington D.C. area franchises. Cash used for financing
activities totaled $180.4 million, including $177.1 million used to repurchase 4.7 million of our shares
pursuant to our stock repurchase plan. Our pay-down of debt which included the impact of refinancings
that took place in January 2004 and the retirement of the remainder of our 13% Senior Subordinated
Notes in the third quarter of fiscal 2004 were completely offset by a new Term Loan and Revolver
borrowings. In addition, in the first quarter of fiscal 2004, as is required by FIN 46R, we recorded a
$5.7 million net increase in cash as a result of the impact of consolidating WeightWatchers.com.
Impact of FIN 46R on Cash Flow
The FIN 46R impact on cash was to add $16.5 million to fiscal 2004. In fiscal 2004, cash flows
increased $10.8 million from the operations of WeightWatchers.com, net of intercompany eliminations
and investing activities. In addition, in the first quarter of fiscal 2004, as is required by this
pronouncement, we recorded a $5.7 million net increase in cash as a result of the impact of
consolidating WeightWatchers.com.
The remainder of this section will address the financial position of Weight Watchers International
on a stand-alone basis, excluding the impact of FIN 46R.
Weight Watchers International on a Stand-Alone Basis
For fiscal 2004, cash and cash equivalents were $18.7 million, a decrease of $4.7 million from fiscal
2003. Cash flows provided by operating activities in fiscal 2004 were $234.0 million and funds used for
investing and financing activities totaled $238.6 million. Investing activities utilized $58.2 million of
cash, which included the acquisitions of our Fort Worth and Washington D.C. area franchises for
$60.5 million. Cash used for financing activities totaled $180.4 million primarily related to the
repurchase of 4.7 million shares of our common stock for $177.1 million pursuant to our stock
repurchase plan. See Part II, Item 5 of this Annual Report on Form 10-K for more information
regarding our stock repurchase plan.
For fiscal 2003, cash and cash equivalents decreased $34.1 million to $23.4 million. Cash flows
provided by operating activities were $233.1 million. Investing activities in the year used $211.6 million
of cash and included $208.8 million paid in connection with the acquisition of the assets of The WW
Group and Dallas/New Mexico franchises. In addition, $5.0 million was invested in capital expenditures.
40
Cash used for financing activities totaled $59.5 million. We paid $60.3 million in connection with the
tender offer and repurchase of our 13% Senior Subordinated Notes and the concurrent refinancing of
the WWI Credit Facility and repurchased $28.8 million of stock in accordance with our stock
repurchase plan that began in October 2003. These were partially offset by net proceeds of
$26.6 million from additional debt borrowings arising at the time of The WW Group acquisition at the
end of March 2003.
Long-Term Debt
The WWI Credit Facility consists of Term Loans and a Revolver. The WW.com Credit Facilities
consist of first and second lien term loans. As of December 31, 2005, Weight Watchers International
had debt of $531.1 million and had additional availability under its $350.0 million Revolver of
$112.2 million. As of December 31, 2005, WeightWatchers.com had debt of $215.0 million. Our total
debt outstanding was $746.1 million at December 31, 2005 and $469.1 million at January 1, 2005,
respectively.
In January 2004, we refinanced the WWI Credit Facility, moving a large portion of our Term
Loans to the Revolver. This provided us with a greater degree of flexibility and the ability to more
efficiently manage cash. Under this refinancing, our Term Loans were reduced from $454.2 million to
$150.0 million and our Revolver capacity was increased from $45.0 million to $350.0 million. To
complete the refinancing, we borrowed $310.0 million under the Revolver.
In October 2004, we increased our net borrowing capacity by adding an additional Term Loan to
the existing WWI Credit Facility in the amount of $150.0 million, coterminous with the previously
existing WWI Credit Facility. These funds were initially used to reduce borrowings under our Revolver,
resulting in no increase to our net borrowing. Additionally, in October 2004, we repurchased and
retired the remaining balance of our 13% Senior Subordinated Notes.
In connection with the refinancing and retirement of debt described above, we incurred expenses
of $4.3 million in fiscal 2004.
On June 24, 2005, WWI amended certain provisions of the WWI Credit Facility to allow for the
December 16, 2005 redemption by WeightWatchers.com of its shares owned by Artal.
On December 16, 2005, WeightWatchers.com borrowed $215.0 million pursuant to two credit
facilities (the WW.com Credit Facilities), consisting of (i) a five year, senior secured first lien term loan
in an aggregate principal amount of $170.0 million and (ii) a five and one-half year, senior secured
second lien term loan facility in an aggregate principal amount of $45.0 million.
At December 31, 2005 and January 1, 2005, our debt consisted entirely of variable-rate
instruments. At January 3, 2004 fixed-rate debt constituted approximately 3.3% of our total debt. The
average interest rate on our debt was approximately 6.1%, 4.1% and 3.7% per annum at December 31,
2005, January 1, 2005, and January 3, 2004, respectively.
41
The following schedule sets forth our long-term debt obligations (and interest rates) at
December 31, 2005:
Long-Term Debt
At December 31, 2005
(Balances in millions)
Balance
Interest
Rate
WWI Revolver due 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
WWI Term Loan B due 2010 . . . . . . . . . . . . . . . . . . . . . . . . .
WWI Additional Term Loan B due 2010 . . . . . . . . . . . . . . . . .
WW.com First Lien Term Loan . . . . . . . . . . . . . . . . . . . . . . . .
WW.com Second Lien Term Loan . . . . . . . . . . . . . . . . . . . . . .
$
Total Debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less Current Portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
236.0
147.0
148.1
170.0
45.0
746.1
4.7
741.4
6.15%
6.25%
5.67%
6.62%
9.12%
The WWI Term Loan B and the WWI Revolver bear interest at an annual rate equal to LIBOR
plus 1.75% or, at Weight Watchers International’s option, the alternate base rate (as defined in the
WWI Credit Facility) plus 0.75%. The WWI Additional Term Loan B bears interest at an annual rate
equal to LIBOR plus 1.50%, or at Weight Watchers International’s option, the alternative base rate (as
defined in the WWI Credit Facility), plus 0.50%. In addition to paying interest on outstanding principal
under the WWI Credit Facility, Weight Watchers International is required to pay a commitment fee to
the lenders under the WWI Revolver with respect to the unused commitments at a rate equal to
0.375% per year. The WWI Term Loan B is subject to scheduled amortization of $375,000 per quarter
until March 31, 2009 and is thereafter subject to amortization of $35.5 million per quarter until
maturity. The WWI Additional Term Loan B is subject to scheduled amortization of $375,000 per
quarter until March 31, 2009 and is thereafter subject to amortization of $35.8 million per quarter until
maturity.
The WWI Credit Facility contains customary covenants including covenants that, in certain
circumstances, restrict our ability to incur additional indebtedness, pay dividends on and redeem capital
stock, make other restricted payments, including investments, sell its assets and enter into
consolidations, mergers and transfers of all or substantially all of its assets. The WWI Credit Facility
also requires Weight Watchers International to maintain specified financial ratios and satisfy financial
condition tests. The WWI Credit Facility contains customary events of default. Upon the occurrence of
an event of default under the WWI Credit Facility, the lenders may cease making loans and declare
amounts outstanding to be immediately due and payable. The WWI Credit Facility is guaranteed by
certain of our existing and future subsidiaries, other than WeightWatchers.com and its subsidiaries.
Substantially all the assets of Weight Watchers International and these subsidiaries collateralize the
WWI Credit Facility.
The WW.com First Lien Term Loan bears interest at a rate equal to LIBOR plus 2.25% per
annum, or, at WeightWatchers.com’s option, the alternate base rate, as defined, plus 1.25% per annum.
The WW.com Second Lien Term Loan bears interest at a rate equal to LIBOR plus 4.75% per annum
or, at WeightWatchers.com’s option, the alternate base rate, as defined, plus 3.75% per annum. Each of
WeightWatchers.com’s existing and future domestic subsidiaries have guaranteed the WW.com Credit
Facilities, which facilities are secured by substantially all the assets of WeightWatchers.com and these
subsidiaries. Weight Watchers International has not guaranteed the WW.com Credit Facilities.
42
Loans outstanding under the WW.com Credit Facilities (i) must be prepaid with certain
percentages of excess cash flow and net cash proceeds of asset sales, issuances, offerings or placements
of debt obligations of WeightWatchers.com and issuances of equity securities of WeightWatchers.com;
and (ii) may be voluntarily prepaid at any time in whole or in part without premium or penalty, with
certain exceptions depending on the date of payment. The WW.com First Lien Term Loan is also
subject to scheduled amortization of $425,000 per quarter.
The WW.com Credit Facilities contain customary covenants, including affirmative and negative
covenants that, in certain circumstances, restrict WeightWatchers.com’s ability to incur additional
indebtedness, pay dividends on and redeem capital stock, make other restricted payments, including
investments, sell WeightWatchers.com assets and enter into consolidations, mergers and transfer of all
or substantially all of WeightWatchers.com’s assets. The WW.com Credit Facilities also require
WeightWatchers.com to maintain specified financial ratios and satisfy financial condition tests, which
become more restrictive over time. The WW.com Credit Facilities contain customary events of default.
Upon the occurrence of an event of default under the WW.com Credit Facilities, amounts outstanding
may be immediately due and payable.
On November 4, 2005, Standard & Poor’s confirmed its ‘‘BB’’ rating for our corporate credit and
the WWI Credit Facility. On March 11, 2005, Moody’s assigned a ‘‘Ba1’’ rating for the WWI Term
Loan B and the WWI Additional Term Loan B and confirmed its ‘‘Ba1’’ rating for the WWI Credit
Facility.
On November 4, 2005, Standard & Poor’s assigned its ‘‘B+’’ corporate credit rating to
WeightWatchers.com. In addition, Standard & Poor’s assigned ratings of ‘‘B+’’ to the WW.com First
Lien Term Loan and ‘‘B-’’ to the WW.com Second Lien Term Loan. On November 2, 2005, Moody’s
assigned ratings of ‘‘Ba3’’ to the WW.com First Lien Term Loan and ‘‘B1’’ to the WW.com Second Lien
Term Loan.
Dividends
On February 16, 2006, our Board of Directors authorized the initiation of a quarterly cash
dividend of $0.175 per share of our common stock, which corresponds to an annual dividend rate of
$0.70 per share. The initial quarterly dividend will be payable on April 7, 2006 to shareholders of
record at the close of business on March 24, 2006.
The WWI Credit Facility provides that we are permitted to pay dividends in an aggregate amount
equal to $20.0 million plus 66.67% of our net income (as defined in the credit agreement) since
December 2, 2001, so long as we are not in default under our credit agreement and so long as we have
borrowing availability under the Revolver of at least $30.0 million. We do not expect these restrictions
to impair our ability to pay dividends, but they could do so.
Contractual Obligations
We are obligated under non-cancelable operating leases primarily for office and rent facilities.
Consolidated rent expense charged to operations under all our leases for fiscal 2005 was approximately
$27.7 million.
43
The impact that our contractual obligations as of December 31, 2005 are expected to have on our
consolidated liquidity and cash flow in future periods is as follows:
Total
Less than
1 Year
Payment Due by Period
1-3 Years
3-5 Years
(in millions)
More than
5 Years
Long-Term Debt(1)
Principal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Leases . . . . . . . . . . . . . . . . . . . . . . . . .
$ 746.1
193.6
91.2
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,030.9
$ 4.7
48.0
24.3
$77.0
$
9.4
95.3
28.2
$687.0
48.4
13.5
$132.9
$748.9
$45.0
1.9
25.2
$72.1
(1) Due to the fact that all of our debt is variable rate based, we have assumed for purposes of this table that the
interest rate on all of our debt as of December 31, 2005 remains constant for all periods presented.
Debt obligations due to be repaid in the next 12 months are expected to be satisfied with
operating cash flows. We believe that cash flows from operating activities, together with borrowings
available under our Revolver, will be sufficient for the next 12 months to fund currently anticipated
capital expenditure requirements, debt service requirements and working capital requirements.
Acquisitions
WeightWatchers.com Acquisition
Pursuant to a merger agreement effective July 2, 2005, the last day of our second quarter, Weight
Watchers International increased its ownership interest in WeightWatchers.com from approximately
20% to approximately 53% for a total cash outlay of $136.4 million including $107.9 million paid to
WeightWatchers.com and $28.5 million paid to the non-Artal shareholders. Further to this, on
December 16, 2005, WeightWatchers.com redeemed all of the equity interests in WeightWatchers.com
owned by Artal for the aggregate cash consideration of $304.8 million. As a result of this redemption,
WeightWatchers.com is a wholly-owned subsidiary of Weight Watchers International.
Franchise Acquisitions
On August 22, 2004, we completed the acquisition of certain assets of our Fort Worth franchise for
a purchase price of $30.0 million that was financed through cash from operations.
On May 9, 2004, we completed the acquisition of certain assets of our Washington, D.C. area
franchise for a purchase price of $30.5 million that was financed through cash from operations.
On November 30, 2003, we completed the acquisition of certain assets of our Dallas and New
Mexico franchises for a purchase price of $27.2 million. The acquisition was financed through cash
from operations.
On March 30, 2003, we completed the acquisition of certain assets of eight of the 15 franchises of
the WW Group for a purchase price of $180.7 million. The acquisition was financed through cash and
additional borrowings of $85.0 million.
Stock Transactions
On October 9, 2003, our Board of Directors authorized a plan to repurchase up to $250.0 million
of our outstanding common stock. On June 13, 2005, our Board of Directors authorized adding
$250.0 million to this plan. The repurchase plan allows for shares to be purchased from time to time in
44
the open market or through privately negotiated transactions. No shares will be purchased from Artal
under the plan.
During fiscal 2003 and fiscal 2004, we purchased 5.5 million shares of common stock in the open
market for a total purchase price of $205.9 million, and in fiscal 2005, we purchased 3.7 million shares
of common stock in the open market for a total purchase price of $176.0 million.
Factors Affecting Future Liquidity
Any future acquisitions, joint ventures or other similar transactions could require additional capital
and we cannot be certain that any additional capital will be available on acceptable terms or at all. Our
ability to fund our capital expenditure requirements, interest, principal and dividend payment
obligations and working capital requirements and to comply with all of the financial covenants under
our debt agreements depends on our 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 our control.
Off-Balance Sheet Transactions
As part of our ongoing business, we do not participate in transactions that generate relationships
with unconsolidated entities or financial partnerships established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or limited purposes, such as entities often
referred to as structured finance or special purpose entities.
Related Parties
For a discussion of related party transactions affecting us, see ‘‘Item 13. Certain Relationships and
Related Transactions’’ in Part III of this Annual Report on Form 10-K.
Seasonality
Our business is seasonal, with revenues generally decreasing at year end and during the summer
months. Our advertising schedule supports the three key enrollment-generating seasons of the year:
winter, spring and fall, with winter having the highest concentration of advertising spending. The timing
of certain holidays, particularly Easter, which precedes the spring diet season and occurs between
March 22 and April 25, may affect our results of operations and the year-to-year comparability of our
results. For example, in 2006, Easter will fall on April 16, which means that the pre-summer diet season
will begin later than it did in 2005. Our operating income for the first half of the year is generally the
strongest. While WeightWatchers.com experiences similar seasonality in terms of new subscriber
signups, its revenue tends to be less seasonal because it amortizes subscription revenue over the related
subscription period.
Recently Issued Accounting Standards
In December 2004, the Financial Accounting Standards Board issued Statement No. 123R, ‘‘Share-
Based Payment’’ (‘‘FAS 123R’’), which replaces FAS 123, ‘‘Accounting for Stock-Based Compensation’’
and supersedes Accounting Principles Board Opinion 25, ‘‘Accounting for Stock Issued to Employees.’’
FAS 123R eliminates the option of using the intrinsic value method to record compensation expense
related to stock-based awards to employees and instead requires companies to recognize the cost of
such awards based on their grant-date fair value over the related service period of such awards. In
April 2005, the SEC approved a new rule that amended the effective date of FAS 123R for public
companies, whereby we will now be required to, and we will, adopt this Standard beginning in the first
quarter of 2006.
45
In accordance with the provisions of FAS 123R, we have elected to apply the modified prospective
transition method to all past awards outstanding and unvested as of the date of adoption and will
recognize the associated expense over the remaining vesting period based on the fair values previously
determined and disclosed as part of our pro-forma disclosures. We will not restate the results of prior
periods. Prior to the effective date of FAS 123R, we will continue to provide the pro forma disclosures
for past award grants as required under FAS 123. We believe the level of incremental expense that will
be recognized in accordance with FAS 123R for fiscal 2006 will be approximately $6.0 million.
However, the total expense recorded in future periods, including fiscal 2006, will depend on several
variables, including the number of stock-based awards that are granted in future periods and the fair
value of those awards.
The American Jobs Creation Act of 2004 (the ‘‘AJCA’’) was enacted on October 22, 2004 and
includes a special one-time deduction of 85% of certain foreign earnings repatriated to the United
States. In December 2004, the FASB issued FSP FAS 109-2, Accounting and Disclosure Guidance for
the Foreign Earnings Repatriation Provision within the AJCA, allowing companies additional time to
evaluate the effect of the AJCA on plans for reinvestment or repatriation of foreign earnings. This
legislation did not have a material impact to our results of operations or cash flows.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to foreign currency fluctuations and interest rate changes. Our exposure to market
risk for changes in interest rates relates to interest expense of variable rate debt. Due to the repurchase
and retirement of the remaining balance of our 13% Senior Subordinated Notes in 2004, we no longer
have any fixed rate borrowings outstanding at December 31, 2005. Therefore, market interest rates no
longer affect the fair value of our long-term debt balances. Since 100% of our debt is now variable rate
based, any changes in market interest rates will cause an equal change in our net interest expense.
Other than inter-company transactions between our domestic and foreign entities, we generally do
not have significant transactions that are denominated in a currency other than the functional currency
applicable to each entity. From time to time we may enter into forward and swap contracts to hedge
transactions denominated in foreign currencies to reduce the currency risk associated with fluctuating
exchange rates. Realized and unrealized gains and losses from any of these transactions may be
included in net income for the period.
In addition, we enter into interest rate swaps to hedge a substantial portion of our 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 impact our shareholders’ equity. The assets and
liabilities of our 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.
Each of our subsidiaries, other than WeightWatchers.com, 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.
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-35, including the report thereon of PricewaterhouseCoopers LLP on
page F-2.
46
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the
‘‘Exchange Act’’) is recorded, processed, summarized and reported within the time periods specified in
the Securities and Exchange Commission’s rules and forms, and that such information is accumulated
and communicated to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives. Our management, with the participation of our Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and
operation of our disclosure controls and procedures as of December 31, 2005. Based upon that
evaluation and subject to the foregoing, our Chief Executive Officer and Chief Financial Officer
concluded that the design and operation of our disclosure controls are effective.
In addition, there was no change in our internal control over financial reporting that occurred
during the quarter ended December 31, 2005 that has materially affected, or is reasonable likely to
materially affect our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting. Internal control over financial reporting is a process designed under the supervision
and with the participation of our management, including our principal executive officer and principal
financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with accounting principles
generally accepted in the United States of America.
Our management assessed the effectiveness of our internal control over financial reporting as of
December 31, 2005, the end of fiscal 2005. In making this assessment, our management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
in Internal Control-Integrated Framework. Based on this assessment, management, under the
supervision and with the participation of our principal executive officer and principal financial officer,
concluded that, as of December 31, 2005, our internal control over financial reporting was effective
based on those criteria.
Our management’s assessment of the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2005 has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report which appears herein.
Item 9B. Other Information
None.
47
Item 10. Executive Officers and Directors of the Company
PART III
Set forth below are the names, ages as of December 31, 2005 and current positions with us and
our subsidiaries of our 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
Linda Huett . . . . . . . . . . . . . . . . . . .
Age
61
President and Chief Executive Officer, Director
Position
Ann M. Sardini
. . . . . . . . . . . . . . . .
55 Chief Financial Officer
Thilo Semmelbauer . . . . . . . . . . . . . .
40 Chief Operating Officer, NACO
David P. Kirchhoff
. . . . . . . . . . . . . .
39 Chief Operating Officer, Europe and Asia, President and
Chief Executive Officer, WeightWatchers.com
Robert W. Hollweg . . . . . . . . . . . . . .
63 General Counsel and Secretary
Melanie Stubbing . . . . . . . . . . . . . . .
44 Vice President of Operations, United Kingdom
Russell Burke . . . . . . . . . . . . . . . . . .
45 Vice President of Operations, Australasia
Raymond Debbane(1) . . . . . . . . . . . .
50 Chairman of the Board
Philippe J. Amouyal . . . . . . . . . . . . .
47 Director
John F. Bard(1)(2) . . . . . . . . . . . . . .
64 Director
Marsha Johnson Evans(2) . . . . . . . . .
58 Director
Jonas M. Fajgenbaum . . . . . . . . . . . .
33 Director
Sacha Lainovic(1) . . . . . . . . . . . . . . .
49 Director
Sam K. Reed(2) . . . . . . . . . . . . . . . .
58 Director
Christopher J. Sobecki
. . . . . . . . . . .
47 Director
(1) Member of our Compensation and Benefits Committee.
(2) Member of our Audit Committee.
Linda Huett. Ms. Huett has been the President and a director of our company since
September 1999. She became our Chief Executive Officer in December 2000. Ms. Huett joined our
company in 1984 as a meeting 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 received a B.A. degree from Gustavas Adolphus
College and received her Masters in Theater from Yale University. Ms. Huett is also a director of Ann
Taylor Inc.
Ann M. Sardini. Ms. Sardini has served as our Chief Financial Officer since April 2002 when she
joined our company. Ms. Sardini has over 20 years of experience in senior financial management
positions in branded media and consumer products companies. Prior to joining us, she served as Chief
Financial Officer of VitaminShoppe.com, Inc. from 1999 to 2001, and from 1995 to 1999 she served as
Executive Vice President and Chief Financial Officer for the Children’s Television Workshop. In
addition, Ms. Sardini has held finance positions at QVC, Inc., Chris Craft Industries and the National
Broadcasting Company. Ms. Sardini received a B.A. from Boston College and an M.B.A. from
Simmons College Graduate School of Management. Ms. Sardini is also a director of Venaca Inc.
Thilo Semmelbauer. Mr. Semmelbauer has served as our Chief Operating Officer for North
America since March 2004. Prior to that time, he served as the President and Chief Operating Officer
48
of WeightWatchers.com. He held that position since February 2000. Prior to WeightWatchers.com,
Mr. Semmelbauer was with The Boston Consulting Group in the Consumer Goods, Technology and
e-Commerce practices. Previously, Mr. Semmelbauer was in Product Management at Motorola, Inc. He
received his Master of Science degree in Management and Engineering from the Massachusetts
Institute of Technology and is a graduate of Dartmouth College.
David P. Kirchhoff. Mr. Kirchhoff has been the Chief Executive Officer and President of
WeightWatchers.com since rejoining WeightWatchers.com in June 2004. He also became our Chief
Operating Officer, Europe and Asia in September 2005. Prior to rejoining WeightWatchers.com,
Mr. Kirchhoff served as Chief Financial Officer of the Enthusiast Media Group of Primedia, Inc. from
September 2003 to June 2004. Mr. Kirchhoff originally joined WeightWatchers.com in January 2000 as
Senior Vice President, Strategy and Business Development, and served as Chief Financial Officer of
WeightWatchers.com from January 2003 until his departure in August 2003. Prior to joining
WeightWatchers.com in January 2000, he was Director of Corporate Strategy and Development for
Pepsico, Inc. Previously, Mr. Kirchhoff was a manager and consultant with The Boston Consulting
Group in Washington, D.C. He holds a B.S. in Biomedical and Electrical Engineering from Duke
University and an M.B.A. from the University of Chicago Graduate School of Business.
Robert W. Hollweg. Mr. Hollweg has served as our General Counsel and Secretary since
January 1998. He joined our company in 1969 as an Assistant Counsel in the law department. He
transferred to the Heinz law department subsequent to Heinz’ acquisition of our company in 1978 and
served there in various capacities. He rejoined us after Artal acquired our 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.
Melanie Stubbing. Ms. Stubbing has served as our Vice President of Operations, United Kingdom
since December 2003. Ms. Stubbing has more than 16 years experience working with strong consumer
brands, including a position running the United Kingdom-based toy, game and trading card operations
for Hasbro, Inc., a position she held from January 2002 to November 2003. From November 2000 to
January 2002, Ms. Stubbing was the Vice President for WeightWatchers.com, Inc. Prior to joining
WeightWatchers.com, Ms. Stubbing was Managing Director, Hedstrom, U.K. from August 1998 to
October 2000, and from July 1989 to July 1998 she held various marketing positions at Mattel UK Ltd.,
including Group Marketing Director. Ms. Stubbing is a business graduate of Manchester Metropolitan
University.
Russell Burke. Mr. Burke was appointed as our Vice President of Operations, Australasia in
March 2005. Prior to this appointment he most recently served as Vice President, Finance since joining
our company in June 2004. Prior to joining us he held both Chief Financial Officer and International
Business Development responsibilities for Napster LLC from May 2003 to March 2004. Prior to joining
Napster LLC, he was the Senior Vice President and Chief Financial Officer of pressplay GP from
November 2001 to May 2003. Previously he held a number of senior financial roles with Sony Music
International in Sydney, London and New York from January 1992 to October 2001 and was with Price
Waterhouse in Newcastle, Los Angeles and Sydney prior to that. Mr. Burke received his Bachelor of
Commerce degree from the University of Newcastle and holds an ACA designation from the Institute
of Chartered Accountants, both in Australia.
Raymond Debbane. Mr. Debbane has been the Chairman of our Board of Directors since our
acquisition by Artal on September 29, 1999. Mr. Debbane is a co-founder and President of The Invus
Group, LLC. Prior to forming The Invus Group, LLC 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
49
University of Beirut. Mr. Debbane is a director of Artal Group S.A., Ceres, Inc. and the Chairman of
the Board of Directors of GoldenSource Corporation.
Philippe J. Amouyal. Mr. Amouyal has been a director since November 2002. Mr. Amouyal is a
Managing Director of The Invus Group, LLC, which he joined in 1999. Previously, Mr. Amouyal was a
Vice President and director of The Boston Consulting Group, Inc. in Boston, MA. He holds an M.S. in
engineering and a DEA in Management from Ecole Centrale de Paris and was a Research Fellow at
the Center for Policy Alternatives of the Massachusetts Institute of Technology. Mr. Amouyal is a
director of GoldenSource Corporation, Metamarix, Inc. and Entopia, Inc.
John F. Bard. Mr. Bard has been a director since November 2002. Since 1999, he has been a
director of the Wm. Wrigley Jr. Company, where he served as Executive Vice President from 1999 to
2000, Senior Vice President from 1990 to 1999, and at the same time serving as Chief Financial Officer
from 1990 until his retirement from management in 2000. He began his business career in 1963 with
The Procter & Gamble Company in financial management. He subsequently was Group Vice President
and Chief Financial Officer and a director of The Clorox Company and later President and a director
of Tambrands, Inc., prior to joining Wrigley. Mr. Bard holds a B.S. in business from Northwestern
University and an M.B.A. in Finance from the University of Cincinnati. Mr. Bard also serves as a
director of Hollinger International, Inc.
Marsha Johnson Evans. Ms. Evans has been a director since February 2002. Ms. Evans served as
President and Chief Executive Officer of the American Red Cross, the preeminent humanitarian
organization in the United States, from August 2002 to December 2005, and previously served as the
National Executive Director of Girl Scouts of the U.S.A. from January 1998 to July 2002. A retired
Rear Admiral in the United States Navy, Ms. Evans has served as superintendent of the Naval
Postgraduate School in Monterey, California from 1995 to 1998 and headed the Navy’s worldwide
recruiting organization from 1993 to 1995. She is currently a director of Huntsman Corporation,
Lehman Brothers Holdings, Inc. and the Naval Academy Foundation. 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.
Jonas M. Fajgenbaum. Mr. Fajgenbaum has been a director since our acquisition by Artal on
September 29, 1999. Mr. Fajgenbaum is a Managing Director of The Invus Group, LLC, which he
joined in 1996. Prior to joining The Invus Group, LLC, 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.
Sacha Lainovic. Mr. Lainovic has been a director since our acquisition by Artal on September 29,
1999. Mr. Lainovic is a co-founder and Executive Vice President of The Invus Group, LLC. Prior to
forming The Invus Group, LLC 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 engineering from Insa de Lyon in Lyon, France. Mr. Lainovic is a director of
GoldenSource Corporation.
Sam K. Reed. Mr. Reed has been a director since February 2002. Mr. Reed has over 30 years of
experience in the food industry. He is currently the CEO and Chairman of TreeHouse Foods, Inc.
Previously Mr. Reed was the CEO of Dean Specialty Foods Holdings, Inc. Formerly, Mr. Reed was
Vice Chairman and a 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 Western Bakery Group division. He is a director of the Tractor Supply
Company and TreeHouse Foods, Inc. Mr. Reed received a B.A. from Rice University and an M.B.A.
from Stanford Graduate School of Business.
50
Christopher J. Sobecki. Mr. Sobecki has been a director since our acquisition by Artal on
September 29, 1999. Mr. Sobecki, a Managing Director of The Invus Group, LLC, 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 also a director of GoldenSource Corporation and
Eduventures, LLC.
Board of Directors
Our Board of Directors is currently comprised of nine directors.
Classes and Terms of Directors
Our Board of Directors is divided into three classes, equal in number, 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 2008)
Raymond Debbane
John F. Bard
Jonas M. Fajgenbaum
Class 2 Directors (term expiring in 2006)
Marsha Johnson Evans
Sacha Lainovic
Christopher J. Sobecki
Class 3 Directors (term expiring in 2007)
Linda Huett
Philippe J. Amouyal
Sam K. Reed
Committees of the Board of Directors
The standing committees of our Board of Directors consist of an Audit Committee and a
Compensation and Benefits Committee.
Audit Committee
We have an Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange
Act, as amended. The members of the Audit Committee are Mr. Reed, Ms. Evans and Mr. Bard.
The principal duties of our Audit Committee are as follows:
(cid:129) to oversee that our management has maintained the reliability and integrity of our accounting
policies and financial reporting and our disclosure practices;
(cid:129) to oversee that our management has established and maintained processes to ensure that an
adequate system of internal controls is functioning;
(cid:129) to oversee that our management has established and maintained processes to ensure our
compliance with all applicable laws, regulations and corporate policy;
(cid:129) to prepare an annual performance evaluation of the Audit Committee;
51
(cid:129) to establish and maintain procedures for the receipt, retention and treatment of complaints
received by us, from any source, regarding accounting, internal accounting controls or auditing
matters and from our employees for the confidential anonymous submission of concerns
regarding questionable accounting or auditing matters;
(cid:129) to assist the Board of Directors in its oversight of the integrity of our financial statements;
(cid:129) to review our annual and quarterly financial statements prior to their filing or prior to the
release of earnings;
(cid:129) to oversee the performance of our independent registered public accounting firm and to retain
or terminate the independent registered public accounting firm and approve all audit and
non-audit engagement fees and terms; and
(cid:129) to review at least annually, the qualifications, performance and independence of our
independent registered public accounting firm.
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.
Our Board of Directors has determined that each of the Audit Committee members, Mr. Reed,
Ms. Evans and Mr. Bard, is an ‘‘audit committee financial expert’’ as defined by Item 401(h) of
Regulation S-K of the Exchange Act, has satisfied the financial literacy requirements of the New York
Stock Exchange and has no direct or indirect material relationship with us and thus is independent
under applicable listing standards of the New York Stock Exchange, Rule 10A-3 under the Exchange
Act and our Corporate Governance Guidelines. The Audit Committee operates under a written
charter, which is available on our website at www.weightwatchersinternational.com. In addition,
shareholders may request a free copy of the Audit Committee charter from: Weight Watchers
International, Inc., Attn: Corporate Secretary, 11 Madison Avenue, 17th Floor, New York, NY 10010,
(212) 589-2700.
Compensation and Benefits Committee
The principal duties of the compensation and benefits committee are as follows:
(cid:129) to review key employee compensation policies, plans and programs;
(cid:129) to monitor performance and compensation of our employee-director, officers and other key
employees;
(cid:129) to prepare recommendations and periodic reports to the Board of Directors concerning these
matters; and
(cid:129) to function as the committee that administers the incentive programs referred to in ‘‘Executive
Compensation’’ below.
Due to the beneficial ownership by Artal of more than 50% of our outstanding common stock, we
are considered a ‘‘controlled company’’ as defined in the listing standards of the NYSE. As such, we
have elected to be exempt from the requirements to have nominating/corporate governance and
compensation committees composed entirely of independent directors and a majority of independent
directors on our Board of Directors.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics for our officers, including our principal
executive officer, principal financial officer, principal accounting officer and controller, and our
employees and directors. Our Code of Business Conduct and Ethics is available on our website at
52
www.weightwatchersinternational.com. In addition shareholders may request a free copy of the Code of
Business Conduct and Ethics from Weight Watchers International, Inc., Attn: Corporate Secretary, 11
Madison Avenue, 17th Floor, New York, NY 10010, (212) 589-2700.
Any amendment of our Code of Business Conduct and Ethics or waiver thereof applicable to any
of our principal executive officer, principal financial officer, principal accounting officer or controller
will be disclosed on our website within 5 days of the date of such amendment or waiver. In the case of
a waiver, the nature of the waiver, the name of the person to whom the waiver was granted and the
date of the waiver will also be disclosed.
Corporate Governance Guidelines
We have adopted a Corporate Governance Guidelines for our officers, directors and employees.
Our Corporate Governance Guidelines are available on our website at
www.weightwatchersinternational.com. In addition, shareholders may request a free copy of our
Corporate Governance Guidelines from: Weight Watchers International, Inc., Attn: Corporate
Secretary, 11 Madison Avenue, 17th Floor, New York, NY 10010, (212) 589-2700.
NYSE and SEC Certifications
On May 31, 2005, we filed with the NYSE the Annual CEO Certification regarding our
compliance with the NYSE’s Corporate Governance listing standards as required by Section 303A.12(a)
of the NYSE Listed Company Manual. In addition, we filed as exhibits to this annual report, the
applicable certifications of our Chief Executive Officer and our Chief Financial Officer required
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, regarding the quality of our public
disclosures.
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Exchange Act, as amended, requires our directors, executive officers and
holders of more than 10% of our common stock (collectively, ‘‘Reporting Persons’’) to file with the
SEC initial reports of ownership and reports of changes in ownership of our common stock. Such
persons are required by regulations of the SEC to furnish us with copies of all such filings. Based on
our review of the copies of such filings received by us with respect to fiscal 2005 and written
representations from certain Reporting Persons, we believe that all Reporting Persons complied with all
Section 16(a) filing requirements in fiscal 2005, except that two Form 4 filings for Mr. Kirchhoff were
not timely filed due to an administrative oversight on our part. Each of these covered one transaction.
53
Item 11. Executive Compensation
The following table sets forth for fiscal 2005, 2004 and 2003 the compensation paid to our
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 $100,000.
Summary Compensation Table
Long-Term
Compensation
Awards(5)
Name and principal position
Twelve Months
Ended
Twelve Month Period
Compensation
Salary
Bonus(4)
Restricted
Stock
Awards($)(6)
Securities
Underlying
Options(#)
All Other
Compensation(7)
Linda Huett
President and
Chief Executive Officer
. . . . . . . . . . . December 31, 2005 $ 532,052
—
—
$ 510,227
January 1, 2005
$ 301,868 $ 197,000
January 3, 2004
Ann M. Sardini
Chief Financial Officer
. . . . . . . . . December 31, 2005 $ 329,572
January 1, 2005
January 3, 2004
$ 304,219 $ 154,148
$ 245,662 $ 161,000
— $
Thilo Semmelbauer(1)
Chief Operating Officer,
NACO
. . . . . December 31, 2005 $ 291,924
— $
January 1, 2005
January 3, 2004
$ 202,902 $ 128,255
—
—
Melanie Stubbing(2) . . . . . . . December 31, 2005 $ 248,294
Vice President of Operations, January 1, 2005
January 3, 2004
United Kingdom
$ 238,486 $ 119,243
$
19,024
— $
— $
Russell Burke(3)
Vice President of Operations, January 1, 2005
January 3, 2004
Australasia
. . . . . . . . . December 31, 2005 $ 232,792
$ 119,425 $
—
— $
13,140
—
—
—
—
52,638
—
—
52,638
—
—
26,319
—
108,030
157,381
—
—
—
160,000
40,000
15,000
20,000
20,000
15,000
100,000
—
7,500
10,000
47,000
20,000
25,000
—
$
$
$
$
$
$
$
$
$
$
$
$
$
$
53,109
57,476
65,509
44,588
47,936
44,844
29,756
18,315
—
40,805
40,286
3,213
119,940
9,898
—
(1) Mr. Semmelbauer joined us on March 29, 2004, and therefore his compensation for fiscal 2004 only includes
approximately nine months.
(2) Ms. Stubbing joined us on December 1, 2003, and therefore her compensation for fiscal 2003 only includes
approximately one month.
(3) Mr. Burke joined us on June 9, 2004, and therefore his compensation for fiscal 2004 only includes approximately
7 months.
(4) The total amount of individual bonus earned in fiscal 2005 was not determined as of the date of this Annual Report on
Form 10-K. The total amount of individual bonus earned in fiscal 2004 for Ms. Sardini includes an amount earned with
respect to fiscal 2004 but not determined as of the date of the Annual Report on Form 10-K for fiscal 2004.
(5) The securities underlying all restricted stock unit and option awards are shares of our common stock.
(6) Restricted stock awards consist solely of awards of restricted stock units.
(7) For fiscal 2005, amounts include contributions under our 401(k) savings plan and our non-qualified executive profit
sharing plan of $38,184 for Ms. Huett, $28,903 for Ms. Sardini, $16,556 for Mr. Semmelbauer and $13,039 for
Mr. Burke. Amounts also include contributions to the U.K. pension plan of $21,282 for Ms. Stubbing and
contributions to the Australian pension plan of $16,632 for Mr. Burke, as well as auto expense for the named
executives. In addition, for fiscal 2005 amounts include a moving and relocation allowance, including tax equalization
payments, of $77,667 for Mr. Burke.
In May 2004 and December 1999, respectively, our stockholders approved our 2004 Stock Incentive
Plan (the ‘‘2004 Plan’’) and our 1999 Stock Purchase and Option Plan (the ‘‘1999 Plan’’) under which
selected employees are afforded the opportunity to purchase shares of our common stock, were granted
options to purchase shares of our common stock, and/or received grants of restricted stock units. The
number of shares authorized for grant under the 2004 Plan and the 1999 Plan is 2,500,000 shares and
54
7,058,040 shares, respectively, of our common stock. As of December 31, 2005 the number of shares
available for grant under the 2004 Plan and the 1999 Plan was 2,087,939 shares and 113,202 shares of
our common stock, respectively.
The following table sets forth information regarding options granted during fiscal 2005 to the
named executive officers.
Weight Watchers International Option Grants
For Fiscal 2005
Number of
Securities
Underlying
Options
Granted(1)
15,000
15,000
7,500
7,500
12,500
Individual Grants
Percent of Total
Options Granted to
Employees in Fiscal
2005(2)
Exercise or
Base Price
(per share)
2.2%
2.2%
1.1%
1.1%
1.8%
$42.36
42.36
42.36
42.36
41.99
Expiration Date
March 11, 2010
March 11, 2010
March 11, 2010
March 11, 2010
March 18, 2015
Grant Date
Present Value(3)
$205,655
205,655
102,827
102,827
211,573
Name
. . . . . .
Ann M. Sardini
Thilo Semmelbauer
. . .
Melanie Stubbing . . . . .
Russell Burke . . . . . . .
Russell Burke . . . . . . .
(1) Options were granted during fiscal 2005 under the terms of our equity plans. None of these options were
exercised during fiscal 2005. Options are exercisable based on vesting provisions outlined in the underlying
option agreement.
(2) Percentages of total options granted are based on total grants made to all employees during fiscal 2005.
(3) The estimated grant dates 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 expected term of 5 to 7 years; (c) dividend yield of 0%; (d) volatility of 28.5% and (e) a risk
free interest rate of 4.22% to 4.34%. The ultimate value, if any, an optionee will realize upon exercise of an
option will depend on the excess of the market value of our common stock over the exercise price of the
option.
Under our 2004 Plan and 1999 Plan, we have the ability to grant stock options, restricted stock,
stock appreciation rights and other stock-based awards. Generally, stock options granted under the
1999 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 our achievement of certain performance
targets. For each year prior to and including 2003, these performance targets have been met. All new
options granted in 2003 and thereafter under this plan vest and become exercisable in annual
increments over one to five years and are not subject to performance targets. In any event, the options
become fully vested upon the occurrence of a change in control of our company.
In April 2000, our Board of Directors adopted the WeightWatchers.com Stock Incentive Plan
pursuant to which selected employees were granted options to purchase shares of WeightWatchers.com
common stock. Under this plan we had the ability to grant stock options, restricted stock, stock
appreciation rights and other stock-based awards of shares of WeightWatchers.com common stock. The
number of shares available for grant under this plan was 400,000 shares of authorized common stock of
WeightWatchers.com. No grants of options under this plan were made in fiscal 2005. At the time of our
acquisition of WeightWatchers.com stock in July 2005, all options issued under this plan were
repurchased. Effective immediately after the acquisition, our Board of Directors terminated this plan.
55
The following tables set forth the number and value of securities underlying unexercised options
held by each of our executive officers listed on the Summary Compensation Table above as of
December 31, 2005. None of our executive officers have any stock appreciation rights.
Aggregated Option Excercises in Fiscal 2005 and Option Values as of December 31, 2005
Weight Watchers
International Shares
Fiscal 2005
Acquired on
Exercise(#)
Value
Realized
Number of Weight Watchers
International Securities Underlying
Unexercised Options at
December 31, 2005
Value of Weight Watchers
International Unexercised
In-The-Money Options at
December 31, 2005
Exercisable(#) Unexercisable(#)
Exercisable
Unexercisable
—
—
—
—
—
—
—
—
—
—
358,483
80,000
20,000
18,800
5,000
160,000
75,000
80,000
45,700
40,000
$15,352,258
929,800
254,400
254,928
63,650
$1,740,800
846,250
1,017,600
543,317
400,625
Name
Linda Huett . . . . . . . . . .
Ann M. Sardini
. . . . . . .
Thilo Semmelbauer . . . . .
Melanie Stubbing . . . . . .
Russell Burke . . . . . . . . .
Value of
WeightWatchers.com
Number of WeightWatchers.com Unexercised In-The-Money
WeightWatchers.com Shares Securities Underlying Unexercised Options at December 31,
Options at December 31, 2005
Fiscal 2005
2005
Name
Linda Huett . . . . . . . . . . . .
Ann M. Sardini
. . . . . . . . .
Thilo Semmelbauer . . . . . . .
Melanie Stubbing . . . . . . . .
Russell Burke . . . . . . . . . . .
Acquired on
Exercise(#)
Value
Realized
11,385
11,385
—
—
—
$281,323
205,727
—
—
—
Exercisable(#) Unexercisable(#) Exercisable Unexercisable
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Name
Heinz Shares
Fiscal 2005
Number of Heinz(1)
Securities Underlying
Unexercised Options at
December 31, 2005
Value of Heinz
Unexercised In-The-Money
Options at December 31,
2005
Acquired on
Exercise(#) Realized Exercisable(#) Unexercisable(#) Exercisable Unexercisable
Value
Linda Huett
. . . . . . . . . . . . . . . .
Ann M. Sardini . . . . . . . . . . . . . .
Thilo Semmelbauer . . . . . . . . . . .
Melanie Stubbing . . . . . . . . . . . . .
Russell Burke . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
88,796
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1) Represents awards of options with respect to Heinz common stock that were made to the named executives
under the Heinz 1996 Stock Option Plan prior to our acquisition by Artal from Heinz in September 1999.
Director Compensation
Our executive director and our directors who are associated with The Invus Group, LLC, or Invus,
do not receive compensation. Mr. Reed, Ms. Evans and Mr. Bard receive (1) annual compensation in
the amount of $30,000, paid quarterly, half in cash and half in our common stock; (2) $1,000 per Audit
Committee meeting; (3) options for 2,000 shares of our common stock per year, each with an exercise
price equal to the closing price of our common stock on the day that the options are granted, a five
year life and vesting 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. During fiscal 2005, Mr. Reed and
Ms. Evans received their option grant on February 7, 2005 and Mr. Bard received his option grant on
November 12, 2005.
56
In addition, during fiscal 2005 and in connection with their service on the Special Committee of
independent directors of Weight Watchers International’s Board of Directors in connection with the
acquisition of WeightWatchers.com, (i) Mr. Bard, as Chairman of the Special Committee, received
compensation in the amount of $45,000 and Mr. Reed and Ms. Evans each received compensation in
the amount of $30,000, and (ii) each member of the Special Committee received reimbursement of
reasonable out-of-pocket expenses in connection with their service on the Special Committee.
Executive Savings and Profit Sharing Plan
We sponsor 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 our achievement of certain annual performance targets, and a discretionary
contribution component.
We 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 our profit sharing plan. This
non-qualified profit sharing plan has similar features to our profit sharing plan.
Continuity Agreements
Purpose; Covered Executives
The Board of Directors has determined that it is in the best interests of our stockholders to
reinforce and encourage the continued attention and dedication of our key executives to their duties
with us, without personal distraction or conflict of interest in circumstances that could arise in
connection with any change of ownership or control of us. Therefore, in October 2003, we entered into
continuity agreements with the following executives: Linda Huett, Ann Sardini, Robert Hollweg, and
certain other executive officers. These agreements contain terms that are substantially similar to each
other, except where described below.
Term of Agreements
These agreements have an initial term of three years from the date of execution, and continue to
renew annually thereafter unless either party provides 180-day advance written notice to the other party
that the term of the agreement will not renew. However, upon the occurrence of a ‘‘change in control’’
(as defined in the agreements), the term of the agreement may not terminate until the second
anniversary of the date of the change of ownership or control of us.
Severance Payments and Benefits
If, within two years following a change of ownership or control of us, an executive’s employment is
terminated without cause by us or for good reason by the executive (as such terms are defined in the
agreements), the following executives will receive the following payments and benefits:
(cid:129) Ms. Huett, Ms. Sardini and Mr. Hollweg are entitled to receive the following:
(i) A lump sum cash payment equal to three times the sum of (x) the executive’s annual base
salary on the date of the change in control (or, if higher, the annual base salary in effect
57
immediately prior to the giving of the notice of termination) and (y) the executive’s target
annual bonus (the ‘‘target bonus’’) in respect of fiscal year (a ‘‘fiscal year’’) in which the
termination occurs (or, if higher, the average annual bonus actually earned by the executive in
respect of the three full fiscal years prior to the year in which the notice of termination is
given) under our bonus plan;
(ii) A lump sum cash payment equal to the sum of (w) the executive’s unpaid base salary and
vacation days accrued through the date of termination, (x) the unpaid portion, if any, of
bonuses previously earned by the executive pursuant to our bonus plan, (y) in respect of the
fiscal year in which the date of termination occurs, the higher of (i) the pro rata portion of
the executive’s target bonus and (ii) if we are exceeding the performance targets established
under our bonus plan for such fiscal year as of the date of termination, the executive’s actual
annual bonus payable under our bonus plan based upon such achievement (this pro rata
portion in either case calculated from January 1 of such year through the date of termination)
(the ‘‘pro rata bonus’’), and (z) any other compensation previously deferred (excluding
qualified plan deferrals by the executive under or into our benefit plans);
(iii) Continued medical, dental, vision, and life insurance coverage (excluding accidental death and
disability insurance) (‘‘welfare benefit coverage’’) for the executive and the executive’s eligible
dependents or, to the extent welfare benefit coverage is not commercially available, such other
welfare benefit coverage reasonably acceptable to the executive, on the same basis as in effect
prior to the executive’s termination, for a period ending on the earlier of (x) the third
anniversary of the date of termination (this period, the ‘‘continuation period’’) and (y) the
commencement of comparable welfare benefit coverage by the executive with a subsequent
employer;
(iv) Continued provision of the perquisites the executive enjoyed prior to the date of termination
for a period ending on the earlier of (x) the end of the continuation period and (y) the receipt
by the executive of comparable perquisites from a subsequent employer;
(v) Immediate 100% vesting of all outstanding stock options, stock appreciation rights, phantom
stock units and restricted stock granted or issued by us prior to, on or upon the change in
control (to the extent not previously vested on or following the change in control);
(vi) Additional contributions by us to our qualified defined contribution plan and any other
retirement plans in which the executive participated prior to the date of termination during
the continuation period; provided, however, that where such contributions may not be
provided without adversely affecting the qualified status of such plan or where such
contributions are otherwise prohibited by any such plans, the executive shall instead receive an
additional lump sum payment equal to the contributions that would have been made during
the continuation period if the executive had remained employed with us during such period;
(vii) All other accrued or vested benefits in accordance with the terms of any applicable plan of
ours, which vested benefits shall include the executive’s otherwise unvested account balances
in our qualified defined contribution plan, which shall become vested as of the date of
termination; and
(viii) If requested by the executive, outplacement services will be provided by a professional
outplacement provider selected by the executive at a cost to us of not more than $30,000.
(cid:129) Certain other executive officers are entitled to receive all of the same payments and
benefits described above, with the following differences:
(cid:129) the severance multiple in clause (i) above is reduced to two;
58
(cid:129) the period of time during which welfare benefit coverage is provided as described in
clause (iii) above, and which perquisites are provided as described in clause (iv) above, is
reduced to the earlier of (x) the second anniversary of the date of termination of
employment and (y) the commencement of comparable welfare benefit coverage and
perquisites, respectively, by the executive with a subsequent employer;
(cid:129) the contributions made by us into our qualified defined contribution plan and any other
retirement plans in which the executives participated (or lump sum payments in respect
thereof), as described in clause (vi) above, will only be in respect of the same period in
respect of which comparable welfare benefit coverage is provided, as described in clause (b)
above; and
(cid:129) the cost of outplacement services provided to the executives as described in clause (viii)
above shall not be more than $15,000.
Excess Parachute Payment Excise Taxes
If (i) it is determined that the payments and benefits provided under the agreements or otherwise
in the aggregate (a ‘‘parachute payment’’) would be subject to the excise tax imposed under the U.S.
Internal Revenue Code, and the aggregate value of the parachute payment exceeds a certain threshold
amount, calculated under the U.S. Internal Revenue Code (the ‘‘base amount’’) by 5% or less, then
(ii) the parachute payment will be reduced to the extent necessary so that the aggregate value of the
parachute payment is equal to an amount that is less than such threshold amount; provided, however,
that if the aggregate value of the parachute payment exceeds the threshold amount by more than 5%,
then the executive will be entitled to receive an additional payment or payments in an amount such
that, after payment by the executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including any excise tax, imposed upon this payment, the executive retains an
amount equal to the excise tax imposed upon the parachute payment.
Compensation and Benefits Committee Interlocks and Insider Participation
None of our 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 our Compensation and Benefits Committee.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The following table sets forth information regarding the beneficial ownership of our common stock
by (i) all persons known by us to own beneficially more than 5% of our common stock, (ii) our
president and chief executive officer and each of the named executive officers, (iii) each director and
(iv) all directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the SEC. In computing the
number of shares beneficially owned by a person and the percentage ownership of that person, shares
of our common stock subject to (i) options held by that person that are currently exercisable or
exercisable within 60 days of January 31, 2006, and (ii) shares of our common stock issuable upon the
vesting of restricted stock units within 60 days of January 31, 2006, are deemed issued and outstanding.
These shares, however, are not deemed outstanding for purposes of computing percentage ownership of
each other shareholder.
59
Our capital consists of our common stock and our preferred stock. As of January 31, 2006, there
were 100,454,369 shares of our common stock outstanding and zero (0) shares of our preferred stock
outstanding.
Name of Beneficial Owner
Artal Group S.A.(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
American Century Investment Management, Inc.(2) . . . . . . . . . .
Delaware Management Business Trust(3)
. . . . . . . . . . . . . . . . .
Linda Huett(4)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ann M. Sardini(4)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thilo Semmelbauer(4)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David P. Kirchhoff(4)(5)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert W. Hollweg(4)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Melanie Stubbing(4)(5)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Russell Burke(4)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Raymond Debbane(4)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Philippe Amouyal(4)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
John F. Bard(4)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marsha Johnson Evans(4)(5)
Jonas M. Fajgenbaum(4)
Sacha Lainovic(4)
Sam K. Reed(4)(5)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Christopher J. Sobecki(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All directors and executive officers as a group (15 people)(6) . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
As of
January 31, 2006
Shares
Percent
64,265,825
64.0%
5,810,011
5,519,833
450,691
80,000
20,000
5,964
247,706
18,800
8,125
—
—
9,102
9,384
—
—
19,384
—
869,156
5.8%
5.5%
*
*
*
*
*
*
*
—
—
*
*
—
—
*
—
*
*
Less than 1.0%
(1) The information concerning Artal Group S.A. is based on a Schedule 13D filed with the SEC on March 18, 2004 by
Westend S.A., the parent company of Artal Group S.A., and other information known to us. Artal Group S.A. is the parent
of Artal International S.A., which, in turn, is the parent of each of Artal Luxembourg S.A. and Artal Services N.V. Artal
Services N.V. is the parent of Artal Participations & Management S.A. Artal Luxembourg S.A. is the parent of Artal
Holdings Sp. z o.o. As of January 31, 2006, Artal Holdings Sp. z o.o was the record owner of 59,772,567 of our shares and
Artal Participations & Management S.A. was the record owner of 4,493,258 of our shares. As a result of the foregoing, Artal
International S.A., Artal Group S.A. and Westend S.A. may each be deemed to be the beneficial owner of all of our shares
held of record by Artal Holdings Sp. z o.o and Artal Participations & Management S.A. The address of Artal Holdings
Sp. z o.o and Artal Participations & Management S.A. is 105, Grand-Rue, L-1661 Luxembourg, Luxembourg. The address of
Westend S.A., Artal Group S.A., Artal Luxembourg S.A. and Artal International S.A., is the same as Artal Holdings
Sp. z o.o and Artal Participations & Management S.A. The address of Artal Services N.V. is Woluwedal, 28 B-1932 St.
Stevens—Woluwe Belgium.
(2) Based on Amendment No. 1 to Schedule 13G filed with the SEC on February 14, 2006 by American Century Investment
Management, Inc., American Century Companies, Inc. and American Century Mutual Funds, Inc., American Century
Investment Management and American Century Companies, its parent, have beneficial ownership of 5,810,011 shares, and
American Century Mutual Funds, Inc. has beneficial ownership of 5,319,871 shares. Each of American Century Investment
Management and American Century Companies has sole voting power over 5,524,551 shares and sole dispositive power over
5,810,011 shares and American Century Mutual Funds has sole voting power and sole dispositive power over 5,319,871
shares. The address of these entities is 4500 Main Street, 9th Floor, Kansas City, Missouri 64111.
60
(3) Based on a Schedule 13G filed with the SEC on February 9, 2006 by Delaware Management Holdings, Inc. and Delaware
Management Business Trust, Delaware Management Holdings and Delaware Management Business Trust, each of which
whose ultimate parent is Lincoln National Corporation, have beneficial ownership of 5,519,833 shares. Each of Delaware
Management Holdings and Delaware Management Business Trust has sole voting power over 5,211,366 shares, shared voting
power over 293,467 shares, sole dispositive power over 5,354,033 shares, and shared dispositive power over 165,800 shares.
The address of these entities is 2005 Market Street, Philadelphia, Pennsylvania 19103.
(4) Our executive officers and directors may be contacted c/o Weight Watchers International, Inc., 11 Madison Avenue, 17th
Floor, New York, New York 10010.
(5) Number of shares beneficially owned includes shares subject to purchase upon exercise of options exercisable within 60 days
after January 31, 2006, as follows: Ms. Huett 358,483 shares; Ms. Sardini 80,000 shares; Mr. Semmelbauer 20,000 shares;
Mr. Hollweg 161,322 shares; Ms. Stubbing 18,800 shares; Mr. Burke 7,500 shares; Mr. Bard 6,000 shares; Ms. Evans 2,000
shares; and Mr. Reed 8,000 shares. The number of shares beneficially owned also includes restricted stock unit awards
vesting within 60 days after January 31, 2006 as follows: Mr. Kirchhoff 2,586 shares and Mr. Burke 625 shares.
(6) Mr. Debbane is also a director of Artal Group S.A. Artal Group S.A. is the parent entity of Artal International S.A., which
is the parent entity of Artal Luxembourg S.A., which in turn is the parent entity of Artal Holdings Sp. z o.o. Artal
International S.A. is the parent entity of Artal Services N.V., which is the parent entity of Artal Participations &
Management S.A. Mr. Debbane may be deemed to share beneficial ownership of all shares owned by Artal Holdings
Sp. z o.o and Artal Participations & Management S.A. but disclaims such beneficial ownership.
Item 13. Certain Relationships and Related Transactions
Shareholders’ Agreements
Shortly after our acquisition by Artal, we entered into a shareholders’ agreement with Artal and
Merchant Capital, Inc., Richard and Heather Penn, Longisland International Limited, Envoy Partners
and Scotiabanc, Inc. relating to their rights with respect to our common stock held by parties, other
than Artal. Without the consent of Artal, transfers of our common stock by these shareholders are
restricted with certain exceptions. Subsequent transferees of our 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 our
common stock by Artal and grants Artal the right to require the other shareholders to participate on a
pro rata basis in certain transfers of our common stock by Artal.
Registration Rights Agreement
Simultaneously with the closing of our acquisition by Artal, we entered into a registration rights
agreement with Artal and Heinz. The registration rights agreement grants Artal the right to require us
to register shares of our common stock for public sale under the Securities Act (1) upon demand and
(2) in the event that we conduct certain types of registered offerings. Heinz has sold all shares of our
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 us to register and sell their stock in the event that we conduct
certain types of registered offerings.
Corporate Agreement
We entered into a corporate agreement with Artal in November 2001 which was amended in
July 2005. We agreed that so long as Artal beneficially owns 10% or more, but less than a majority of
our then outstanding voting stock, Artal will have the right to nominate a number of directors
approximately equal to that percentage multiplied by the number of directors on our board. This right
to nominate directors will not restrict Artal from nominating a greater number of directors.
61
We agreed with Artal that both we and Artal have the right to:
(cid:129) engage in the same or similar business activities as the other party;
(cid:129) do business with any customer or client of the other party; and
(cid:129) employ or engage any officer or employee of the other party.
Neither Artal nor we, nor our 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 our officers or directors who also serves as an officer,
director or advisor of Artal becomes aware of a potential transaction related primarily to the group
education-based weight-loss business or an internet diet business, as defined, that may represent a
corporate opportunity for both Artal and us, the officer, director or advisor has no duty to present that
opportunity to Artal, and we will have the sole right to pursue the transaction if our Board of Directors
so determines. If one of our officers or directors who also serves as an officer, director or advisor of
Artal becomes aware of any other potential transaction that may represent a corporate opportunity for
both Artal and us, the officer or director will have a duty to present that opportunity to Artal, and
Artal will have the sole right to pursue the transaction if Artal so determines. If one of our officers or
directors who does not serve as an officer, director or advisor of Artal becomes aware of a potential
transaction that may represent a corporate opportunity for both Artal and us, neither the officer nor
the director nor we have a duty to present that opportunity to Artal, and we may pursue the
transaction if our Board of Directors so determines. If any officer, director or advisor of Artal who
does not serve as an officer or director of us becomes aware of a potential transaction that may
represent a corporate opportunity for both Artal and us, neither the officer, director, advisor, nor Artal
has a duty to present that opportunity to us and Artal may pursue the transaction if it so determines.
If Artal transfers, sells or otherwise disposes of our then outstanding voting stock, the transferee
will generally succeed to the same rights that Artal has under this agreement by virtue of its ownership
of our voting stock, subject to Artal’s option not to transfer those rights.
WeightWatchers.com Intellectual Property License
In September 2001, Weight Watchers International entered into an amended and restated
intellectual property license agreement with WeightWatchers.com that governs WeightWatchers.com’s
right to use our 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 our 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 we own; (3) use any
of our 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 we and our 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 our 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 began paying Weight Watchers International a
royalty of 10% of the net revenues it earns through its online activities. For fiscal 2005, prior to the
62
acquisition of WeightWatchers.com in July 2005, Weight Watchers International earned royalties of
$5.4 million. For fiscal 2004, Weight Watchers International earned royalties of $8.2 million.
Weight Watchers International retains exclusive ownership of all of the trademarks and materials
that it licenses to WeightWatchers.com and of the derivative works created by WeightWatchers.com. All
of the rights granted to WeightWatchers.com in the license agreement are subject to Weight Watchers
International’s pre-existing agreements with third parties, including franchisees. The license agreement
provides Weight Watchers International with control over the use of our intellectual property. In
particular, Weight Watchers International has the right to approve WeightWatchers.com’s e-commerce
activities, any materials, sublicenses, communication to consumers, products, privacy policy, marketing
programs and materials publicly displayed on the Internet. These controls are designed to protect the
value of our intellectual property. WeightWatchers.com and Weight Watchers International jointly own
user data collected through the website and both parties are required to adhere to the site’s privacy
policy.
WeightWatchers.com Service Agreement
Simultaneously with the signing of the amended and restated intellectual property license, we
entered into a service agreement with WeightWatchers.com, under which WeightWatchers.com provides
the following types of services:
(cid:129) information distribution services, which include the hosting, displaying and distributing on the
Internet of information relating to us and our affiliates and franchisees;
(cid:129) marketing services, which include the hosting, displaying and distributing on the Internet of
information relating to our products and services such as classroom meetings, the Weight
Watchers Magazine and At Home and similar products and services from our affiliates and
franchisees; and
(cid:129) customer communication services, which include establishing a means by which customers can
communicate with us on the Internet to ask questions related to our products and services and
the products and services of our affiliates and franchisees.
Weight Watchers International is required to pay for all expenses incurred by WeightWatchers.com
directly attributable to the services it performs under this agreement, plus a fee of 10% of those
expenses. For fiscal 2005, prior to the acquisition of WeightWatchers.com in July 2005, Weight Watchers
International service fees incurred by Weight Watchers International to WeightWatchers.com were
$1.4 million. In fiscal 2004, service fees incurred by Weight Watchers International to
WeightWatchers.com were $2.3 million.
Acquisition of WeightWatchers.com
On June 13, 2005, we entered into an agreement to acquire control of our licensee and affiliate,
WeightWatchers.com. On July 1 and 2, 2005, we increased our ownership interest in
WeightWatchers.com from approximately 20% to approximately 53% by (i) exercising warrants to
purchase WeightWatchers.com common stock for a total purchase price of approximately $45.7 million,
(ii) acquiring shares of WeightWatchers.com common stock owned by the employees of
WeightWatchers.com and other parties not related to Artal through a merger of a subsidiary of ours
with WeightWatchers.com for a total purchase price of approximately $28.4 million and (iii) acquiring
additional shares of WeightWatchers.com common stock, representing outstanding stock options then
held by WeightWatchers.com employees, for a total purchase of approximately $62.3 million.
On June 13, 2005, WeightWatchers.com also entered into a redemption agreement with Artal to
purchase all of the shares of WeightWatchers.com owned by Artal at the same price per share as we
paid in the merger.
63
Subsequently, on December 16, 2005 WeightWatchers.com redeemed all of its outstanding common
stock held by Artal for a total price of approximately $304.8 million. WeightWatchers.com used cash on
hand and the proceeds of the WW.com Credit Facilities in the aggregate amount of $215.0 million to
finance this redemption as well as pay related fees and expenses. As a result of this redemption, we
now own 100% of WeightWatchers.com.
The transactions described above relating to WeightWatchers.com were evaluated, negotiated and
recommended by a Special Committee of Weight Watchers International’s Board of Directors,
consisting of its independent directors.
Invus is the exclusive investment advisor to Artal. The principals of Invus received customary
compensation from Artal in connection with this transaction. Certain of our directors, Mr. Debbane,
Mr. Amouyal, Mr. Fajgenbaum, Mr. Lainovic and Mr. Sobecki, are principals of Invus.
Item 14. Principal Accountant Fees and Services
Principal Accountant Fees and Services
Aggregate fees for professional services rendered to us by PricewaterhouseCoopers LLP for fiscal
2005 and fiscal 2004:
Audit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit Related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,856,999
268,954
409,362
111,857
$1,640,306
—
257,200
15,071
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,647,172
$1,912,577
Fiscal 2005
Fiscal 2004
Audit Fees
Audit fees for fiscal 2005 were for professional services rendered by PricewaterhouseCoopers LLP
in connection with their (i) integrated audits of our consolidated financial statements and internal
control over financial reporting as of and for the year ended December 31, 2005, including statutory
audits of the financial statements of our subsidiaries, (ii) reviews of our unaudited consolidated interim
financial statements as of October 1, 2005, July 2, 2005 and April 2, 2005, and (iii) reviews of
documents filed with the SEC.
Audit fees for fiscal 2004 were for professional services rendered by PricewaterhouseCoopers LLP
in connection with their (i) integrated audits of our consolidated financial statements and internal
control over financial reporting as of and for the year ended January 1, 2005, including statutory audits
of the financial statements of our subsidiaries, (ii) reviews of our unaudited consolidated interim
financial statements as of October 2, 2004, July 3, 2004, and April 3, 2004 and (iii) reviews of
documents filed with the SEC.
Audit Related Fees
The Audit Related fees for fiscal 2005 were for professional services rendered by
PricewaterhouseCoopers LLP related to due diligence for acquisitions and accounting consultations.
Tax Fees
Tax fees for fiscal 2005 and fiscal 2004 were for services rendered by PricewaterhouseCoopers LLP
primarily related to tax compliance and international tax planning and strategies.
64
All Other Fees
All other fees for fiscal 2005 and fiscal 2004 were for services rendered by PricewaterhouseCoopers
LLP primarily related to employee benefit plan advisory services.
All audit related services, tax services and other services were pre-approved by the Audit
Committee, which concluded that the provision of such services by PricewaterhouseCoopers LLP was
compatible with the maintenance of that firm’s independence in the conduct of its auditing functions.
The Audit Committee’s Audit and Non-Audit Services Pre-Approval Policy provides for pre-approval of
audit, audit-related and tax services by category so long as such services are specifically described to the
Audit Committee on an annual basis (e.g., in the engagement letter) (‘‘general pre-approval’’). In
addition, individual engagements that have not received general pre-approval and/or are anticipated to
exceed pre-established thresholds must be separately approved in advance on a case-by-case basis
(‘‘specific pre-approval’’). The Audit Committee is mindful of the relationship between fees for audit
and non-audit services in deciding whether to pre-approve any such servicers and may choose to
determine, for a particular year, an appropriate ratio between the total amount of fees for Audit,
Audit-related and Tax services and the total amount of fees for certain permissible non-audit services
classified as All Other services. The policy authorizes the Audit Committee to delegate to one or more
of its members pre-approval authority with respect to permitted services. In its Audit and Non-Audit
Services Pre-Approval Policy, the Audit Committee delegated specific pre-approved authority to its
chairperson, provided that the estimated fee for any such proposed pre-approval service does not
exceed $50,000.
65
Item 15. Exhibits and Financial Statement Schedules
1.
Financial Statements
PART IV
The financial statements listed in the Index to Financial Statements and Financial Statement
Schedule on page F-1 are filed as part of this Annual Report on 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 Annual Report on Form 10-K.
3. Exhibits
The exhibits listed in the Exhibit Index are filed as part of this Annual Report on Form 10-K.
66
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE COVERED BY
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Items 15(a) 1 & 2
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets at December 31, 2005 and January 1, 2005 . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the fiscal years ended December 31, 2005, January 1,
2005 and January 3, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Shareholders’ Equity (Deficit), for the fiscal years ended
December 31, 2005, January 1, 2005 and January 3, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2005,
January 1, 2005 and January 3, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pages
F-2
F-4
F-5
F-6
F-7
F-8
Schedule II—Valuation and Qualifying Accounts and Reserves for the fiscal years ended
December 31, 2005, January 1, 2005 and January 3, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . .
S-1
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-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Weight Watchers International, Inc.:
We have completed integrated audits of Weight Watchers International Inc.’s 2005 and 2004
consolidated financial statements and of its internal control over financial reporting as of December 31,
2005 and an audit of its 2003 consolidated financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are
presented below.
Consolidated financial statements and financial statement schedule
In our opinion, the consolidated financial statements listed in the index appearing under Item
15(a)(1) on page F-1 present fairly, in all material respects, the financial position of Weight Watchers
International, Inc. and its subsidiaries (the ‘‘Company’’) at December 31, 2005 and January 1, 2005, and
the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2005 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 15(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 the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit of financial statements 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.
Internal control over financial reporting
Also, in our opinion, management’s assessment, included in Management’s Report on Internal
Control over Financial Reporting appearing under Item 9A, that the Company maintained effective
internal control over financial reporting as of December 31, 2005 based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria.
Furthermore, in our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2005, based on criteria established in Internal
Control—Integrated Framework issued by COSO. The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility is to express opinions on management’s
assessment and on the effectiveness of the Company’s internal control over financial reporting based on
our audit. We conducted our audit of internal control over financial reporting in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. An audit of internal control
over financial reporting includes obtaining an understanding of internal control over financial reporting,
evaluating management’s assessment, testing and evaluating the design and operating effectiveness of
internal control, and performing such other procedures as we consider necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinions.
F-2
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
New York, New York
February 27, 2006
F-3
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AT
(IN THOUSANDS)
ASSETS
CURRENT ASSETS
$2,008)
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables (net of allowances: December 31, 2005—$1,882 and January 1, 2005—
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise rights acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Trademarks and other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred financing costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2005
January 1,
2005
$ 31,476
$ 35,156
28,040
31,678
25,638
10,878
127,710
20,775
555,604
51,305
8,837
61,917
6,145
3,198
21,778
32,929
31,636
4,317
125,816
17,480
557,121
25,125
5,721
77,964
3,240
3,719
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 835,491
$ 816,186
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Portion of long-term debt due within one year . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries and wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies (Note 14)
SHAREHOLDERS’ EQUITY (DEFICIT)
Dividend to Artal Luxembourg S.A.
Common stock, $0 par 1,000,000 shares authorized; 111,988 shares issued and
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost, 11,410 shares at December 31, 2005 and 9,575 shares at
January 1, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL SHAREHOLDERS’ EQUITY (DEFICIT) . . . . . . . . . . . . . . . . . . . .
$
4,700
19,714
30,688
51,337
13,710
7,250
38,489
165,888
741,425
26
8,803
916,142
(304,835)
—
(390,864)
(8,417)
617,470
5,995
(80,651)
$
3,000
20,760
27,173
35,079
34,684
4,844
27,082
152,622
466,125
715
285
619,747
—
—
(222,547)
(233)
413,425
5,794
196,439
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) . . . . . .
$ 835,491
$ 816,186
The accompanying notes are an integral part of the consolidated financial statements.
F-4
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE FISCAL YEARS ENDED
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Meeting fees, net
Product sales and other, net
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Online revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2005
January 1,
2005
(52 Weeks)
$ 681,097
360,497
109,657
(52 Weeks)
$ 629,097
330,833
64,989
January 3,
2004
(53 Weeks)
$607,204
336,728
—
Revenues, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,151,251
1,024,919
943,932
Cost of meetings, products and other . . . . . . . . . . . . . . . . . . . . .
Cost of online subscriptions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (income)/expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Early extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes and cumulative effect of accounting
493,910
26,772
520,682
630,569
158,252
169,825
302,492
20,969
2,208
—
468,312
18,810
440,398
—
487,122
440,398
537,797
503,534
134,791
97,121
305,885
16,759
(4,685)
4,264
113,603
73,862
316,069
33,698
2,774
47,368
change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
279,315
289,547
232,229
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before cumulative effect of accounting change . . . . . . .
Cumulative effect of accounting change, net of tax . . . . . . . . . .
104,913
174,402
—
94,522
88,288
195,025
(11,941)
143,941
—
Net income available to common shareholders . . . . . . . . . . .
$ 174,402
$ 183,084
$143,941
Basic Earnings Per Share:
Income before cumulative effect of accounting change . . . . . . .
Cumulative effect of accounting change, net of tax . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted Earnings Per Share:
Income before cumulative effect of accounting change . . . . . . .
Cumulative effect of accounting change, net of tax . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
1.70
—
1.70
1.67
—
1.67
$
$
$
$
1.86
(0.11)
1.75
1.82
(0.11)
1.71
$
$
$
$
1.35
—
1.35
1.31
—
1.31
102,747
104,203
104,704
106,676
106,985
109,724
The accompanying notes are an integral part of the consolidated financial statements.
F-5
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
(IN THOUSANDS)
Common Stock
Treasury Stock
Deferred
Accumulated
Other
Dividend
to Artal
Shares Amount Shares Amount Compensation Income (Loss)
Comprehensive Luxembourg Retained
Earnings
S.A.
Total
.
.
.
.
Balance at December 28, 2002 .
Comprehensive Income:
.
.
.
.
Net income .
Translation adjustment, net of taxes of
.
.
.
.
.
Changes in fair value of derivatives
$4,116 .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
accounted for as hedges, net of taxes
.
. .
of $1,687 .
.
.
.
.
.
.
.
.
.
.
.
.
Total Comprehensive Income .
.
.
.
.
.
.
.
.
.
.
Stock options exercised .
.
Tax benefit of stock options exercised .
.
Purchase of treasury stock .
.
Restricted stock issued to employees .
.
Compensation expense on restricted
.
.
.
stock awards
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Balance at January 3, 2004 .
.
.
.
.
.
.
Comprehensive Income:
.
.
.
.
.
.
.
.
.
.
($650) .
Net income .
.
.
.
Translation adjustment, net of taxes of
.
.
.
.
.
Changes in fair value of derivatives
accounted for as hedges, net of
.
taxes of ($128) .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Total Comprehensive Income .
.
.
.
.
.
.
.
.
.
.
.
.
Stock options exercised .
.
Tax benefit of stock options exercised .
.
Purchase of treasury stock .
.
.
Restricted stock issued to employees .
Compensation expense on restricted
.
.
.
. .
Cumulative effect of accounting change .
stock awards
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Balance at January 1, 2005 .
.
.
.
.
.
.
Comprehensive Income:
.
.
.
.
.
.
.
.
.
.
$853 .
.
.
.
Net income .
Translation adjustment, net of taxes of
.
.
.
. .
Changes in fair value of derivatives
accounted for as hedges, net of
.
taxes of ($942) .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Total Comprehensive Income .
.
.
.
.
.
.
.
.
.
.
employee stock plans
Issuance of treasury stock under
.
.
Tax benefit of stock options exercised .
.
Excersise of WW.com warrants .
.
.
Dividend to Artal Luxembourg S.A.
Purchase of treasury stock .
.
.
Restricted stock granted to employees .
Compensation expense on restricted
.
.
stock awards
. .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Balance at December 31, 2005 .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
111,988
$—
5,711 $ (23,061)
$
—
$(3,873)
$
— $ 73,482 $ 46,548
7,733
2,406
(856)
3,455
784
(28,815)
(267)
53
143,941
143,941
7,733
2,406
154,080
2,003
7,319
(28,815)
—
53
(1,452)
7,319
267
111,988
$—
5,639 $ (48,421)
$
(214)
$ 6,266
$
— $ 223,557 $ 181,188
(673)
201
(732)
2,955
4,668
(177,081)
(162)
143
183,084
183,084
(673)
201
182,612
1,879
7,678
(177,081)
—
143
20
(1,076)
7,678
162
20
111,988
$—
9,575 $(222,547)
$
(233)
$ 5,794
$
— $ 413,425 $ 196,439
174,402
174,402
(1,272)
1,473
(1,897)
7,663
3,732
(175,980)
(11,085)
2,901
(304,835)
(3,951)
26,770
(4,261)
11,085
(1,272)
1,473
174,603
3,712
26,770
(4,261)
(304,835)
(175,980)
—
2,901
111,988
$—
11,410 $(390,864)
$ (8,417)
$ 5,995
$(304,835) $ 617,470 $ (80,651)
The accompanying notes are an integral part of the consolidated financial statements
F-6
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE FISCAL YEARS ENDED
(IN THOUSANDS)
December 31,
2005
January 1,
2005
January 3,
2004
(52 Weeks)
(52 Weeks)
(53 Weeks)
Operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to cash provided by operating activities:
$ 174,402
$ 183,084
$ 143,941
Cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred financing costs . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock compensation expense . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on settlement of hedge . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized loss (gain) on derivative instruments . . . . . . . . . . . . . . . . . .
Repayments from equity investee . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve for inventory obsolescence, other . . . . . . . . . . . . . . . . . . . . . .
Foreign currency exchange rate (gain) loss
. . . . . . . . . . . . . . . . . . . . .
Early extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation expense associated with the WW.com acquisition . . . . . . . .
Tax benefit of stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . .
Other items, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in cash due to:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
12,817
879
2,901
—
11,184
—
—
629
6,044
1,576
—
43,590
26,770
2,714
(9,125)
(6,014)
6,302
(1,026)
25,102
13,225
(15,174)
11,941
8,935
1,308
143
(1,255)
22,023
1,318
(4,916)
728
5,474
(803)
4,264
—
7,678
144
(6,193)
2,718
(549)
(1,067)
(676)
4,533
13,606
—
5,894
1,248
53
5,381
16,677
(5,097)
(5,000)
552
4,627
7,271
47,368
—
7,319
(63)
861
1,149
(1,555)
(563)
(3,469)
(42)
6,547
Cash provided by operating activities
. . . . . . . . . . . . . . . . . . . . . . .
296,796
252,438
233,099
Investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Web site development expeditures . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments from equity investee . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for acquisitions
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other items, net
Cash used for investing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities:
Net increase in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from new term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of high-yield loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from settlement of hedge . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premium paid on extinguishment of debt and other costs . . . . . . . . . . . . . .
Deferred financing costs
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . .
(14,634)
(3,184)
—
(380,832)
(1,617)
(400,267)
1,329
65,000
(3,000)
215,000
—
—
—
(3,758)
(175,980)
4,563
Cash provided by/(used for) financing activities . . . . . . . . . . . . . . . . .
103,154
Effect of exchange rate changes on cash and cash equivalents and other
. . . . .
Impact of consolidating WeightWatchers.com . . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of fiscal year . . . . . . . . . . . . . . . . . . .
(3,365)
—
(3,680)
35,156
(5,163)
(1,557)
4,916
(61,881)
(2,189)
(65,874)
(1,609)
321,000
(456,055)
150,000
(15,541)
1,255
(1,331)
(2,896)
(177,081)
1,879
(180,379)
(164)
5,693
11,714
23,442
(5,029)
—
5,000
(210,470)
(1,121)
(211,620)
998
85,000
(58,447)
227,326
(244,919)
2,710
(42,980)
(2,366)
(28,815)
2,003
(59,490)
3,923
—
(34,088)
57,530
Cash and cash equivalents, end of fiscal year . . . . . . . . . . . . . . . . . . . . . . .
$ 31,476
$ 35,156
$ 23,442
The accompanying notes an integral part of the consolidated financial statements.
F-7
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. Basis of Presentation
The accompanying consolidated financial statements include the accounts of Weight Watchers
International, Inc., and its wholly-owned subsidiaries, which effective December 16, 2005 includes
WeightWatchers.com, Inc. and its subsidiaries (collectively, ‘‘WeightWatchers.com’’ or ‘‘WW.com’’).
From the second quarter of 2004 through the second quarter of 2005, WW.com was consolidated
pursuant to Financial Accounting Standards Board Interpretation No. 46R, ‘‘Consolidation of Variable
Interest Entities’’ (‘‘FIN 46R’’). As a result of Weight Watchers International’s increased ownership
interest in WW.com (see Note 2), beginning with the third quarter 2005, WW.com is consolidated
pursuant to Accounting Research Bulletin No. 51, ‘‘Consolidated Financial Statements.’’
The term ‘‘the Company’’ as used throughout this document is used to indicate Weight Watchers
International, Inc. and its wholly owned subsidiaries. The term ‘‘WWI’’ as used throughout this
document is used to indicate Weight Watchers International and its wholly-owned subsidiaries other
than WeightWatchers.com.
Recapitalization:
On September 29, 1999, WWI entered into a recapitalization and stock purchase agreement (the
‘‘Recapitalization’’) with its former parent, H.J. Heinz Company (‘‘Heinz’’). In connection with the
Recapitalization, WWI effectuated a stock split of 58,747.6 shares for each share outstanding and then
redeemed 164,442 shares of common stock from Heinz. After the redemption, Artal Luxembourg S.A.
(together with its affiliates, ‘‘Artal’’) purchased 94% of WWI’s remaining common stock from Heinz.
For U.S. Federal and State tax purposes, the Recapitalization was treated as a taxable sale under
Section 338(h)(10) of the Internal Revenue Code of 1986, as amended.
Secondary Stock Offerings:
On November 15, 2001, WWI completed a secondary offering of 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 pursuant to the public offering.
On September 23, 2002, WWI completed a secondary offering of 15,000 shares of common stock
at an initial price to the public of $42.00 per share. The Company did not receive any of the proceeds
from the sale of shares pursuant to this secondary offering.
Simultaneous with the Recapitalization, WWI entered into a Registration Rights Agreement with
Artal, under which WWI 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 WWI’s common stock offerings have been recorded in shareholders’
equity (deficit).
2.
Summary of Significant Accounting Policies
Fiscal Year:
The Company’s fiscal year ends on the Saturday closest to December 31st and consists of either 52
or 53-week periods. Fiscal year 2003 contained 53 weeks while fiscal years 2005 and 2004 contained 52
F-8
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
weeks. WeightWatchers.com’s fiscal year ends on December 31st of each year. This difference in fiscal
years does not have a material effect on the consolidated financial statements.
Consolidation:
On January 17, 2003, the Financial Accounting Standards Board (‘‘FASB’’) issued Interpretation
No. 46 (‘‘FIN 46’’), to clarify when an entity should consolidate another entity known as a variable
interest entity (‘‘VIE’’). The standard required that, under certain circumstances, separate businesses
with some common ownership be consolidated for financial reporting purposes. Upon adoption of the
original FIN 46, the Company would not have met those circumstances, and it therefore would not
have consolidated WeightWatchers.com’s financial statements.
On December 24, 2003, the FASB issued FIN 46R, which replaced FIN 46. FIN 46R is applicable
for financial statements issued for reporting periods after March 15, 2004. FIN 46R requires that an
entity consolidate a VIE if that enterprise has a variable interest that will absorb a majority of the
VIE’s expected losses, will receive a majority of the VIE’s expected residual returns, or both.
Based on the revisions in FIN 46R, WWI was required to reevaluate its relationship with its
affiliate and licensee, WeightWatchers.com. In the course of this reevaluation, it determined that
WeightWatchers.com was a VIE under FIN 46R and that WWI was its primary beneficiary. Effective
April 3, 2004, the Company consolidated WeightWatchers.com. In accordance with the provisions of
FIN 46R, the Company recorded a charge of $11,941, including a tax charge of $9,866, in the quarter
ended April 3, 2004 for the cumulative effect of this accounting change. This charge reflected the
cumulative impact to the Company’s results of operations had WeightWatchers.com been consolidated
since its inception in September 1999. Beginning in the first fiscal quarter ended April 3, 2004, the
Company’s consolidated balance sheet includes the balance sheet of WeightWatchers.com. Effective at
the beginning of the second fiscal quarter of 2004, the Company’s consolidated statement of operations
and statement of cash flows include the results of WeightWatchers.com. All intercompany balances have
been eliminated in consolidation.
On June 13, 2005, the Company entered into an agreement to acquire control of
WeightWatchers.com. On July 1 and 2, 2005, the Company increased its ownership interest in
WeightWatchers.com from approximately 20% to approximately 53% by exercising its outstanding
warrants to purchase WeightWatchers.com stock and by acquiring all of the equity interest in
WeightWatchers.com not owned by Artal. On December 16, 2005, WeightWatchers.com repurchased all
of its shares owned by Artal giving the Company a 100% ownership interest in WW.com. Because the
Company gained operational control of WW.com as of July 2, 2005, and as of December 16, 2005, owns
100% of WW.com beginning with the third quarter of fiscal 2005, the Company consolidates 100% of
the results of operations and financial position of WW.com under the traditional rules of consolidation
rather than under the provisions of FIN 46R. Since the Company adopted FIN 46R on the last day of
the first quarter of 2004, the annual consolidated results of operations for the Company are not
comparable with respect to the inclusion of WeightWatchers.com’s results for all periods presented.
However, the financial position of the Company for all periods presented is comparable.
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
F-9
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
liabilities at the date of the financial statements, and the reported amounts of revenues and expenses
during the reporting period. On an ongoing basis, the Company evaluates its estimates and judgments,
including those related to inventories, the impairment analysis for goodwill and other indefinite-lived
intangible assets, income taxes, and contingencies and litigation. The Company bases its estimates on
historical experience and on various other factors and assumptions that it believes to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual amounts 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 into U.S. dollars using the exchange rate in effect at the end of each
reporting period. Income statement accounts are translated at the average rate of exchange prevailing
during each reporting period. Translation adjustments arising from the use of differing exchange rates
from period to period are included in accumulated other comprehensive income (loss).
Foreign currency gains and losses arising from the translation of intercompany receivables with the
Company’s international subsidiaries are recorded as a component of other (income)/expense, net,
unless the receivable is considered long-term in nature, in which case the foreign currency gains and
losses are recorded as a component of other comprehensive income (loss).
Cash Equivalents:
Cash and cash equivalents are defined as highly liquid investments with original maturities of three
months or less. Cash balances may, at times, exceed insurable amounts. The Company believes it
mitigates this risk by investing in or through major financial institutions.
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 (3 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. 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:
In accordance with the provisions of Statement of Financial Accounting Standards (‘‘SFAS’’)
No. 144, ‘‘Accounting for the Impairment or Disposal of Long-Lived Assets,’’ the Company reviews
long-lived assets, including amortizable intangible assets, for impairment whenever events or changes in
business circumstances indicate that the carrying amount of the assets may not be fully recoverable.
F-10
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Intangible Assets:
In accordance with the provisions of SFAS No. 141, ‘‘Business Combinations’’ and SFAS No. 142,
‘‘Goodwill and Other Intangible Assets,’’ the Company no longer amortizes goodwill and other
indefinite-lived intangible assets but conducts an annual review of these assets for potential impairment.
Finite-lived intangible assets are amortized using the straight-line method over their estimated useful
lives of 3 to 20 years.
The Company accounts for software costs under the American Institute of Certified Public
Accountants (‘‘AICPA’’) Statement of Position No. 98-1, ‘‘Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use,’’ which requires capitalization of certain costs
incurred in connection with developing or obtaining internally used software. Software costs are
amortized over 3 to 5 years.
Pursuant to Emerging Issues Task Force No. 00-2, ‘‘Web Site Development Costs’’ (‘‘EITF 00-2’’),
WeightWatchers.com applies AICPA Statement of Position No. 98-1 to account for web site
development costs. In accordance with EITF 00-2, WeightWatchers.com expenses all costs incurred
during the preliminary project stage and capitalizes all internal and external direct costs of materials
and services consumed in developing the software, once the development has reached the application
development stage. Application development stage costs generally include software configuration,
coding, installation to hardware and testing. These costs are amortized over their estimated useful life,
which can range from 1.5 to 2 years. All costs incurred for upgrades, maintenance and enhancements,
including the cost of web site content, that does not result in additional functionality, are expensed as
incurred.
Revenue Recognition:
WWI earns revenue by conducting meetings, selling products and aids in our meetings and to our
franchisees, selling Internet subscription products, collecting commissions from franchisees, collecting
royalties related to licensing agreements and selling advertising space in and copies of our magazine.
We charge non-refundable registration fees in exchange for an introductory information session and
materials we provide to new members in our meeting business. Revenue from these registration fees is
recognized when the service and products are provided, which is generally at the same time payment is
received from the customer. Revenue from meeting fees, product sales, commissions and royalties is
recognized when services are rendered, products are shipped to customers and title and risk of loss
pass to the customer, and commissions and royalties are earned. Advertising revenue is recognized
when ads are published. Revenue from magazine sales is recognized when the magazine is sent to the
customer. Deferred revenue, consisting of prepaid meeting fees and magazine subscription revenue, is
amortized into income over the period earned. Discounts to customers, including free registration
offers, are recorded as a deduction from gross revenue in the period such revenue was recognized.
WeightWatchers.com primarily generates revenue from monthly Internet subscriptions. Subscription
fee revenues are recognized over the period that products are provided. One time sign up fees are
deferred and recognized over the expected customer relationship period. Subscription fee revenues that
are paid in advance are deferred and recognized on a straight-line basis over the subscription period.
We grant refunds under limited circumstances and at aggregate amounts that historically have not
been material. Because the period of payment of the refund generally approximates the period revenue
was originally recognized, refunds are recorded as a reduction of revenue when paid.
F-11
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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, except for TV and radio
media related costs that are expensed the first time the advertising takes place. Total advertising
expenses for the fiscal years ended December 31, 2005, January 1, 2005 and January 3, 2004 were
$151,533 (including $22,478 of WeightWatchers.com advertising costs), $128,116 (including $13,723 of
WeightWatchers.com advertising costs) and $107,931, respectively.
Income Taxes:
The Company accounts for income taxes in accordance with SFAS No. 109, ‘‘Accounting for
Income Taxes.’’ Under SFAS No. 109, deferred income tax assets and liabilities result primarily from
temporary differences between the financial statement and tax bases of assets and liabilities, using
enacted tax rates in effect for the year in which differences are expected to reverse. If it is more likely
than not that some portion of a deferred tax asset will not be realized, a valuation allowance is
recognized. We consider historic levels of income, estimates of future taxable income and feasible tax
planning strategies in assessing the need for a tax valuation allowance. We also establish an appropriate
level of additional provisions for income taxes in the event that certain positions, which we believe are
fully supportable, are challenged by the tax authorities. We adjust these additional provisions in light of
changing facts and circumstances. If our filing positions are ultimately upheld under audits by
respective taxing authorities, the provision for income taxes in future years will reflect favorable
adjustments. In addition, under SFAS No. 109 assets and liabilities acquired in purchase business
combinations are assigned their fair values and deferred taxes are provided for lower or higher tax
bases.
Derivative Instruments and Hedging:
Prior to the extinguishment of the euro denominated notes in 2004 (as described in Note 6), the
Company entered into forward and swap contracts to hedge transactions denominated in foreign
currencies in order to reduce the currency risk associated with fluctuating exchange rates. These
contracts were used primarily to hedge payments arising from those foreign currency denominated
obligations. The Company currently enters into interest rate swaps to hedge a substantial portion of its
variable rate debt. These contracts are used primarily to reduce the risk associated with variable
interest rate debt obligations.
In accordance with the provisions of SFAS No. 133, ‘‘Accounting for Derivative Instruments and
Hedging Activities,’’ and its related amendments, SFAS No. 138, ‘‘Accounting for Certain Derivative
Instruments and Certain Hedging Activities’’ and SFAS No. 149, ‘‘Amendment of Statement on
Derivative Instruments and Hedging Activities,’’ all derivative financial instruments are recorded on the
consolidated balance sheets at their fair value as either assets or liabilities. Changes in the fair value of
derivatives are 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) are included in earnings in the periods in which earnings are
affected by the hedged item. The receivable or payable associated with derivative contracts is included
in the balance of prepaid expenses or accounts payable, respectively.
F-12
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Investments:
The Company uses the cost method to account for investments in which it holds 20% or less of
the investee’s voting stock and over which it does not have significant influence. When the Company
holds 50% or less of the investee’s voting stock and has the ability to exercise significant influence over
operating and financial policies of the investee, the investment is accounted for under the equity
method, unless the provisions of FIN 46R apply, as was the case with WeightWatchers.com.
Deferred Financing Costs:
Deferred financing costs consist of fees paid by the Company as part of the establishment,
exchange and/or modification of the Company’s long-term debt. During the fiscal years ended
December 31, 2005 and January 1, 2005, the Company incurred additional deferred financing costs of
$3,758 and $2,896, respectively, associated with the establishment of the WW.com Credit Facilities (as
defined in Note 6) and the refinancing of WWI’s Credit Facility (as defined in Note 6). Such costs are
being amortized using the interest rate method over the term of the related debt. Amortization expense
for the fiscal years ended December 31, 2005, January 1, 2005 and January 3, 2004 was $879, $1,308
and $1,248, respectively. In connection with the early extinguishment of over 90% of its Senior
Subordinated Notes, the Company wrote off $4,387 of deferred financing costs in the fiscal year ended
January 3, 2004. Additionally, in connection with the refinancing of WWI’s Credit Facility, the
Company wrote off deferred financing costs of $2,933 in the fiscal year ended January 1, 2005. These
amounts have been recorded as components of early extinguishment of debt. See Note 6 for details of
the early extinguishment and refinancing.
Comprehensive Income (Loss):
Comprehensive income (loss) represents the change in shareholders’ equity (deficit) resulting from
transactions other than shareholder investments and distributions. The Company’s comprehensive
income (loss) includes net income, changes in the fair value of derivative instruments and the effects of
foreign currency translations. At December 31, 2005 and January 1, 2005, the cumulative balance of
changes in fair value of derivative instruments, net of taxes, is $1,402 and ($70), respectively. As of
December 31, 2005 and January 1, 2005, the cumulative balance of the effects of foreign currency
translations, net of taxes, is $4,592 and $5,864, respectively.
F-13
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Stock Based Compensation:
In December 2002, the FASB issued SFAS No. 148, ‘‘Accounting for Stock-Based Compensation—
Transition and Disclosure,’’ an amendment of SFAS No. 123, ‘‘Accounting for Stock-Based
Compensation.’’ SFAS No. 148 provides two additional alternative transition methods for recognizing
an entity’s voluntary decision to change its method of accounting for stock-based employee
compensation to the fair value method. In addition, SFAS No. 148 amends the disclosure requirements
of SFAS No. 123 so that entities following the intrinsic value method of Accounting Principles Board
Opinion No. 25, ‘‘Accounting for Stock Issued to Employees’’ (‘‘APB 25’’), will be required to disclose
the pro forma effect of using the fair value method for any period for which an income statement is
presented. The disclosures are required to be made in annual financial statements and in quarterly
information provided to shareholders without regard to whether the entity has adopted the fair value
recognition provisions of SFAS No. 123. The Company adopted the disclosure provisions of SFAS
No. 148 beginning in the first quarter of 2003.
At December 31, 2005, the Company had stock-based employee compensation plans, which are
described more fully in Note 9. As permitted by SFAS No. 123, the Company applies the recognition
and measurement principles of APB No. 25 ‘‘Accounting for Stock Issued to Employees,’’ and related
interpretations in accounting for those plans. Except for costs incurred in connection with the
acquisition of WW.com (See Note 3), no compensation expense for employee stock options is reflected
in earnings, as all options granted under the plans had an exercise price equal to the market value of
the common stock on the date of grant.
The following table illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of SFAS No. 123 in each fiscal year:
Net income, as reported . . . . . . . . . . . . . . . . . . . . . . . . .
$174,402
$183,084
$143,941
December 31,
2005
January 1,
2005
January 3,
2004
Add:
Total stock-based employee compensation expense as
recorded under FIN 44 and APB 25, net of related
tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deduct:
Total stock-based employee compensation expense
determined under the fair value method for all stock
options awards, net of related tax effect
. . . . . . . . . .
27,680
—
—
(31,663)
(4,223)
(2,036)
Pro forma net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
$170,419
$178,861
$141,905
Earnings per share:
Basic—as reported . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic—pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted—as reported . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted—pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
1.70
1.66
1.67
1.64
$
$
$
$
1.75
1.71
1.71
1.67
$
$
$
$
1.35
1.33
1.31
1.29
F-14
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Recently Issued Accounting Standard:
In December 2004, the Financial Accounting Standards Board issued Statement No. 123R, ‘‘Share-
Based Payment’’ (‘‘FAS 123R’’), which replaces FAS 123, ‘‘Accounting for Stock-Based Compensation’’
and supersedes Accounting Principles Board Opinion 25, ‘‘Accounting for Stock Issued to Employees.’’
FAS 123R eliminates the option of using the intrinsic value method to record compensation expense
related to stock-based awards granted to employees and instead requires companies to recognize the
cost of such awards based on their grant-date fair value over the related service period of such awards.
In April 2005, the Securities and Exchange Commission approved a new rule that amended the
effective date of FAS 123R for public companies, and the Company will now be required to, and will,
adopt this standard beginning in the first quarter of 2006.
In accordance with FAS 123R, the Company has elected to apply the modified prospective
transition method to all past awards outstanding and unvested as of the date of adoption and will
recognize the associated expense over the remaining vesting period based on the fair values previously
determined and disclosed as part of its pro-forma disclosures. The Company will not restate the results
of prior periods. Prior to the effective date of FAS 123R, the Company will continue to provide the pro
forma disclosures for past award grants as required under FAS 123. The Company believes the
incremental expense that will be recognized in accordance with FAS 123R for fiscal 2006 will be
approximately $6.0 million. However, the total expense recorded in future periods, including fiscal 2006,
will depend on several variables, including the number of stock-based awards that are granted in future
periods and the fair value of those awards.
The American Jobs Creation Act of 2004 (the ‘‘AJCA’’) was enacted on October 22, 2004 and
includes a special one-time deduction of 85% of certain foreign earnings repatriated to the U.S. In
December 2004, the FASB issued FSP FAS 109-2, Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation Provision within the AJCA, allowing companies additional time to evaluate the
effect of the AJCA on plans for reinvestment or repatriation of foreign earnings. This legislation did
not have a material impact on the Company’s results of operations or cash flows.
Reclassification:
Certain prior year amounts have been reclassified to conform to the current year presentation.
3. Acquisitions
Summary
The acquisitions of certain assets of Weight Watchers of Dallas, Inc. and Pedebud, Inc., eight of
fifteen franchises of The WW Group, Inc. and its affiliates, Weight Watchers of Fort Worth, Inc. and
F-W Family Corporation 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
their dates of acquisition. Details of these acquisitions are outlined below.
Pursuant to a merger agreement effective July 2, 2005, the last day of the second quarter, WWI
increased its ownership interest in WW.com from approximately 20% to approximately 53% for a total
cash outlay of $136,385, including $107,900 paid to WW.com. Further to this, on December 16, 2005,
WW.com redeemed all of the equity interests in WW.com owned by Artal for the aggregate cash
consideration of $304,835. As a result of this redemption, WW.com became a wholly-owned subsidiary
of WWI. See further discussion below for the accounting treatment of this transaction.
F-15
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Franchise Acquisitions
On March 30, 2003, the Company completed the acquisition of certain assets of eight of the fifteen
franchises of The WW Group, Inc. and its affiliates (the ‘‘WW Group’’) pursuant to the terms of an
Asset Purchase Agreement executed on March 31, 2003 among the WW Group, The WW Group East
L.L.C., The WW Group West L.L.C., Cuida Kilos, S.A. de C.V., Weight Watchers North America, Inc.
and the Company. The purchase price for the acquisition was $180,700 plus assumed liabilities of $448
and acquisition costs of $866. The Company completed the purchase price allocation in the fourth
quarter of 2003 as follows: franchise rights ($177,128), inventory ($2,741), prepaid expenses ($36) and
property and equipment ($2,109). The acquisition was financed through cash from operations and
additional borrowings of $85,000 under a new Term Loan D under WWI’s Credit Facility, as amended
on April 1, 2003 (as described in Note 6).
On November 30, 2003, the Company completed the acquisition of certain assets of two of its
franchisees, Weight Watchers of Dallas, Inc. and Pedebud, Inc. (d/b/a Weight Watchers of Northern
New Mexico), pursuant to the terms of a combined asset purchase agreement with these two entities
(collectively ‘‘Dallas/New Mexico’’) and the Company. The purchase price was $27,200 plus assumed
liabilities of $300, and was allocated to franchise rights ($26,874), property and equipment ($412), and
inventory ($214). The acquisition was financed through cash from operations. Pro forma results of
operations, assuming this acquisition had been completed at the beginning of fiscal 2003, would not
differ materially from the reported results.
During 2003, the Company also completed the acquisition of franchises in Mexico and Hong Kong,
as well as a third party entity, Easy Slim, for a total purchase price of $1,271, which was paid with cash
from operations. As a result of these three acquisitions, the Company recorded goodwill of $395 and
franchise rights of $1,326. Pro forma results of operations, assuming these acquisitions had been
completed at the beginning of fiscal 2003, would not differ materially from the reported results.
On May 9, 2004, the Company completed the acquisition of certain assets of its Washington, D.C.
area franchisee, F-W Family Corporation (d/b/a Weight Watchers of Washington, D.C.) for a purchase
price of $30,500, which was financed through cash from operations, plus assumed liabilities of $348.
The total purchase price has been allocated to franchise rights ($30,286), fixed assets ($300), inventory
($228) and other assets ($52). Pro forma results of operations, assuming this acquisition had been
completed at the beginning of each period presented, would not differ materially from the reported
results.
On August 22, 2004, the Company completed the acquisition of certain assets of its Fort Worth
franchisee, Weight Watchers of Fort Worth, Inc., for a purchase price of $30,000, which was financed
through cash from operations. The purchase price has been allocated to franchise rights ($29,421), fixed
assets ($226), inventory ($286), and other assets ($67). Pro forma results of operations, assuming this
acquisition had been completed at the beginning of each period presented, would not differ materially
from the reported results.
Acquisition of WW.com
On June 13, 2005, WWI entered into an agreement to acquire its affiliate WW.com. As a result
WWI increased its ownership interest in WW.com from approximately 20% to approximately 53% as
follows: on July 1, 2005, WWI exercised its 6,395 warrants to purchase WW.com common stock for a
total price of $45,660; and on July 2, 2005, WWI acquired through a merger of a subsidiary of WWI
F-16
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
with WW.com (the ‘‘Merger’’), 1,126 shares of WW.com common stock owned by the employees of
WW.com and other parties not related to Artal for a total price of $28,383, and acquired an additional
2,759 shares of WW.com common stock, representing outstanding stock options then held by WW.com
employees, for a total price of $62,342.
The acquisition of the 1,126 shares represented shares owned outright by the employees of
WW.com and other parties not related to Artal. This component of the transaction has been accounted
for under the provisions of Statement of Financial Accounting Standards No. 141, ‘‘Business
Combinations,’’ (‘‘FAS 141’’). The acquisition of these shares resulted in an increase to goodwill of
$26,185 and an increase to finite-lived intangible assets of $1,161, primarily customer relations and
information technology. These amounts represent the excess of the purchase price of $28,383 over the
net book value of the assets acquired plus transaction costs.
The acquisition of the 2,759 shares represented vested and unvested options owned by employees
of WW.com. Because at the time of the acquisition of these shares Artal owned approximately 47% of
WW.com and is the parent company to WWI, the acquisition of these shares is considered to be a
transaction between entities under common control, and therefore, the provisions of FAS 141 are not
applicable. Under the guidance of FASB Interpretation No. 44, ‘‘Accounting for Certain Transactions
involving Stock Compensation,’’ (‘‘FIN 44’’), and Emerging Issues Task Force Issue No. 00-23, ‘‘Issues
Related to the Accounting for Stock Compensation under APB Opinion No. 25 and FIN 44,’’ (‘‘EITF
00-23’’), the Company was required to record a compensation charge related to the 2,293 vested
options of $39,647 in the second quarter 2005. This amount represents the difference between the
purchase price per share and the exercise price per share of the vested options. The 466 unvested
options were exchanged for 134 restricted stock units of WWI, resulting in deferred compensation of
$7,214, which will be recorded as compensation expense in future periods as the restricted stock units
vest.
In connection with the acquisition of the WW.com shares, WWI also purchased and canceled all
103 outstanding WW.com options held by WWI employees for a total settlement price of $2,415. Under
the guidance of FIN 44 and EITF 00-23, the Company was required to record the full settlement price
as a compensation charge in the second quarter 2005. This charge, coupled with the aforementioned
$39,647 compensation charge recorded in connection with the vested options held by WW.com
employees, resulted in a total compensation charge of $42,062, which was recorded as a component of
selling, general and administrative expenses in the second quarter of 2005.
On June 13, 2005, WW.com entered into a redemption agreement with Artal (the ‘‘Redemption’’)
to purchase the 12,092 shares of WW.com currently owned by Artal. Pursuant to the Redemption on
December 16, 2005, WW.com redeemed the remaining 47% of its outstanding shares of common stock
held by Artal for the aggregate cash consideration of $304,835, the same purchase price per share as
that paid by WWI in the merger. WW.com used cash on hand of approximately $89,800 and the
proceeds from two new credit facilities (see Note 6) which totaled $215,000. In accordance with the
provisions of SFAS No. 150, ‘‘Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity,’’ because at the time of the Redemption Artal owned approximately 47% of
WW.com and is the parent company of WWI, the Redemption was considered to be a transaction
between entities under common control. Therefore, the redemption was recorded as a Dividend to
Artal in the stockholders’ equity section of the balance sheet.
F-17
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
4. Goodwill and Other Intangible Assets
In accordance with SFAS No. 142, the Company no longer amortizes goodwill or other indefinite
lived intangible assets. The Company performed fair value impairment testing as of December 31, 2005
and January 1, 2005 on its goodwill and other indefinite-lived intangible assets and determined that no
impairment existed. Unamortized goodwill is due mainly to the acquisition of the Company by Heinz in
1978 and the aforementioned transactions with WW.com. For the year ended December 31, 2005,
goodwill increased primarily due to WWI’s increased ownership interest in WW.com (see Note 3).
Franchise rights acquired are due mainly to acquisitions of the Company’s franchised territories. For
the year ended December 31, 2005, franchise rights acquired decreased due to foreign currency
fluctuations. The balance in goodwill increased during the year ended January 1, 2005 primarily due to
the Company’s purchase of the minority interest in one of its foreign subsidiaries.
Also, in accordance with SFAS No. 142, aggregate amortization expense for finite lived intangible
assets was recorded in the amounts of $4,206, (including $2,710 for amortization of intangible assets of
WeightWatchers.com), $2,274 (including $1,061 for amortization of intangible assets of
WeightWatchers.com) and $1,062 for the fiscal years ended December 31, 2005, January 1, 2005 and
January 3, 2004, respectively.
The carrying amount of amortized intangible assets as of December 31, 2005 and January 1, 2005
was as follows:
Deferred software costs . . . . . . . . . . . . . . . . . .
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-compete agreement . . . . . . . . . . . . . . . . .
Web site development costs . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2005
January 1, 2005
Gross
Carrying
Amount
$ 7,435
8,112
1,200
9,998
5,382
Accumulated
Amortization
$ 4,280
7,352
1,200
6,661
3,797
Gross
Carrying
Amount
$ 5,050
7,811
1,200
6,815
4,108
Accumulated
Amortization
$ 3,035
7,098
1,175
4,624
3,331
$32,127
$23,290
$24,984
$19,263
Estimated amortization expense of existing finite lived intangible assets for the next five fiscal years
is as follows:
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,342
$2,029
$ 746
$ 154
92
$
F-18
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5.
Property and Equipment
The components of property and equipment were:
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2005
January 1,
2005
$14,887
43,754
58,641
$ 10,984
39,870
50,854
Less: Accumulated depreciation and amortization . . . . . . . . . . . . . . .
(37,866)
(33,374)
$20,775
$ 17,480
Depreciation and amortization expense of property and equipment for the fiscal years ended
December 31, 2005, January 1, 2005 and January 3, 2004 was $7,808 (including $1,052 for depreciation
of assets of WeightWatchers.com), $6,661 (including $1,088 for depreciation of assets of
WeightWatchers.com) and $4,832, respectively.
6. Long-Term Debt
The Company’s components of long-term debt are as follows:
Revolver due 2009 . . . . . . . . . . . . . . . . . . . . . . . . .
Term Loan B due 2010 . . . . . . . . . . . . . . . . . . . . . .
Additional Term Loan B due 2010 . . . . . . . . . . . . . .
Senior Secured First Lien Term Loan . . . . . . . . . . .
Senior Secured Second Lien Term Loan . . . . . . . . . .
Less Current Portion . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2005
January 1, 2005
Balance
$236,000
147,000
148,125
170,000
45,000
746,125
4,700
$741,425
Effective
rate
Balance
5.22% $171,000
5.04% 148,500
4.81% 149,625
—
6.62%
—
9.12%
Effective
rate
3.24%
3.24%
3.60%
469,125
3,000
$466,125
Credit Facility
WWI’s Credit Agreement dated as of January 16, 2001 and as amended and restated as of
December 21, 2001, April 1, 2003, August 21, 2003, January 21, 2004 and October 19, 2004 (the
‘‘Credit Facility’’) consists of Term Loans and a revolving line of credit (‘‘the Revolver.’’)
On January 21, 2004, WWI refinanced its Credit Facility as follows: the Term Loan A, Term Loan
B, and the transferable loan certificate (the ‘‘TLC’’) in the aggregate amount of $454,180 were repaid
and replaced with a new Term Loan B in the amount of $150,000 and borrowings under the Revolver
of $310,000. In connection with this refinancing, available borrowings under the Revolver increased
F-19
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
from $45,000 to $350,000. At December 31, 2005, WWI had $112,200 of availability under the
Revolver.
Due to the early extinguishment of the Term Loans resulting from the January 21, 2004
refinancing, the Company recognized expenses of $3,254 for the three months ended April 3, 2004,
which included the write-off of unamortized debt issuance costs of $2,933 and $321 of fees associated
with the transaction.
On October 1, 2004, the Company repurchased and retired the remaining balance of its 13%
Senior Subordinated Notes in the amounts of $5,100 USD denominated and A8,400 euro-denominated.
Due to this early extinguishment of debt, the Company recognized expenses of $1,010 in the quarter
ended October 2, 2004 related to redemption premiums associated with this redemption.
On October 19, 2004, WWI supplemented its net borrowing capacity by adding an Additional Term
Loan B to its existing Credit Facility in the amount of $150,000. Coterminous with the previously
existing Credit Facility, these funds were initially used to reduce borrowings under WWI’s Revolver,
resulting in no increase in WWI’s net borrowing.
On June 24, 2005, WWI amended certain provisions of its Credit Facility to allow for the
December 16, 2005 Redemption, as described in Note 3.
WWI’s Term Loan B and the Revolver bear interest at an annual rate equal to LIBOR plus 1.75%
or, at WWI’s option, the alternate base rate (as defined in the Credit Facility) plus 0.75%. The
additional Term Loan B bears interest at an annual rate equal to LIBOR plus 1.50%, or at WWI’s
options, the alternative base rate (as defined in the Credit Facility), plus 0.50%. In addition to paying
interest on outstanding principal under the Credit Facility, WWI is required to pay a commitment fee
to the lenders under the Revolver with respect to the unused commitments at a rate equal to 0.375%
per year.
WWI’s Credit Facility contains customary covenants including covenants that in certain
circumstances restrict WWI’s ability to incur additional indebtedness, pay dividends on and redeem
capital stock, make other restricted payments, including investments, sell its assets and enter into
consolidations, mergers, and transfers of all or substantially all of its assets. The Credit Facility also
requires WWI to maintain specified financial ratios and satisfy financial condition tests. The Credit
Facility contains customary events of default. Upon the occurrence of an event of default under the
Credit Facility, the lenders may cease making loans and declare amounts outstanding to be immediately
due and payable. The Credit Facility is guaranteed by certain of the Company’s existing and future
subsidiaries, other than WW.com and its subsidiaries. Substantially all the assets of WWI and these
subsidiaries collateralize the Credit Facility.
On November 4, 2005, Standard & Poor’s confirmed its ‘‘BB’’ rating for WWI’s corporate credit
and WWI’s Credit Facility. On March 11, 2005, Moody’s assigned a ‘‘BA1’’ rating for WWI’s Term
Loan B and additional Term Loan B and confirmed its ‘‘BA1’’ rating for WWI’s Credit Facility.
WW.com Credit Facilities
On December 16, 2005, WW.com, borrowed $215,000 pursuant to two credit facilities (the
‘‘WW.com Credit Facilities’’), consisting of (i) a five year, senior secured first lien term loan facility in
F-20
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
an aggregate principal amount of $170,000 (the ‘‘First Lien Term Credit Facility’’) and (ii) a five and
one-half year, senior secured second lien term loan facility in an aggregate principal amount of $45,000
(the ‘‘Second Lien Term Credit Facility’’). The WW.com Credit Facilities are governed by two credit
agreements among WW.com, Credit Suisse, as administrative agent and collateral agent, and the
lenders party thereto (collectively, the ‘‘Lenders’’). Each of WW.com’s existing and future domestic
subsidiaries have guaranteed the Credit Facilities and the WW.com Credit Facilities are secured by
substantially all the assets of WW.com and these subsidiaries. WWI has not guaranteed the WW.com
Credit Facilities.
The First Lien Term Credit Facility bears an interest rate equal to LIBOR plus 2.25% per annum,
or, at WW.com’s option, the alternate base rate, as defined, plus 1.25% per annum. The Second Lien
Term Credit Facility bears an interest rate equal to LIBOR plus 4.75% per annum or, at WW.com’s
option, the alternate base rate, as defined, plus 3.75% per annum.
Loans outstanding under the WW.com Credit Facilities (i) must be prepaid with certain
percentages of excess cash flow and net cash proceeds of asset sales, issuances, offerings or placements
of debt obligations of WW.com and issuances of equity securities of WW.com; and (ii) may be
voluntarily prepaid at any time in whole or in part without premium or penalty, with certain exceptions
depending upon the date of payment. The rights and priorities of the Lenders under the WW.com
Credit Facilities are governed by an intercreditor agreement.
The WW.com Credit Facilities contain customary covenants, including affirmative and negative
covenants that, in certain circumstances, restrict WW.com’s ability to incur additional indebtedness, pay
dividends on and redeem capital stock, make other restricted payments, including investments, sell
WW.com assets and enter into consolidations, mergers and transfer of all or substantially all of
WW.com’s assets. The WW.com Credit Facilities also require WW.com to maintain specified financial
ratios and satisfy financial condition tests, which become move restrictive over time. The WW.com
Credit Facilities contain customary events of default. Upon the occurrence of an event of default under
the WW.com Credit Facilities, amounts outstanding may be immediately due and payable.
On November 4, 2005, Standard & Poor’s assigned its ‘‘B+’’ corporate credit rating to
WeightWatchers.com. In addition, Standard & Poor’s assigned ratings of ‘‘B+’’ to the First Lien Term
Credit Facility and ‘‘B-’’ to the Second Lien Term Credit Facility. On November 2, 2005, Moody’s
assigned ratings of ‘‘Ba3’’ to the First Lien Term Credit Facility and ‘‘B1’’ to the Second Lien Term
Credit Facility.
Senior Subordinated Notes
As part of the Recapitalization, WWI issued $150,000 USD denominated and A100,000 euro
denominated principal amount of 13% Senior Subordinated Notes due 2009 (the ‘‘Notes’’) to qualified
institutional buyers.
In fiscal 2003, WWI successfully completed a tender offer and consent solicitation to purchase
96.6% of its $150,000 USD denominated ($144,900) and 91.6% of its A100,000 euro denominated
(A91,600) Notes. The consideration for the tender offer and consent solicitation was funded from cash
from operations of $57,292 and additional borrowings under the Credit Facility of $227,326 (as
described above). On October 1, 2004, WWI repurchased and retired the remaining balance of its
F-21
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Notes in the amounts of $5,100 USD denominated and A8,400 euro-denominated. Due to this early
extinguishment of debt, the Company recognized expenses of $1,010 in the fiscal year ended January 1,
2005 related to the redemption premiums associated with this redemption, and $47,368 in the fiscal
year ended January 3, 2004, which included tender premiums of $42,619, the write-off of unamortized
debt issuance costs of $4,387 and $362 of fees associated with the transaction.
At January 3, 2004, the euro notes of A8,388 translated into $10,564. The unrealized impact of the
change in foreign exchange rates related to euro denominated debt was reflected in other expense, net.
The Company used interest rate swaps and foreign currency forward contracts in association with its
debt. As of January 3, 2004, 100% of the Company’s euro denominated Notes were effectively hedged
through the use of a cash flow hedge.
Maturities
At December 31, 2005, the aggregate amounts of existing long-term debt maturing in each of the
next five years and thereafter are as follows:
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4,700
4,700
4,700
452,481
234,544
45,000
$746,125
7. Treasury Stock
On October 9, 2003, the Company, at the direction of WWI’s Board of Directors, authorized a
program to repurchase up to $250,000 of the Company’s outstanding common stock. On June 13, 2005,
the Company, at the direction of WWI’s Board of Directors, authorized adding $250,000 to this
program.
The repurchase program allows for shares to be purchased from time to time in the open market
or through privately negotiated transactions. No shares will be purchased from Artal under the
program.
From October 9, 2003 through December 31, 2005, the Company purchased 9,184 shares of
common stock in the open market for a total cost of $381,877. This included 784 shares purchased in
the fourth quarter of 2003 for a total price of $28,815. In fiscal 2005 and 2004, the Company purchased
3,732 and 4,668 shares of common stock in the open market at a total cost of $175,980 and $177,081,
respectively.
F-22
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(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 is calculated utilizing
the weighted average number of common shares outstanding adjusted for the effect of dilutive common
stock equivalents.
The following table sets forth the computation of basic and diluted EPS for the fiscal years ended:
December 31,
2005
January 1,
2005
January 3,
2004
Numerator:
Income available to common shareholders before cumulative
effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative effect of accounting change, net of tax . . . . . . . . . . .
$174,402
—
$195,025
(11,941)
$143,941
—
Net income available to common shareholders . . . . . . . . . . . . . .
$174,402
$183,084
$143,941
Denominator:
Weighted average common shares outstanding . . . . . . . . . . . . . .
Effect of dilutive stock options . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average diluted common shares outstanding . . . . . . . .
102,747
1,456
104,203
104,704
2,281
106,676
3,048
106,985
109,724
Basic EPS:
Income available to common shareholders before cumulative
effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative effect of accounting change, net of tax . . . . . . . . . . .
Net income available to common shareholders . . . . . . . . . . . . . .
Diluted EPS:
Income available to common shareholders before cumulative
effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative effect of accounting change, net of tax . . . . . . . . . . .
Net income available to common shareholders . . . . . . . . . . . . . .
$
$
$
$
1.70
—
1.70
1.67
—
1.67
$
$
$
$
1.86
(0.11)
1.75
1.82
(0.11)
1.71
$
$
$
$
1.35
—
1.35
1.31
—
1.31
For the fiscal 2005, 2004 and 2003 computations 281, 410 and 391 stock options, respectively, were
excluded from the calculation of weighted average shares for diluted EPS because their effects were
anti-dilutive.
F-23
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9.
Stock Plans
WWI Incentive Compensation Plans:
On May 12, 2004 and December 16, 1999, respectively, the WWI stockholders approved the 2004
Stock Incentive Plan (the ‘‘2004 Plan’’) and the 1999 Stock Purchase and Option Plan (the ‘‘1999
Plan’’) of WWI. These plans are designed to promote the long-term financial interests and growth of
WWI by attracting and retaining management with the ability to contribute to the success of the
business. The Board of Directors or a committee thereof administers the plans.
Under the 2004 Plan, grants may take the following forms at the committee’s sole discretion:
incentive stock options, stock appreciation rights, restricted stock units and other stock-based awards.
The maximum number of shares available for grant under the 2004 Plan is 2,500 as of the plan’s
effective date.
Under the 1999 Plan, grants may take the following forms at 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 plan’s effective date. In 2001, the number of shares
available for grant was increased to 7,058 shares.
Under the stock purchase component of the 1999 Plan, 1,639 shares of common stock were sold to
45 members of WWI’s management group at a price of $2.13 to $4.04 per share.
Pursuant to the restricted stock components of the 2004 and the 1999 Plan, the Company granted
222, 5 and 7 shares of restricted stock to certain employees during fiscal 2005, 2004 and 2003,
respectively. The weighted average grant date fair value of these shares was $50.26, $39.01 and $39.35
for shares granted in fiscal 2005, 2004 and 2003, respectively. These shares vest over a period of 3 to
5 years and resulted in compensation expense of $2,902 and $143 for the fiscal years ended
December 31, 2005 and January 1, 2005, respectively. As of December 31, 2005 there were 181
unvested units and $8,417 of unamortized compensation expense.
Pursuant to the option components of the 2004 and the 1999 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 WWI’s common stock at an exercise price of $2.13 to $56.21. The options are
exercisable based on the terms outlined in the agreement. The options vest over a period of 3 to
5 years and the expiration terms range from 5 to 10 years. Options granted under the 2004 Plan and
the 1999 Plan are accounted for under the provisions of Accounting Principles Board Opinion (APB)
No. 25, ‘‘Accounting for Stock Issued to Employees,’’ and related interpretations. Accordingly, no
compensation expense has been recognized for stock options grants as all such grants had an exercise
price not less than fair market value on the date of grant. The table included in Note 2 illustrates the
effect on net income and earnings per share if the Company had applied the fair value method of
SFAS No. 123, ‘‘Accounting for Stock-Based Compensation.’’
F-24
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The fair value of each option, as calculated for purposes of Note 2, is estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted average assumptions:
December 31,
2005
January 1,
2005
January 3,
2004
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (years) . . . . . . . . . . . . . . . . . . . . . . .
A summary WWI’s stock option activity is as follows:
0%
0%
28.30%
32.40%
3.3-4.5% 2.3%-4.4% 2.6%-3.7%
5.8
0%
36.50%
5.6
5.8
December 31,
2005
January 1, 2005
January 3, 2004
Number
of
Shares
Weighted
average Number
exercise
price
of
Shares
Weighted
average Number
exercise
price
of
Shares
Weighted
average
exercise
price
Options outstanding,
Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . .
4,330 $14.80
4,501
$ 8.19
4,896
$ 3.68
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
690 $46.75
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,870) $ 2.41
(325) $37.94
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
855
$38.41
(732) $ 2.51
(294) $12.83
543
$40.61
(855) $ 2.29
(83) $14.63
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,825 $28.14
1,406 $14.45
2,201
4,330
2,872
263
$14.80
$ 3.56
$ 8.19
$ 2.80
4,501
2,971
827
$16.63
$14.40
$16.01
The following table summarizes information about WWI stock options outstanding at
December 31, 2005 by range of exercise price:
Range of
Exercise Prices
Shares
Outstanding
$2.13-$2.34
$4.04
$35.86-$42.27
$42.36-$56.21
770
209
1,204
642
2,825
Options Outstanding
Weighted
Average
Remaining
Contractual Life (Yrs.)
Options Exercisable
Weighted
Average
Exercise Price
Shares
Exercisable
Weighted
Average
Exercise Price
4.13
5.51
5.20
6.36
$ 2.13
$ 4.04
$38.79
$47.21
770
191
416
29
1,406
$ 2.13
$ 4.04
$39.92
$44.04
WeightWatchers.com Stock Incentive Plan of Weight Watchers International, Inc. and Subsidiaries:
In April 2000, the Board of Directors of WWI adopted the WeightWatchers.com Stock Incentive
Plan of Weight Watchers International, Inc. and Subsidiaries, pursuant to which selected employees
F-25
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
were granted options to purchase shares of common stock of WeightWatchers.com that are owned by
WWI. The number of shares available for grant under this plan is 400 shares of authorized common
stock of WeightWatchers.com. In connection with the acquisition of WW.com (See Note 3), the
Company purchased and canceled all 103 outstanding WW.com options granted under the plan in the
second quarter of 2005. Effective July 2, 2005, the Board of Directors of the Company terminated the
plan.
WeightWatchers.com Stock Option Plan
Prior to WWI’s acquisition of WW.com (See Note 3), WeightWatchers.com granted incentive stock
options and/or nonqualified stock options on its common stock to its employees, consultants and/or
certain non-employees under the terms of its stock option plans. In connection with the acquisition,
WWI acquired 2,759 shares of WW.com stock which represented vested and unvested options under the
plan. The 2,293 shares of vested options were acquired based upon the difference between the purchase
price per share and the exercise price per share. The 466 shares of unvested options were exchanged
for 134 restricted stock units of WWI.
Due to the adoption of FIN 46R (see Note 1), the fair value of stock options granted by
WeightWatchers.com are included in the pro forma footnote disclosures showing the impact to the
Company’s results had it adopted the fair value provisions of SFAS No. 123 (see Note 2). The fair
value of options granted by WeightWatchers.com during fiscal 2004 were estimated on their date of
grant using the Black-Scholes option pricing model with the following weighted average assumptions:
(a) dividend yield of 0%, (b) volatility of 64%, (c) risk-free interest rate of 3.0%—3.9% and
(d) expected term of 5 years.
10. Income Taxes
Prior to December 16, 2005 WWI and WeightWatchers.com were separate tax paying entities.
Effective with the completion of the Redemption (see Note 3) WW.com will be included with WWI’s
consolidated federal tax return. The following tables summarize the consolidated provision for U.S.
federal, state and foreign taxes on income:
December 31,
2005
January 1,
2005
January 3,
2004
Current:
U.S federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 61,871
8,811
23,047
$41,043
5,075
26,381
$40,527
10,740
20,344
$ 93,729
$72,499
$71,611
Deferred:
U.S federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 10,380
1,642
(838)
$20,705
1,900
(582)
$15,173
1,734
(230)
11,184
22,023
16,677
Total tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$104,913
$94,522
$88,288
F-26
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The components of the Company’s consolidated income before income taxes and the cumulative
effect of accounting change consist of the following:
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$212,085
67,230
$208,553
80,994
$170,196
62,033
$279,315
$289,547
$232,229
December 31,
2005
January 1,
2005
January 3,
2004
The difference between the U.S. federal statutory tax rate and the Company’s consolidated
effective tax rate are as follows:
December 31,
2005
January 1,
2005
January 3,
2004
U.S. federal statutory rate . . . . . . . . . . . . . . . . . . . . . . . .
Federal and state tax reserve reversal . . . . . . . . . . . . . . . .
States income taxes (net of federal benefit) . . . . . . . . . . .
Reduction in valuation allowance . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35.0%
(0.2)
2.8
(0.3)
0.3
37.6%
35.0%
(2.5)
2.7
(3.5)
0.9
32.6%
35.0%
(0.2)
4.0
—
(0.8)
38.0%
The deferred tax assets (liabilities) recorded on the Company’s consolidated balance sheet are as
follows:
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for estimated expenses . . . . . . . . . . . . . . . . . . . . .
Operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . .
Salaries and Wages
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2005
January 1,
2005
$ 54,622
5,741
11,385
3,317
5,034
(3,420)
$75,449
1,872
5,811
—
2,194
(1,593)
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 76,679
$83,733
Depreciation/amortization . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (6,168)
(820)
(198)
(3,974)
$ (2,109)
(1,061)
(85)
(3,756)
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . .
$(11,160)
$ (7,011)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 65,519
$76,722
As of December 31, 2005 and January 1, 2005, various foreign subsidiaries of WWI had net
operating loss carry forwards of approximately $20,572 and $7,956, respectively, most of which can be
carried forward indefinitely.
F-27
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
As discussed in Note 2, beginning in the first fiscal quarter ended April 3, 2004, the Company’s
consolidated balance sheet includes the balance sheet of WeightWatchers.com. Accordingly, on April 3,
2004, the Company consolidated a deferred tax asset in the amount of $10,248 primarily due to
WeightWatchers.com’s net operating loss carryforwards, which were offset by a full valuation allowance.
During 2004, WeightWatchers.com received current benefit of $5,546 from its deferred tax asset as a
result of the utilization of net operating loss carryforwards. In fiscal 2004, due to the recent trend in
profitability of WeightWatchers.com, it was concluded that it was more likely than not that
WeightWatchers.com would fully realize the benefit of its deferred tax assets. As such,
WeightWatchers.com reversed all of its remaining valuation allowance except for $1,593 relating to its
foreign operations. In fiscal 2005, due to the then recent trend in profitability of certain
WeightWatchers.com’s foreign operations, it was concluded that it was more likely than not that these
foreign operations would fully realize the benefit of its deferred tax assets. As such,
WeightWatchers.com reversed all of its remaining valuation allowance except for a full valuation
allowance of $575 relating to certain foreign operations.
Certain foreign operations of WWI have generated net operating loss carryforwards. It has been
determined that it is more likely than not that the deferred tax assets associated with these net
operating loss carryforwards will not be utilized. Therefore, a full valuation allowance of $2,845 has
been recorded.
As of December 31, 2005, WeightWatchers.com has net operating loss carryforwards of
approximately $19,000 for federal income tax purposes. These losses are available to reduce future
Weight Watchers International, Inc.’s consolidated taxable income and will begin to expire at varying
amounts after 2020.
The Company’s undistributed earnings of foreign subsidiaries are not considered to be reinvested
permanently. Accordingly, the Company has recorded all taxes, after taking into account foreign tax
credits, on the undistributed earnings of foreign subsidiaries.
11. Related Party Transactions
Transactions with WeightWatchers.com:
WeightWatchers.com was formed on September 22, 1999 to develop and market monthly
subscription weight loss plans on the Internet. WeightWatchers.com provides these weight management
products to consumers through paid access to specified areas of its website. It also provides marketing
services to WWI.
Due to the adoption of FIN 46R, the Company’s consolidated financial statements include the
financial statements of WeightWatchers.com beginning April 3, 2004. As a result, for all periods
through and including the first quarter of 2004, WWI’s transactions with WeightWatchers.com were not
considered intercompany activities and therefore, the resulting income/(expense) has been included in
the Company’s consolidated results of operations. Beginning in the second quarter of 2004 with the
adoption of FIN 46R, all transactions with WeightWatchers.com are now considered intercompany
activities and, therefore, are eliminated in consolidation.
Therefore, the Company’s consolidated results for the year ended December 31, 2005 contain no
income/(expense) related to WWI’s activities with WeightWatchers.com since all such activity was
eliminated in consolidation. However, the Company’s consolidated results for the year ended January 1,
F-28
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2005 include the income/(expense) resulting from WWI’s activities with WeightWatchers.com that took
place during the first quarter of fiscal 2004 and the Company’s consolidated results for the year ended
January 3, 2004 include all the income/(expense) resulting from WWI’s activities with
WeightWatchers.com that took place during each respective period.
Loan Agreement:
Pursuant to the amended loan agreement, dated September 10, 2001, between WWI and
WeightWatchers.com, WWI provided loans to WeightWatchers.com through fiscal 2001 aggregating
$34,500. By the end of 2001, having reviewed the loan balances quarterly for impairment, WWI
recorded a full valuation allowance against the balances. Beginning on January 1, 2002, the loan bears
interest at 13% per year. This loan has been fully repaid as of July 2, 2005.
For the years ended January 1, 2005 and January 3, 2004, the Company recorded interest income
of $949 and $4,219, respectively. Other income recorded by the Company resulting from loan
repayments was $4,917 and $5,000 for the years ended January 1, 2005 and January 3, 2004,
respectively.
Intellectual Property License:
WWI entered into an amended and restated intellectual property license agreement dated
September 29, 2001 with WeightWatchers.com. In fiscal 2002, WWI began earning royalties pursuant to
the agreement. For the years ended January 1, 2005 and January 3, 2004, the Company recorded
royalty income of $1,954 and $7,080, respectively, which was included in product sales and other, net.
Service Agreement:
Simultaneous with the signing of the amended and restated intellectual property license agreement,
WWI entered into a service agreement with WeightWatchers.com, under which WeightWatchers.com
provides certain types of services. WWI is required to pay for all expenses incurred by
WeightWatchers.com directly attributable to the services it performs under this agreement, plus a fee of
10% of those expenses. The Company recorded service expense of $558 and $1,971 for the years ended
January 1, 2005 and January 3, 2004, respectively, that was included in marketing expenses.
Ancillary Agreements:
In addition to the license agreement and service agreement, WWI and WW.com entered into
various ancillary agreements in the normal course of business related to the sharing of space, financial,
legal and administrative services, and other resources.
WeightWatchers.com Acquisition:
See Note 3 for a description of our acquisition of WW.com and the related transactions with Artal.
Heinz:
At the closing of the Recapitalization, WWI granted to Heinz an exclusive worldwide, royalty-free
license to use certain of our trademarks in connection with Heinz licensed products. Heinz paid WWI
an annual fee of $1,200 for five years in exchange for the Company serving as the custodian of these
trademarks.
F-29
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
As of January 1, 2005, other accrued liabilities included $1,519, consisting of food royalties
received on behalf of Heinz.
12. Employee Benefit Plans
The Company sponsors the Weight Watchers Savings Plan (the ‘‘Savings Plan’’) for salaried and
hourly employees of WWI. The Savings Plan is a defined contribution plan that 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. Expense related to these contributions for the fiscal years ended December 31, 2005, January 1,
2005 and January 3, 2004 was $1,529, $1,361 and $1,228, respectively.
The Company sponsors the Weight Watchers Profit Sharing Plan (the ‘‘Profit Sharing Plan’’) for all
full-time salaried employees of WWI 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 WWI’s achievement of certain annual performance targets, which
are determined annually by the Board of Directors. The Company also reserves the right to make
additional discretionary contributions to the Profit Sharing Plan. Expense related to these contributions
for the fiscal years ended December 31, 2005, January 1, 2005 and January 3, 2004 was $1,975, $1,808
and $1,655, respectively.
For certain senior management personnel of WWI, 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%. Expense related to this commitment for the fiscal years ended
December 31, 2005, January 1, 2005 and January 3, 2004 was $1,050, $947 and $774, respectively.
During fiscal 2002, the Company received a favorable determination letter from the IRS that
qualifies WWI’s Savings Plan under Section 401(a) of the IRS Code.
The Company also sponsors the WeightWatchers.com Savings Plan for salaried and hourly
employees of WeightWatchers.com. This plan is a defined contribution plan that permits employees to
contribute between 1% and 13% of eligible compensation on a pre-tax basis. There are no employer
matching contributions and therefore no expense is recognized for this plan in the consolidated
financial statements.
F-30
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
13. Cash Flow Information
December 31,
2005
January 1,
2005
January 3,
2004
Net cash paid during the year for:
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$18,030
$80,381
$13,564
$53,102
$38,533
$59,739
Noncash investing and financing activities were as follows:
Fair value of net assets acquired in connection with the
acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
$
811
$ 4,797
14. Commitments and Contingencies
Legal:
On February 18, 2005, WWI settled two lawsuits with CoolBrands International, Inc.
(‘‘CoolBrands’’) one filed by WWI to enforce the termination provisions of the CoolBrands ice cream
and frozen novelty license and the other filed by CoolBrands against WWI and Wells Dairy, Inc.
alleging breach of the CoolBrands license. CoolBrands will no longer manufacture, sell, market or
distribute ice cream and frozen novelty products using WWI’s trademarks.
The Company has agreed to settle a litigation filed on behalf of a purported class of employees
under the California Labor Code and the Federal Fair Labor Standards Act for $2.3 million plus other
costs and expenses. The settlement is subject to approval and certification of the class status by the
court.
Due to the nature of its activities, the Company is, at times, also subject to pending and
threatened legal actions that arise out of the normal course of business. We have had and continue to
have disputes with certain of our franchisees. 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, financial condition or cash flows.
Lease Commitments:
Minimum rental commitments under non-cancelable operating leases, primarily for office and
rental facilities, at December 31, 2005, consist of the following:
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$24,297
17,795
10,444
7,212
6,251
25,211
$91,210
F-31
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Total rent expense charged to operations under these leases for the fiscal years ended
December 31, 2005, January 1, 2005 and January 3, 2004 was $27,671 (including $1,561 related to rent
expense of WeightWatchers.com), $27,198 (including $1,167 related to rent expense of
WeightWatchers.com), and $23,855, respectively.
15. Segment and Geographic Data
Effective with the adoption of FIN 46R in the first quarter of 2004 (see Note 1), the Company has
two operating segments, each of which is a reportable segment: WWI and WeightWatchers.com. These
are two separate and distinct businesses for which discrete financial information is available. This
discrete financial information is maintained and managed separately and is reviewed regularly by the
chief operating decision maker. All intercompany activity is eliminated in consolidation.
Since FIN 46R was adopted as of the last day of the first quarter of 2004, WeightWatchers.com’s
results of operations for the three months ended April 3, 2004 have been included in the charge for the
cumulative effect of accounting change. Therefore, the measure of profitability for WeightWatchers.com
for the fiscal year ended January 1, 2005 includes only their results of operations beginning with the
second quarter of 2004. Prior to April 3, 2004, the Company was engaged principally in one line of
business, weight loss, products and services. Therefore, segment information is not presented for fiscal
2003.
F-32
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Information about the Company’s reportable operating segments is as follows:
Fiscal Year Ended December 31, 2005
Weight
Watchers
Weight
International Watchers.com
Intercompany
Eliminations
Consolidated
Revenues from external customers . . . . . . . . . . .
Intercompany revenue . . . . . . . . . . . . . . . . . . . .
$1,041,594
10,665
$109,657
3,102
$
— $1,151,251
—
(13,767)
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . .
$1,052,259
$112,759
(13,767)
$1,151,251
Depreciation and amortization . . . . . . . . . . . . . .
$
9,131
$
4,565
Operating income (loss) . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . .
Provision for taxes . . . . . . . . . . . . . . . . . . . . .
$ 310,413
$ (7,932)
$
$
— $
13,696
11
$ 302,492
20,969
2,208
104,913
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 189,834
$ (3,612)
$ (11,820)
$ 174,402
Weighted average diluted shares outstanding . . . .
104,203
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 914,959
$ 36,069
$(115,537)
$ 835,491
Fiscal Year Ended January 1, 2005
Weight
Watchers
Weight
International Watchers.com
Intercompany
Eliminations
Consolidated
Revenues from external customers . . . . . . . . . . .
Intercompany revenue . . . . . . . . . . . . . . . . . . . .
$ 959,930
6,205
$ 64,989
1,678
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . .
$ 966,135
$ 66,667
Depreciation and amortization . . . . . . . . . . . . . .
$
8,095
$
2,148
Operating income . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . .
Other income, net
. . . . . . . . . . . . . . . . . . . . .
Early extinguishment of debt . . . . . . . . . . . . . .
Provision for taxes . . . . . . . . . . . . . . . . . . . . .
Income before cumulative effect of accounting
$ 289,917
$ 16,011
$
$
$
— $1,024,919
—
(7,883)
(7,883)
$1,024,919
— $
10,243
(43)
$ 305,885
16,759
(4,685)
4,264
94,522
change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 179,234
$ 18,682
$
(2,891)
$ 195,025
Weighted average diluted shares outstanding . . . .
106,985
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 796,231
$ 30,793
$ (10,838)
$ 816,186
F-33
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table presents information about the Company’s sources of revenue and other
information by geographic area. There were no material amounts of sales or transfers among
geographic areas and no material amounts of United States export sales.
Revenues for the Fiscal Year Ended
December 31,
2005
January 1,
2005
NACO meeting fees . . . . . . . . . . . . . . . . . . . . . . . . . . .
International company-owned meeting fees . . . . . . . . . .
Product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Online revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 416,952
264,145
285,448
19,393
109,657
55,656
$ 373,119
255,978
274,640
18,789
64,989
37,404
January 3,
2004
$392,432
214,772
276,835
24,879
—
35,014
$1,151,251
$1,024,919
$943,932
Revenues for the Fiscal Year Ended
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Continental Europe . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australia, New Zealand and other . . . . . . . . . . . . . . . . .
$ 699,981
169,168
219,175
62,927
$ 606,916
163,338
196,953
57,712
December 31,
2005
January 1,
2005
January 3,
2004
$599,944
140,886
159,155
43,947
$1,151,251
$1,024,919
$943,932
Long-Lived Assets
December 31,
2005
January 1,
2005
January 3,
2004
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Continental Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australia, New Zealand and other . . . . . . . . . . . . . . . . . .
$ 603,356
2,342
4,589
26,234
$572,012
2,383
3,376
27,676
$506,004
2,653
3,153
26,431
$ 636,521
$605,447
$538,241
16. Financial Instruments
Fair Value of Financial Instruments:
The Company’s significant financial instruments include cash and cash equivalents, short and
long-term debt, and interest rate swap agreements.
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 31, 2005, the fair value of financial instruments held by the Company approximated the
recorded value.
F-34
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Derivative Instruments and Hedging:
Prior to the extinguishment of the Euro Notes (as described in Note 6), the Company entered into
forward and swap contracts to hedge transactions denominated in foreign currencies to reduce currency
risk associated with fluctuating exchange rates. These contracts were used primarily to hedge certain
foreign currency cash flows and for payments arising from those foreign currency denominated debt
obligations. The Company currently enters into interest rate swaps to hedge a substantial portion of its
variable rate debt. These contracts are used primarily to reduce the risk associated with variable
interest rate debt obligations. As of December 31, 2005, the Company held contracts to purchase
interest rate swaps with notional amounts totaling $257,500 and to sell interest rate swaps with notional
amounts totaling $257,500. As of January 1, 2005, the Company held contracts to purchase interest rate
swaps with notional amounts totaling $150,000 and to sell interest rate swaps with notional amounts
totaling $150,000. The Company is hedging forecasted transactions for periods not exceeding the next
three years. At December 31, 2005, given the current configuration of its debt, the Company estimates
that no derivative gains or losses reported in accumulated other comprehensive income (loss) will be
reclassified to the Statement of Operations within the next twelve months.
As of December 31, 2005 and January 1, 2005, cumulative losses for qualifying hedges were
reported as a component of accumulated other comprehensive income(loss) in the amount of $1,402
($2,300 before taxes) and $(70) ($(115) before taxes), respectively. The Company discontinued certain
of its cash flow hedges that were associated with the euro denominated Notes that were extinguished,
as described in Note 6. As such, in fiscal 2003, the Company reclassified a net loss of $5,381 from
accumulated other comprehensive income to other expense, net. In addition, the Company recorded
net proceeds of $2,710 from the gain on settlement in cash from financing activities in the Statement of
Cash Flows as cash flows from hedge transactions are classified in a manner consistent with the item
being hedged. The ineffective portion of changes in fair values of qualifying cash flow hedges was not
material. Prior to the extinguishment of the euro denominated Notes, the Company hedged 24% of the
outstanding principal of the euro Notes via forward contracts, subsequent to the extinguishment, but
prior to the repurchase of the remaining Notes, the Company was 100% hedged. As such, to offset
gains or losses from changes in foreign exchange rates related to the euro denominated Notes for the
fiscal years ended January 1, 2005 and January 3, 2004, the Company reclassified $6 ($9 before taxes)
and $310 ($508 before taxes) from accumulated other comprehensive income (loss) to other expense,
net.
For the fiscal year ended January 1, 2005 fair value adjustments for non-qualifying hedges resulted
in a reduction to net income of $798 ($1,309 before taxes), included within other expense, net.
F-35
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
17. Quarterly Financial Information (Unaudited)
The following is a summary of the unaudited quarterly consolidated results of operations for the
fiscal years ended December 31, 2005 and January 1, 2005.
For the Fiscal Quarters Ended
April 2,
2005
July 2,
2005
October 1,
2005
December 31,
2005
Fiscal year ended December 31, 2005
Revenues, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$329,998
90,027
51,628
$312,600
60,488
34,472
$257,483
84,663
49,452
$251,170
67,314
38,850
Basic EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.50
0.49
0.33
0.33
0.48
0.47
0.38
0.38
For the Fiscal Quarters Ended
April 3,
2004
July 3,
2004
October 2,
2004
January 1,
2005
Fiscal year ended January 1, 2005
Revenues, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$281,367
82,216
36,757
$264,892
86,974
52,886
$245,915
73,818
50,232
$232,745
62,877
43,209
Basic EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.35
0.34
0.50
0.49
0.48
0.47
0.42
0.41
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. Beginning in the second
quarter of fiscal 2004, the Company’s results include the results of WeightWatchers.com (see Note 2 for
further details). During the fiscal quarters ended July 2, 2005 and October 1, 2005, the Company
incurred expenses associated with the WW.com acquisition (See Note 3) of $46,082 and $309,
respectively.
F-36
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
Additions
Balance at Charged to
Beginning Costs and
Expenses
of Period
Charged
to Other
Accounts(2) Deductions(1)
Balance at
End
of Period
FISCAL YEAR ENDED DECEMBER 31, 2005
Allowance for doubtful accounts . . . . . . . . . .
Inventory reserves, other . . . . . . . . . . . . . . . .
Tax valuation allowance . . . . . . . . . . . . . . . .
$2,008
$2,908
$1,593
$ 629
$6,044
$2,845
$ —
$ —
$ —
$ (755)
$(6,381)
$(1,018)
$ 1,882
$ 2,571
$ 3,420
FISCAL YEAR ENDED JANUARY 1, 2005
Allowance for doubtful accounts . . . . . . . . . .
Inventory reserves, other . . . . . . . . . . . . . . . .
Tax valuation allowance . . . . . . . . . . . . . . . .
$ —
$1,049
$1,026
$2,666
$ —
$6,043
$ — $ — $10,249
(67)
$
$(5,801)
$(8,656)
$ 2,008
$ 2,908
$ 1,593
FISCAL YEAR ENDED JANUARY 3, 2004
Allowance for doubtful accounts . . . . . . . . . .
Inventory reserves, other . . . . . . . . . . . . . . . .
$ 707
$2,828
$ 557
$5,439
$ —
$ —
$ (238)
$(5,601)
$ 1,026
$ 2,666
(1) Primarily represents the utilization of established reserves, net of recoveries, where applicable.
(2) Represents WeightWatchers.com’s tax valuation allowance recorded via consoldiation under FIN 46R.
S-1
Exhibit
Number
**2.1
**2.2
**2.3
**3.1
**3.2
**3.3
**4.1
**4.2
**4.3
**10.1
EXHIBIT INDEX
Description
Asset Purchase Agreement, dated as of March 31, 2003, by and among the WW Group,
Inc., The WW Group East L.L.C., The WW Group West L.L.C., Cuida Kilos, S.A. de
C.V., Weight Watchers North America, Inc. and Weight Watchers International, Inc. is
incorporated herein by reference to Exhibit 2.1 filed with the Registrant’s Current Report
on Form 8-K dated April 1, 2003.
Agreement and Plan of Merger, by and among Weight Watchers International, Inc.,
WeightWatchers.com, Inc. and SCW Merger Sub, Inc. dated as of June 13, 2005 is
incorporated herein by reference to Exhibit 10.1 filed with the Registrant’s Quarterly
Report on Form 10-Q for the fiscal quarter ended July 2, 2005.
Redemption Agreement, by and among Artal Luxembourg, S.A., WeightWatchers.com
Inc., and Weight Watchers International, Inc., dated as of June 13, 2005 is incorporated
herein by reference to Exhibit 10.2 filed with the Registrant’s Quarterly Report on Form
10-Q for the fiscal quarter ended July 2, 2005.
Amended and Restated Articles of Incorporation of Weight Watchers International, Inc. is
incorporated herein by reference to Exhibit 3.1 filed with the Registrant’s Annual Report
on Form 10-K for the fiscal year ended December 29, 2001.
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 is incorporated herein by reference to Exhibit 3.3 filed with the Registrant’s Annual
Report on Form 10-K for the fiscal year ended December 29, 2001.
Amended and Restated By-laws of Weight Watchers International, Inc. is incorporated
herein by reference to Exhibit 3.2 filed with the Registrant’s Annual Report on Form
10-K for the fiscal year ended December 29, 2001.
Rights Agreement, dated as of November 15, 2001 between Weight Watchers
International Inc. and Equiserve Trust Company, N.A. is incorporated herein by reference
to Exhibit 4.5 to the Registrant’s Registration Statement on Form S-3 (File
No. 333-89444) as filed on May 31, 2002.
First Amendment dated as of November 4, 2003, to the Rights Agreement, dated as of
November 15, 2001 by and between Weight Watchers International, Inc. and EquiServe
Trust Company, N.A. is incorporated herein by reference to Exhibit 4.3 filed with the
Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended
September 27, 2003.
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.
Fifth Amended and Restated Credit Agreement, dated as of January 21, 2004, among
Weight Watchers International, Inc., Credit Suisse First Boston, The Bank of Nova Scotia
and various financial institutions is incorporated herein by reference to Exhibit 10.1 filed
with the Registrant’s Annual Report on Form 10-K for the fiscal year ended January 3,
2004.
Exhibit
Number
**10.2
**10.3
*10.4
*10.5
**10.6
**10.7
**10.8
**10.9
**10.10
**10.11
**10.12
**10.13
Description
Supplement, dated as of October 19, 2004, to the Fifth Amended and Restated Credit
Agreement, dated as of January 21, 2004, among Weight Watchers International, Inc. and
various financial institutions is incorporated herein by reference to Exhibit 10.1 filed with
the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended
October 2, 2004.
First Amendment, dated as of June 24, 2005, to the Fifth Amended and Restated Credit
Agreement, dated as of January 21, 2004, among Weight Watchers International, Inc.,
certain lenders thereto, Credit Suisse First Boston, as the syndication agent under the
Credit Facility and the Bank of Nova Scotia, as the administrative agent and lead arranger
for the additional facility under the Supplement is incorporated herein by reference to
Exhibit 10.6 filed with the Registrant’s Quarterly Report on Form 10-Q for the fiscal
quarter ended July 2, 2005.
First Lien Credit Agreement, dated as of December 16, 2005, among
WeightWatchers.com, Inc., Credit Suisse and various financial institutions.
Second Lien Credit Agreement, dated as of December 16, 2005, among
WeightWatchers.com, Inc., Credit Suisse and various financial institutions.
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 the Registrant’s Registration Statement on Form S-4 (File No. 333-92005) as
filed on December 2, 1999.
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 the Registrant’s Registration Statement on Form S-4 (File No. 333-92005) as
filed on December 2, 1999.
Operating Agreement, dated as of September 29, 1999, between Weight Watchers
International, Inc. and H.J. Heinz Company is incorporated herein by reference to
Exhibit 10.8 filed with the Registrant’s Registration Statement on Form S-4
(File No. 333-92005) as filed on December 2, 1999.
Stockholders’ Agreement, dated as of September 30, 1999, among Weight Watchers
International, Inc., Artal Luxembourg S.A., Merchant Capital, Inc., Logo Incorporated
Pty. Ltd., Longisland International Limited, Envoy Partners and Scotiabanc, Inc. is
incorporated herein by reference to Exhibit No. 10.9 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.
Weight Watchers Savings Plan, dated as of October 3, 1999, as amended, is incorporated
herein by reference to Exhibit 10.17 filed with the Registrant’s Annual Report on Form
10-K for the fiscal year ended December 29, 2001.
Weight Watchers Executive Profit Sharing Plan, dated as of October 4, 1999 is
incorporated herein by reference to Exhibit 10.18 filed with the 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 the Registrant’s
Annual Report on Form 10-K for the fiscal year ended April 29, 2000.
2004 Stock Incentive Plan of Weight Watchers International, Inc. and its Subsidiaries is
incorporated herein by reference to Appendix A of the Registrant’s Definitive Proxy
Statement on Schedule 14A filed on April 8, 2004.
Exhibit
Number
**10.14
**10.15
**10.16
**10.17
**10.18
**10.19
**10.20
**10.21
**10.22
**10.23
**10.24
**10.25
Description
Amendment to Weight Watchers International, Inc. 2004 Stock Incentive Plan is
incorporated herein by reference to Exhibit 10.5 filed with the Registrant’s Quarterly
Report on Form 10-Q for the fiscal quarter ended July 2, 2005.
WeightWatchers.com Stock Incentive Plan of Weight Watchers International, Inc. and
Subsidiaries is incorporated herein by reference to Exhibit 10.20 filed with the 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 10.21 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.
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 the Registrant’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 the Registrant’s Quarterly
Report on Form 10-Q for the quarterly period ended October 28, 2000.
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 the Registrant’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 the Registrant’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 Amended and Restated Note, dated as of October 1, 2000, by
WeightWatchers.com, Inc. to Weight Watchers International, Inc. is incorporated herein by
reference to Exhibit 10.24 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.
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.
Exhibit
Number
**10.26
**10.27
**10.28
**10.29
**10.30
**10.31
**10.32
**10.33
*10.34
*10.35
*21.1
*23.1
*31.1
*31.2
Description
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.
Amendment, dated as of July 1, 2005, to the Corporate Agreement, dated as of
November 5, 2001, by and between Weight Watchers International, Inc. and Artal
Luxembourg, S.A. is incorporated herein by reference to Exhibit 10.4 filed with the
Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 2, 2005.
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. 1 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-69362) as filed on October 29, 2001.
Form of Continuity Agreement, between Weight Watchers International, Inc. and certain
key executives (Chief Executive Officer, Chief Financial Officer and General Counsel) is
incorporated herein by reference to Exhibit No. 10.38 filed with the Registrant’s Annual
Report on Form 10-K for the fiscal year ended January 3, 2004.
Form of Continuity Agreement, between Weight Watchers International, Inc. and certain
key executives (certain executive officers) is incorporated herein by reference to
Exhibit No. 10.39 filed with the Registrant’s Annual Report on Form 10-K for the fiscal
year ended January 3, 2004.
Principal Stockholders Agreement among Weight Watchers International, Inc.,
WeightWatchers.com, Inc. and Artal Luxembourg, S.A., dated as of June 13, 2005 is
incorporated herein by reference to Exhibit 10.3 filed with the Registrant’s Quarterly
Report on Form 10-Q for the fiscal quarter ended July 2, 2005.
Form of Term Sheet for Employee Stock Awards and Form of Terms and Conditions for
Employee Stock Awards for the 1999 Stock Purchase and Option Plan of Weight
Watchers International Inc. and Subsidiaries and the 2004 Stock Incentive Plan of Weight
Watchers International Inc. and Subsidiaries.
Form of Term Sheet for Employee Restricted Stock Unit Awards and Form of Terms and
Conditions for Employee Restricted Stock Unit Awards for the 1999 Stock Purchase and
Option Plan of Weight Watchers International Inc. and Subsidiaries and the 2004 Stock
Incentive Plan of Weight Watchers International Inc. and Subsidiaries.
Subsidiaries of Weight Watchers International, Inc.
Consent of Independent Registered Public Accounting Firm.
Rule 13a-14(a) Certification by Linda Huett, President and Chief Executive Officer.
Rule 13a-14(a) Certification by Ann M. Sardini, Chief Financial Officer.
Exhibit
Number
***32.1
***32.2
Description
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
*
Filed herewith.
** Previously filed.
*** Pursuant to Commission Release No. 33-8212, this certification will be treated as ‘‘accompanying’’
this Form 10-K and not ‘‘filed’’ as part of such report for purposes of Section 18 of the Exchange
Act, or otherwise subject to the liability of Section 18 of the Exchange Act and this certification
will not be deemed to be incorporated by reference into any filing, under the Securities Act of
1933, as amended, or the Exchange Act, except to the extent that the registrant specifically
incorporates it by reference.
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.
SIGNATURES
Date: February 27, 2006
By:
/s/ LINDA HUETT
WEIGHT WATCHERS INTERNATIONAL, INC.
Linda Huett
President, Chief Executive Officer and Director
(Principal Executive Officer)
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.
SIGNATURES
Date: February 27, 2006
By:
/s/ LINDA HUETT
Linda Huett
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: February 27, 2006
By:
/s/ ANN M. SARDINI
Ann M. Sardini
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: February 27, 2006
By:
/s/ RAYMOND DEBBANE
Raymond Debbane
Director
Date: February 27, 2006
By:
/s/ JONAS M. FAJGENBAUM
Jonas M. Fajgenbaum
Director
Date: February 27, 2006
By:
/s/ SACHA LAINOVIC
Sacha Lainovic
Director
Date: February 27, 2006
By:
/s/ CHRISTOPHER J. SOBECKI
Christopher J. Sobecki
Director
Date: February 27, 2006
By:
/s/ SAM K. REED
Sam K. Reed
Director
Date: February 27, 2006
By:
/s/ MARSHA JOHNSON EVANS
Marsha Johnson Evans
Director
Date: February 27, 2006
By:
/s/ JOHN F. BARD
John F. Bard
Director
Date: February 27, 2006
By:
/s/ PHILIPPE J. AMOUYAL
Philippe J. Amouyal
Director
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Forms S-8
(Nos. 333-123642 and 333-74066) and Form S-3 (No. 333-127819) of Weight Watchers
International, Inc. of our report dated February 27, 2006 relating to the financial statements, financial
statement schedule, management’s assessment of the effectiveness of internal control over financial
reporting and the effectiveness of internal control over financial reporting, which appears in this
Form 10-K.
PricewaterhouseCoopers LLP
New York, New York
February 27, 2006
CERTIFICATIONS
EXHIBIT 31.1
I, Linda Huett, President and Chief Executive Officer of Weight Watchers International, Inc., certify
that:
1.
I have reviewed this Annual Report on Form 10-K of Weight Watchers International, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s fourth fiscal quarter that has materially
affected, or in reasonably likely to materially affect, the registrant’s internal control over
financial reporting;
5. The registrant’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the
Audit Committee of the registrant’s Board of Directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the
registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial reporting.
Date: February 27, 2006
Signature:
/s/ LINDA HUETT
Linda Huett
President, Chief Executive Officer and
Director (Principal Executive Officer)
EXHIBIT 31.2
I, Ann M. Sardini, Chief Financial Officer of Weight Watchers International, Inc., certify that:
CERTIFICATION
1.
I have reviewed this Annual Report on Form 10-K of Weight Watchers International, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s fourth fiscal quarter that has materially
affected, or in reasonably likely to materially affect, the registrant’s internal control over
financial reporting;
5. The registrant’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the
Audit Committee of the registrant’s Board of Directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the
registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial reporting.
Date: February 27, 2006
Signature:
/s/ ANN M. SARDINI
Ann M. Sardini
Chief Financial Officer
(Principal Financial and Accounting Officer)
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Weight Watchers International, Inc. (the
‘‘Company’’) for the fiscal year ending December 31, 2005 as filed with the Securities and Exchange
Commission on the date hereof (the ‘‘Report’’), I, Linda Huett, Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial
condition and result of operations of the Company.
Date: February 27, 2006
Signature:
/s/ LINDA HUETT
Linda Huett
President, Chief Executive Officer and
Director (Principal Executive Officer)
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Weight Watchers International, Inc. (the
‘‘Company’’) for the fiscal year ending December 31, 2005 as filed with the Securities and Exchange
Commission on the date hereof (the ‘‘Report’’), I, Ann M. Sardini, Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial
condition and result of operations of the Company.
Date: February 27, 2006
Signature:
/s/ ANN M. SARDINI
Ann M. Sardini
Chief Financial Officer
(Principal Financial and Accounting Officer)
Corporate and
Shareholder Information
The Annual Meeting of Shareholders of Weight Watchers International, Inc.
Location: The Carlton Hotel, 88 Madison Avenue, New York, N.Y. 10016
Date: Tuesday, May 2, 2006, at 10:00 a.m. Eastern Time.
Corporate Headquarters
11 Madison Avenue
17th Floor
New York, NY 10010
www.weightwatchersinternational.com
Common Stock
New York Stock Exchange Symbol: WTW
Shareholder Relations
Robert W. Hollweg
Corporate Secretary
(212) 589-2700
Transfer Agent and Registrar
Questions regarding stock holdings, certifi cate replacement/
transfer, and address changes should be directed to:
Computershare Trust Company, N.A.
150 Royall St.
Canton, MA 02021
781-575-3400
www.computershare.com
Auditors
PricewaterhouseCoopers LLP
Investor Relations
Brainerd Communicators, Inc.
521 Fifth Avenue, 8th Floor
New York, NY 10175
(212) 986-6667
(212) 986-8306 (fax)
WEIGHT WATCHERS and POINTS are the registered trademarks of Weight Watchers International, Inc.
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