UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 2017.
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 001-16769
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.)
675 Avenue of the Americas, 6th 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
Name of each exchange on which registered
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 ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Non-accelerated filer ☐ (Do not check if a smaller reporting company)
Large accelerated filer ☒
Accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐ No ☒
The aggregate market value of the registrant's common stock held by non-affiliates as of June 30, 2017 (based upon the closing price of
$33.42 per share of common stock as of June 30, 2017, the last business day of the registrant's second fiscal quarter of 2017, as quoted on the
New York Stock Exchange) was $932,988,279. For purposes of this computation, it is assumed that shares of common stock held by our
directors, executive officers and our controlling shareholders as of June 30, 2017 would be deemed stock held by affiliates.
The number of shares outstanding of common stock as of February 1, 2018 was 64,702,012.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for its 2018 annual meeting of shareholders are incorporated herein by reference in
Part III, Items 10-14. Such Proxy Statement will be filed with the SEC no later than 120 days after the registrant’s fiscal year ended December 30,
2017.
Weight Watchers International, Inc.
Annual Report on Form 10-K
Table of Contents
Page
Part I
Item 1.
Business..............................................................................................................................................................................
Item 1A. Risk Factors........................................................................................................................................................................
Item 1B. Unresolved Staff Comments ..............................................................................................................................................
Item 2.
Properties............................................................................................................................................................................
Item 3.
Legal Proceedings ..............................................................................................................................................................
Item 4. Mine Safety Disclosures.....................................................................................................................................................
Executive Officers and Directors of the Company ............................................................................................................
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Part II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities ...........................................................................................................................................................
Item 6.
Selected Financial Data ......................................................................................................................................................
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ............................................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ...........................................................................................
Item 8.
Financial Statements and Supplementary Data ..................................................................................................................
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ...........................................
Item 9A. Controls and Procedures.....................................................................................................................................................
Item 9B. Other Information...............................................................................................................................................................
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Part III
Item 10. Directors, Executive Officers and Corporate Governance.................................................................................................
Item 11. Executive Compensation....................................................................................................................................................
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
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Matters ...........................................................................................................................................................................
Item 13. Certain Relationships and Related Transactions, and Director Independence...................................................................
Item 14. Principal Accountant Fees and Services ............................................................................................................................
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Part IV
Item 15. Exhibits and Financial Statement Schedules......................................................................................................................
Item 16. Form 10-K Summary..........................................................................................................................................................
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i
BASIS OF PRESENTATION
Weight Watchers International, Inc. is a Virginia corporation with its principal executive offices in New York,
New York. In this Annual Report on Form 10-K unless the context indicates otherwise: “we,” “us,” “our,” the
“Company” and “WWI” refer to Weight Watchers International, Inc. and all of its operations consolidated for
purposes of its financial statements; “North America” refers to our North American Company-owned operations;
“United Kingdom” refers to our United Kingdom Company-owned operations; “Continental Europe” refers to our
Continental Europe Company-owned operations; and “Other” refers to Australia, New Zealand and emerging
markets operations and franchise revenues and related costs. Each of North America, United Kingdom, Continental
Europe and Other is also a reportable segment.
Our fiscal year ends on the Saturday closest to December 31st and consists of either 52- or 53-week periods.
In this Annual Report on Form 10-K:
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“fiscal 2008” refers to our fiscal year ended January 3, 2009 (included a 53rd week);
“fiscal 2009” refers to our fiscal year ended January 2, 2010;
“fiscal 2010” refers to our fiscal year ended January 1, 2011;
“fiscal 2011” refers to our fiscal year ended December 31, 2011;
“fiscal 2012” refers to our fiscal year ended December 29, 2012;
“fiscal 2013” refers to our fiscal year ended December 28, 2013;
“fiscal 2014” refers to our fiscal year ended January 3, 2015 (included a 53rd week);
“fiscal 2015” refers to our fiscal year ended January 2, 2016;
“fiscal 2016” refers to our fiscal year ended December 31, 2016;
“fiscal 2017” refers to our fiscal year ended December 30, 2017;
“fiscal 2018” refers to our fiscal year ended December 29, 2018;
“fiscal 2019” refers to our fiscal year ended December 28, 2019;
“fiscal 2020” refers to our fiscal year ended January 2, 2021 (includes a 53rd week);
“fiscal 2021” refers to our fiscal year ended January 1, 2022;
“fiscal 2022” refers to our fiscal year ended December 31, 2022;
“fiscal 2023” refers to our fiscal year ended December 30, 2023;
“fiscal 2024” refers to our fiscal year ended December 28, 2024; and
“fiscal 2025” refers to our fiscal year ended January 3, 2026 (includes a 53rd week).
The following terms used in this Annual Report on Form 10-K are our trademarks: Weight Watchers®,
PointsPlus®, ProPoints® SmartPoints®, Points®, WW FreestyleTM and the WW logo.
ii
Item 1.
Business
Overview
PART I
We are a global wellness company and the world’s leading commercial weight management program. We are
focused on inspiring people to adopt healthy habits and helping people lead healthier, more active and more
fulfilling lives. With over five 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. We educate our members and provide them with guidance and a supportive community to enable them
to develop healthy habits for real life. Weight Watchers-branded services and products include meetings conducted
by us and our franchisees, digital offerings provided through our websites, mobile sites and apps, consumer products
sold at meetings and through our websites, licensed and endorsed products sold in retail channels and magazine
subscriptions and other publications. Our primary sources of revenue are subscriptions for our commitment plans for
Weight Watchers meetings and Online subscriptions. Our “meetings” business refers to providing access to
combined meetings and digital offerings to our commitment plan subscribers (including Total Access subscribers),
as well as access to meetings to our “pay-as-you-go” members and other meetings members. “Online” refers to
Weight Watchers Online, Weight Watchers OnlinePlus, Personal Coaching and other digital subscription products.
We believe that the power of our communities increases accountability and provides our members with
inspiration, human connection, and support, which inspires them and enables them to continue building healthier
and more fulfilling food, activity and lifestyle habits. Our brands enjoy high awareness and credibility among all
types of consumers—women and men, consumers online and offline, the support-inclined and the self-help-inclined.
We believe that our program conveys an image of healthy, livable, sustainable and effective weight management in
a supportive environment. The efficacy of our commercial weight management programs has been clinically proven
in numerous studies and trials. As the number of overweight and obese people worldwide grows, the demand for an
effective, scalable and consumer-friendly weight management program increases. We believe our global presence
and brand awareness uniquely position us in the global weight management market. We continue to explore
different channels to access this market.
In the more than 50 years since our founding, we have built our business by helping millions of people around
the world lose weight through a sensible, sustainable and livable approach to food, activity, behavior modification
and group support. As of the end of fiscal 2017, we had a total of approximately 3.2 million subscribers. At that
time, we had approximately 1.3 million meeting subscribers, who could attend approximately 31,000 Weight
Watchers meetings each week around the world, which were run by approximately 8,600 leaders. We also believe
we are the leading global provider of paid digital subscription weight management products. As of the end of fiscal
2017, we had approximately 2.0 million Online subscribers. Our strong brands, together with the effectiveness of
our program, loyal customer base, unparalleled network of meetings and leaders, and strong digital offerings, enable
us to attract new and returning customers.
Business Organization and Global Operations
We have four reportable segments based on an integrated geographical structure as follows: North America,
United Kingdom, Continental Europe (CE) and Other. Each reportable segment provides similar services and
products. Further information regarding our reportable segments and our geographic areas can be found in Part II,
Item 7 of this Annual Report on Form 10-K under “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and in Part IV, Item 15 of this Annual Report on Form 10-K under Note 16 “Segment
and Geographic Data” in the Notes to the Consolidated Financial Statements. Information concerning some of the
risks to which we are exposed resulting from our international operations and foreign currency exchange rates is set
forth in “Item 1A. Risk Factors” of this Annual Report on Form 10-K.
1
We operate in numerous countries around the world. Our “North America” reportable segment consists of our
United States and Canada Company-owned operations; our “United Kingdom” reportable segment consists of our
United Kingdom Company-owned operations; our “Continental Europe” reportable segment consists of our
Germany, Switzerland, France, Spain (operations ceased in the first quarter of fiscal 2017), Belgium, Netherlands
and Sweden Company-owned operations; and our “Other” reportable segment consists of our Australia, New
Zealand, Mexico (operations anticipated to cease in the first quarter of fiscal 2018), and Brazil Company-owned
operations, as well as revenues and costs from our franchises in the United States and certain other countries.
Revenues from our North America, United Kingdom, Continental Europe, and Other reportable segments
contributed 69.7%, 7.6%, 18.3% and 4.4%, respectively, of our total revenues in fiscal 2017. Revenues from our
North America, United Kingdom, Continental Europe, and Other reportable segments contributed 68.6%, 8.7%,
18.1% and 4.6%, respectively, of our total revenues in fiscal 2016. Finally, revenues from our North America,
United Kingdom, Continental Europe, and Other reportable segments contributed 64.9%, 10.7%, 19.7% and 4.7%,
respectively, of our total revenues in fiscal 2015.
Our Services and Products
Our Weight Management Program and Food Plan
In each of our major markets, we offer services and products that are based on our new weight management
program, known as WW FreestyleTM in North America. The program encompasses a holistic approach for your body
and mind to help our members lead a healthier, more active, more fulfilling life, and provides flexibility to make
significant changes towards that life. It is comprised of a range of nutritional, activity, behavioral and lifestyle tools
and approaches that can be personalized for maximum livability. Our program also gives members science-based
techniques that help them keep a positive mindset. Our food plan, known as SmartPoints, was developed from a
combination of advancements in scientific research and consumer insights, including from customers who
experienced prior Weight Watchers plans. With the SmartPoints system, each food has a SmartPoints value
determined by the food’s calories, saturated fat, sugar and protein content. Customers following the SmartPoints
system can eat any food as long as the SmartPoints value of their total food consumption stays within their
personalized SmartPoints “budget”. Since nutritious foods generally have lower SmartPoints values, this approach
guides customers toward healthier eating patterns. The WW Freestyle program expands the types and number of
zero Points foods, making the program more flexible and livable. Based on a personalized assessment included in
the program, members and subscribers get daily and weekly SmartPoints targets. Our new program, which launched
in December 2017, updated our existing weight management program known as Beyond the Scale in North
America. Prior to the launch of Beyond the Scale and SmartPoints in December 2015, we offered a weight
management plan known as PointsPlus in North America, or ProPoints in certain of our other geographies.
Our customers can participate in our program in two main ways: in-person group meetings and digitally.
Within these two channels, we offer a variety of services and products to meet each customer’s preferences. Our
leaders, when leading meetings and providing personal coaching, educate members and subscribers on our program
and range of tools. In addition to providing support, our leaders also inspire members and subscribers to develop
healthy habits using our methods.
Our Meetings Business
In our meetings business, we present our program in regular weekly meetings of 30 to 45 minutes in duration,
conveniently scheduled throughout the day. Our group support system remains the cornerstone of our meetings.
Members provide each other support by sharing their experiences with, and by providing encouragement and
empathy to, other people experiencing similar weight management challenges. Leaders facilitate this support
through interactive meetings that encourage learning through member-driven discussions and individual goal-
setting.
The primary payment structure for our meetings business globally is through commitment plans. Under these
plans, members generally receive unlimited access to meetings at a discounted monthly price plus free access to
certain Online and mobile tools and 24/7 Expert Chat, where available. Pursuant to these plans, a fee is typically
charged automatically to the member’s credit card or debit card on a monthly basis until the member elects to
cancel. As of the end of fiscal 2017, we had approximately 1.3 million meeting subscribers to our commitment
plans.
2
In fiscal 2017, revenues from our franchisees represented less than 1% of our total revenues. Franchisees
typically pay us a fee equal to 10% of their meeting fee revenues. 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. 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.
In many of our markets, 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. Most franchise agreements are perpetual and can be terminated only upon a
material breach or bankruptcy of the franchisee.
Our Online Business
In our Online business, we offer various digital subscription products, including Weight Watchers OnlinePlus
and a weight management companion for Weight Watchers meetings members who want to digitally manage the
day-to-day aspects of their weight management plan. These products provide interactive and personalized resources
that allow users to follow our weight management program via our web-based and mobile app products.
Our Online subscription products are based on the Weight Watchers approach to weight management and
provide additional tools to our meetings members, as applicable. They help subscribers adopt a healthier and more
active lifestyle and positive mindset, and adopt healthy habits, with a view toward long-term behavior
modification—a key aspect of the Weight Watchers approach toward sustainable weight loss. These products
provide subscribers with web and mobile app content, functionality and resources and interactive mobile and web-
based weight management plans. We believe our personalized and interactive Online subscription products give
subscribers an engaging weight management experience. Our online community, which can be accessed via the web
and the Connect feature in our mobile app, gives our subscribers a way to stay virtually connected, and support and
motivate each other.
We believe that mobile weight management tools and resources are an important market opportunity for us.
Our mobile phone (iPhone® and Android™) and iPad® apps provide commitment plan purchasers and Online
subscribers with access to a suite of weight-loss tools, such as recipe and tracking tools, as well as other helpful
content and the ability to scan the barcodes of food products for their SmartPoints values. We are continuing to
upgrade the design, usability and features of, as well as improve the capabilities of, our digital products, including
integrating with popular activity-tracking devices and wireless weight scales. As of the end of fiscal 2017, we had
approximately 2.0 million Online subscribers.
Our Consumer Product Sales
We sell a range of consumer products, including bars, snacks, cookbooks, food and restaurant guides with
SmartPoints values and Weight Watchers magazines, and certain third-party products. These products complement
our weight management program and help our customers in their weight management efforts. We have focused on
selling products that drive recurring purchases. Our products are designed to be high quality and offer benefits
related to the Weight Watchers program.
We sell our products through our meetings business, online and to our franchisees. Excluding sales to or by
our franchisees, in fiscal 2017, sales of products in our meetings business and online represented approximately
13.2% of our revenues. We seek to optimize our product offerings by updating existing products, selectively
introducing new products and sharing best practices across geographies. Additionally, non-members and non-
subscribers can also purchase our products through our ecommerce platforms.
3
Licensing and Endorsements
We license the Weight Watchers trademarks and our other intellectual property in certain categories of food,
beverages and other relevant consumer products and services. We also endorse carefully selected branded consumer
products and services. By partnering with carefully selected companies in categories relevant and helpful to weight-
and health-conscious consumers, we have a high margin licensing business that gives us access to these consumers
and also increases the awareness of our brands. 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 certain
food categories. We believe that the strength of the Weight Watchers brands will create new long-term licensing and
partnership opportunities for us.
Publishing
Weight Watchers magazines are published in most of our major markets. We also issue other publications,
such as cookbooks and food and restaurant guides with SmartPoints values, which complement our weight
management program.
Health Solutions
As healthcare costs continue to be a significant concern on the minds of employers and their employees, we
believe that our broad range of services and products uniquely positions us to serve the market and help employers
reduce their healthcare costs and improve the overall well-being of their employees. Our strategy is focused on
leveraging our organizational capability to serve companies of every size and type by offering convenient and
flexible weight-loss solutions that include workplace meetings, local community meetings and access to Weight
Watchers Online.
We believe the healthcare market represents an important channel to reach new consumers. We continue to
explore different approaches to this market.
Our Clinical Efficacy and Reputation in the Marketplace
Weight Watchers is one of the most clinically-studied commercial weight management programs, with dozens
of peer-reviewed publications in the last 20 years. For example, in 2017, a randomized controlled trial conducted by
research teams at the University of Cambridge, the University of Liverpool and the University of Oxford and
partially funded by us was published in The Lancet and found that adults with obesity referred to Weight Watchers
for one year lost significantly more weight and were able to keep it off for longer compared to those who either
received brief advice and self-help materials, or who were referred to a 12-week Weight Watchers program. It also
found that those adults on both the 12- and 52-week Weight Watchers program had greater blood sugar control and
greater reductions in body fat than those on the brief intervention program. In 2016, a randomized controlled trial
conducted by the Indiana University School of Medicine and funded by us was published in the American Journal of
Public Health and found that adults with prediabetes following the Weight Watchers for Prediabetes program lost
significantly more weight and experienced better blood sugar control than those following a self-initiated diabetes
prevention program using supplemental counseling materials. Similarly, in 2016, a randomized controlled trial
conducted by The Medical University of South Carolina and funded by us was published in Obesity and found that
adults with Type 2 diabetes who followed the Weight Watchers for Diabetes program lost significantly more weight
and experienced better blood sugar control than those in a standard diabetes care program.
In 2017, a six-month clinical trial of the WW Freestyle program conducted by the University of North
Carolina Weight Research Lab and funded by us found that participants on the program experienced an average
weight loss of 7.9% after six months, and among those participants who reported trying to lose weight in the past,
82.2% of participants reported that the program is easier to do and 92.6% reported that it gives them more flexibility
in their food choices compared to other times they have tried to lose weight in the past. Our efficacy and the value of
our offerings are also well-acknowledged in the marketplace. For instance, in 2018, we again were recognized by
U.S. News & World Report in the “2018 Best Diets” rankings, including ranking #1 for “Best Weight-Loss Diet”
and “Best Commercial Diet Plan” and tying for #1 for “Best Fast Weight-Loss Diet.”
4
Marketing and Promotion
Our communications with consumers and other promotional efforts enhance our brand image and awareness,
and motivate both former and potential new customers to join Weight Watchers meetings or purchase our Online
products. In October 2015, we entered into a Strategic Collaboration Agreement with Oprah Winfrey, pursuant to
which, among other things, Ms. Winfrey provides us with services in her discretion to promote the Company and
our programs, products and services, including in advertisements and promotions, and making personal appearances
on our behalf. For example, in fiscal 2018, as part of our collaboration with Ms. Winfrey, she is appearing in our
advertising campaign in the United States. Further information on this agreement and our partnership with
Ms. Winfrey can be found below under “—History—Winfrey Transaction.”
We advertise primarily in national media vehicles (television, digital, print, radio, etc.), which are selected
based on their efficiency and effectiveness in reaching our target audience. We develop and maintain a high level of
engagement with current and potential customers on various social media platforms including Facebook, Instagram
and Twitter. While our traditional advertising schedule generally supports the three key marketing campaigns of the
year, winter, spring and fall, we communicate with consumers in the digital space throughout the year. Also, we
utilize brand ambassadors, spokespersons and social media influencers, including from time to time celebrities, as
part of our advertising and marketing.
In addition to the above advertising channels, we take advantage of other channels for which we are uniquely
positioned given our long history and network of Weight Watchers leaders, members and subscribers. The word of
mouth generated by our current and former customers, combined with our strong brand and known effectiveness,
enable us to attract new and returning customers. We also carry out many of our key public relations initiatives
through the efforts of current and former Weight Watchers leaders, members and subscribers, including from time to
time celebrities.
Additionally, Weight Watchers Magazine reinforces the value of our brand and serves as an important
marketing tool to both current and potential customers. We also utilize mailing campaigns and the
WeightWatchers.com website to attract new and returning customers and to engage current customers.
Seasonality
Our business is seasonal due to the importance of the winter season to our overall recruitment environment.
Our advertising schedule generally supports the three key recruitment-generating seasons of the year: winter, spring
and fall, with winter having the highest concentration of advertising spending.
Competition
We compete in the global weight management and wellness market. The weight management and wellness
industries include commercial weight management programs; hardware and software-based mobile app and web-
based weight management programs and approaches; surgical procedures; the pharmaceutical industry; self-help
weight management regimens and other self-help weight management products, services and publications, such as
books, magazines, websites and social media groups; dietary supplements and meal replacement products; healthy
living services, products and publications; weight management services administered by doctors, nutritionists and
dieticians; government agencies and non-profit groups that offer weight management services; fitness centers and
national drug store chains.
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 their businesses are not
comparable to ours. For example, many of these competitors’ businesses are based on the sale of pre-packaged
meals and meal replacements. In conjunction with a flexible food plan that allows customers the freedom to choose
what they eat, our program uses group support and interactive, member-driven discussions to encourage learning
and behavior modification to help our customers move towards a healthier, more active, more fulfilling life and
adopt healthy habits. There are no significant group education-based competitors in any of our major markets,
except in the United Kingdom.
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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 food plan.
We also compete with various self-help diets, products, services and publications, such as free mobile and
other weight management apps.
Trademarks, Patents and Other Proprietary Rights
We own numerous domestic and international trademarks, patents and other proprietary rights that are
valuable assets and are important to our business. Depending upon the jurisdiction, trademarks are valid as long as
they are used in the regular course of trade and/or their registrations are properly maintained. Patent protection
extends for varying periods according to the date of patent filing or grant and the legal term of patents in the
jurisdiction in which the patent is granted. The actual protection afforded by a patent may vary from country to
country depending upon the type of patent, the scope of its coverage and the availability of legal remedies in the
country. We believe the protection of our trademarks, copyrights, patents, domain names, trade dress and trade
secrets is important to our success. We aggressively protect our intellectual property rights by relying on a
combination of trademark, copyright, patent, trade dress, trade secret and other intellectual property laws, and
through domain name dispute resolution systems.
History
Early Development
In 1961, Jean Nidetch, our founder, 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., or Artal Luxembourg, acquired us from Heinz. Artal
Luxembourg is an indirect subsidiary of Artal Group S.A., or Artal Group, which together with its parents and its
subsidiaries is referred to in this Annual Report on Form 10-K as Artal. Currently, Artal Luxembourg is the record
holder of all our shares owned by Artal.
WeightWatchers.com Acquisition
In July 2005, we acquired control of our licensee and affiliate, WeightWatchers.com, Inc., by increasing our
ownership interest from approximately 20% to approximately 53%. Subsequently, in December 2005,
WeightWatchers.com, Inc. redeemed all shares owned by Artal in it, resulting in our current ownership of 100% of
WeightWatchers.com, Inc.
6
Winfrey Transaction
On October 18, 2015, we entered into a Strategic Collaboration Agreement with Ms. Winfrey, or the Strategic
Collaboration Agreement, pursuant to which Ms. Winfrey granted us the right to use, subject to her approval, her
name, image, likeness and endorsement for and in connection with the Company and its programs, products and
services (including in advertising, promotion, materials and content), and we granted Ms. Winfrey the right to use
our WEIGHT WATCHERS marks to collaborate with and promote the Company and its programs, products and
services. The Strategic Collaboration Agreement has an initial term of five years, with additional successive one
year renewal terms. During this period, Ms. Winfrey will consult with us and participate in developing, planning,
executing and enhancing the Weight Watchers program and related initiatives, and provide us with services in her
discretion to promote the Company and its programs, products and services, including in advertisements and
promotions, and making personal appearances on our behalf. Ms. Winfrey will not grant anyone but the Company
the right to use her name, image, likeness or endorsement for or in connection with any other weight loss or weight
management programs during the term of the Strategic Collaboration Agreement, and she will not engage in any
other weight loss or weight management business, program, products, or services during the term of the Strategic
Collaboration Agreement and for one year thereafter.
On that same date, we entered into a Share Purchase Agreement with Ms. Winfrey, or the Winfrey Purchase
Agreement, pursuant to which we issued and sold to Ms. Winfrey an aggregate of 6,362,103 shares of our common
stock for an aggregate cash purchase price of $43,198,679. The purchased shares are subject to certain transfer
restrictions and a right of first offer and right of first refusal held by the Company. Under the Winfrey Purchase
Agreement, Ms. Winfrey has certain demand registration rights and piggyback rights with respect to these purchased
shares. The Winfrey Purchase Agreement also provides Ms. Winfrey with the right to be nominated as director of
the Company for so long as she and certain permitted transferees own at least 3% of our issued and outstanding
common stock.
In consideration of Ms. Winfrey entering into the Strategic Collaboration Agreement and the performance of
her obligations thereunder, on October 18, 2015, we granted Ms. Winfrey a fully vested option to purchase
3,513,468 shares of our common stock, or the Winfrey Option, which remains outstanding in full. The term sheet for
the Winfrey Option, which includes the terms and conditions appended thereto, relating to the grant of the Winfrey
Option is referred to herein as the Winfrey Option Agreement. The Winfrey Option is exercisable at a price of $6.97
per share, in whole or in part, at any time prior to October 18, 2025, subject to earlier termination under certain
circumstances, including if (i) the Strategic Collaboration Agreement expires as a result of Ms. Winfrey’s decision
not to renew the term of such agreement and (ii) a change in control (as defined in the Winfrey Option Agreement)
of the Company occurs. The shares issuable upon exercise of the Winfrey Option are subject to certain transfer
restrictions and a right of first offer and right of first refusal held by the Company.
In connection with Ms. Winfrey’s purchase of our common stock and the grant of the Winfrey Option
described above, Artal Luxembourg entered into a Voting Agreement with Ms. Winfrey on October 18, 2015, or the
Voting Agreement, pursuant to which Ms. Winfrey agreed to vote all of her common stock or preferred stock of the
Company and other securities convertible into or exercisable or exchangeable for any common stock or preferred
stock of the Company so as to elect as directors such nominees designated by Artal. The Voting Agreement
terminates on the date that any of the following occurs: (i) Artal (and certain permitted transferees) and Ms. Winfrey
(and certain permitted transferees) collectively own less than 50% of our issued and outstanding common stock,
(ii) Ms. Winfrey then has the right to be nominated as a director and has met certain eligibility requirements under
the Winfrey Purchase Agreement, but is not elected as a director of the Company, (iii) Ms. Winfrey (and certain
permitted transferees) collectively own less than 1% of our issued and outstanding common stock, (iv) the voting
and related arrangements in the Voting Agreement, in our reasonable determination, constitutes a “change of
control” in any of our debt agreements or (v) the parties to the Voting Agreement terminate such agreement by
written consent.
As a result of entering into the Voting Agreement, Artal and Ms. Winfrey are acting as a “group” within the
meaning of Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as amended, or the
Exchange Act. As a result, we continue to qualify as a “controlled company” under the applicable rules of The New
York Stock Exchange, or the NYSE.
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The transactions contemplated by the Strategic Collaboration Agreement, Winfrey Purchase Agreement and
Winfrey Option Agreement are collectively referred to herein as the Winfrey Transaction.
Regulation
A number of laws and regulations govern our advertising and marketing, services, products, operations and
relations with consumers, licensees, franchisees, employees and other service providers and government authorities
in the countries in which we operate. Certain federal, state and foreign agencies, such as the U.S. Federal Trade
Commission, or FTC, and the U.S. Food and Drug Administration, or FDA, regulate and enforce such laws and
regulations relating to advertising and marketing, promotions, packaging, privacy, consumer pricing and billing
arrangements and other consumer protection matters. We are subject to many distinct employment, labor,
commercial, benefits and tax laws and regulations in each country in which we operate, including regulations
affecting our employment and wage and hour practices and our relations with our employees and service providers.
Laws and regulations directly applicable to data protection and communications, operations or commerce over the
Internet, such as those governing intellectual property, privacy and taxation, continue to evolve. Our operations are
subject to these laws and regulations and we continue to monitor their development and our compliance. In addition,
we are subject to other laws and regulations in the United States and internationally.
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 required us to comply with certain
procedures and disclosures in connection with our advertisements of services and products and expired by its terms
in 2017. From time to time, we have been in discussions with the FTC regarding such matters.
Employees and Service Providers
As of December 30, 2017, we had approximately 18,000 employees, a majority of whom were part-time
employees. In addition, in certain of our markets, our service providers are self-employed and are not included in
this total. We consider our relations with our employees and service providers to be satisfactory.
Available Information
Corporate information and our press releases, Annual Reports on Form 10-K, Quarterly Reports on Form 10-
Q and Current Reports on Form 8-K, and amendments thereto, are available free of charge on our website at
www.weightwatchersinternational.com as soon as reasonably practicable after such material is electronically filed
with or furnished to the Securities and Exchange Commission (i.e., generally the same day as the filing), or the SEC.
Moreover, we also make available at that site the Section 16 reports filed electronically by our officers, directors and
10 percent shareholders. Usually these reports are publicly accessible no later than the business day following the
filing.
We use our website at www.weightwatchersinternational.com and our corporate Facebook page
(www.facebook.com/weightwatchers), Instagram account (Instagram.com/weightwatchers) and Twitter account
(@weightwatchers) as channels of distribution of Company information. The information we post through these
channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following
our press releases, SEC filings and public conference calls and webcasts. The contents of our website and social
media channels shall not be deemed to be incorporated herein by reference.
Our Amended and Restated Code of Business Conduct and Ethics, or the Code of Business Conduct and
Ethics, and our Corporate Governance Guidelines are also available on our website at
www.weightwatchersinternational.com.
8
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, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended, or the Exchange Act, 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 generally used the words “may,” “will,”
“could,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “intend” and similar expressions in this Annual
Report on Form 10-K and the documents incorporated by reference herein 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 these forward-looking statements. These
forward-looking statements are subject to risks, uncertainties and assumptions, including, among other things:
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competition from other weight management and wellness industry participants or the development of
more effective or more favorably perceived weight management methods;
our ability to continue to develop new, innovative services and products and enhance our existing
services and products or the failure of our services, products or brands to continue to appeal to the
market, or our ability to successfully expand into new channels of distribution or respond to consumer
trends;
the ability to successfully implement new strategic initiatives;
the effectiveness of our advertising and marketing programs, including the strength of our social media
presence;
the impact on our reputation of actions taken by our franchisees, licensees, suppliers and other partners;
the impact of our substantial amount of debt, and our debt service obligations and debt covenants;
the inability to generate sufficient cash to service our debt and satisfy our other liquidity requirements;
uncertainties regarding the satisfactory operation of our technology or systems;
the impact of security breaches or privacy concerns;
the recognition of asset impairment charges;
the loss of key personnel, strategic partners or consultants or failure to effectively manage and motivate
our workforce;
the inability to renew certain of our licenses, or the inability to do so on terms that are favorable to us;
the expiration or early termination by us of leases;
risks and uncertainties associated with our international operations, including regulatory, economic,
political and social risks and foreign currency risks;
uncertainties related to a downturn in general economic conditions or consumer confidence;
our ability to successfully make acquisitions or enter into joint ventures, including our ability to
successfully integrate, operate or realize the anticipated benefits of such businesses;
the seasonal nature of our business;
the impact of events that discourage or impede people from gathering with others or accessing
resources;
our ability to enforce our intellectual property rights both domestically and internationally, as well as the
impact of our involvement in any claims related to intellectual property rights;
the outcomes of litigation or regulatory actions;
the impact of existing and future laws and regulations;
our failure to maintain effective internal control over financial reporting;
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the possibility that the interests of Artal, who effectively controls us, will conflict with other holders of
our common stock; and
other risks and uncertainties, including those detailed from time to time in our periodic reports filed with
the Securities and Exchange Commission.
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 statement. Except as required by law, we do not undertake any
obligation to update or revise these forward-looking statements to reflect new information or events or
circumstances that occur after the date of this Annual Report on Form 10-K or to reflect the occurrence of
unanticipated events or otherwise.
10
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. The following
discussion of risks is not all inclusive but is designed to highlight what we believe are the most significant risks that
we face. Additional risks and uncertainties, not presently known to us or that we currently deem immaterial, may
also impair our business, financial condition or results of operations.
Competition from other weight management and wellness industry participants or the development of more
effective or more favorably perceived weight management methods could result in decreased demand for our
services and products.
The weight management and wellness marketplace is highly competitive. We compete against a wide range of
providers of weight management services and products. Our competitors include: commercial weight management
programs; hardware and software-based mobile app and web-based weight management programs and approaches;
surgical procedures; the pharmaceutical industry; self-help weight management regimens and other self-help weight
management products, services and publications, such as books, magazines, websites and social media groups;
dietary supplements and meal replacement products; healthy living services, products and publications; weight
management services administered by doctors, nutritionists and dieticians; government agencies and non-profit
groups that offer weight management services; fitness centers and national drug store chains. Additional competitors
may emerge as new or different weight management services, products or methods are developed and marketed.
Furthermore, existing competitors may enter new markets or expand their offerings. More effective or more
favorably perceived diet and weight management methods, including pharmaceutical treatments, fat and sugar
substitutes or other technological and scientific advancements in weight management methods, also may be
developed. This competition may reduce demand for our services and products.
The purchasing decisions of weight management and healthy living consumers are highly subjective and can
be influenced by many factors, such as brand image, marketing programs, cost, consumer trends and perception of
the efficacy of the service and product offerings. Moreover, consumers can, and frequently do, change approaches
easily and at little cost. For example, fad diets and weight loss trends, such as low-carbohydrate diets, have
adversely affected our revenues from time to time. More recently, our revenue was adversely affected by the
popularity of mobile technology, which has led to increased trial of free mobile and other weight management apps
and activity monitors. Any decrease in demand for our services and products may adversely affect our business,
financial condition or results of operations.
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If we do not continue to develop new, innovative services and products or if our services, products or brands
do not continue to appeal to the market, or if we are unable to successfully expand into new channels of
distribution or respond to consumer trends, our business may suffer.
The weight management and wellness marketplace is subject to changing consumer demands based, in large
part, on the efficacy and popular appeal of weight management and healthy living programs. The popularity of
weight management and healthy living programs is dependent, in part, on their ease of use, cost and channels of
distribution as well as consumer trends. For example, consumers are increasingly focusing on more integrated
lifestyle and fitness approaches and may associate our program with just food, nutrition and diet, which could
adversely impact its popularity. Our future success depends on our ability to continue to develop and market new,
innovative services and products and to enhance our existing services and products, each on a timely basis, to
respond to new and evolving consumer demands, achieve market acceptance and keep pace with new nutritional,
weight management, healthy living, technological and other developments. We may not be successful in developing,
introducing on a timely basis or marketing any new or enhanced services and products. Additionally, new or
enhanced services or products may not appeal to the market or the market’s perception of us. As we announce new
articulations of our brands and we adopt new trademarks, the marketplace may not embrace or accept them and it
may take time to build their reputation and goodwill, both with consumers and with our partners. Our future success
also will depend, in part, on our ability to successfully distribute our services and products through appealing
channels of distribution, such as mobile or social media. Our failure to develop new, innovative services and
products and to enhance our existing services and products, the failure of our services, products or brands to
continue to appeal to the market or the failure to expand into appealing new channels of distribution could have an
adverse impact on our ability to attract and retain members and subscribers and thus adversely affect our business,
financial condition or results of operations.
We may not be able to successfully implement new strategic initiatives, which could adversely impact our
business.
We are continuously evaluating changing consumer preferences and the competitive environment of the
weight management and healthy living marketplace and seeking out opportunities to improve our performance
through the implementation of selected strategic initiatives, such as our healthcare initiative. The goal of these
efforts is to develop and implement a comprehensive and competitive business strategy which addresses the
continuing changes in the weight management and healthy living marketplace and our position within that
marketplace. For example, as the healthcare industry continues to evolve its response to the obesity epidemic so do
the requirements, both regulatory and business, for providers. If we do not successfully meet these requirements, we
may not be perceived as an appropriate partner for certain purposes. We may not be able to successfully implement
our strategic initiatives and realize the intended business opportunities, growth prospects, including new business
channels, and competitive advantages. Our efforts to capitalize on business opportunities may not bring the intended
results. Assumptions underlying expected financial results or consumer demand may not be met or economic
conditions may deteriorate. We also may be unable to attract and retain highly qualified and skilled personnel to
implement our strategic initiatives. If these or other factors limit our ability to successfully execute our strategic
initiatives, our business activities, financial condition or results of operations may be adversely affected.
Our business depends on the effectiveness of our advertising and marketing programs, including the strength
of our social media presence, to attract and retain members and subscribers.
Our business success depends on our ability to attract and retain members to our meetings and subscribers to
our Online products. Our ability to attract and retain members and subscribers depends significantly on the
effectiveness of our advertising and marketing practices. From time-to-time, we use the success stories of our
members and subscribers, and utilize brand ambassadors, spokespersons and social media influencers, including in
some cases celebrities, in our advertising and marketing programs to communicate on a personal level with
consumers. Actions taken by these individuals that harm their personal reputation or image, or include the cessation
of using our services and products, could have an adverse impact on the advertising and marketing campaigns in
which they are featured. We, and from time-to-time our brand ambassadors, spokespersons and social media
influencers, also use social media channels as a means of communicating with consumers. Unauthorized or
inappropriate use of these channels could result in harmful publicity or negative consumer experiences, which could
have an adverse impact on the effectiveness of our marketing in these channels. In addition, substantial negative
commentary by others on social media platforms could have an adverse impact on our reputation and ability to
attract and retain members and subscribers. If our advertising and marketing campaigns do not generate a sufficient
number of members and subscribers, our business, financial condition and results of operations will be adversely
affected.
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The Weight Watchers reputation could be impaired due to actions taken by our franchisees, licensees,
suppliers and other partners.
We believe that the Weight Watchers brands, including their widespread recognition and strong reputation and
goodwill in the market, are one of our most valuable assets and they provide us with a competitive advantage. Our
franchisees operate their businesses under our brands. In addition, we license the Weight Watchers trademarks to
third parties for the manufacture and sale in retail stores by such parties of a variety of goods, including food
products, and also endorse third-party branded consumer products and services. We also sell through a variety of
channels, including in our meeting rooms, food and non-food products manufactured by third-party suppliers. Our
franchisees, licensees, suppliers and other partners are independent third parties with their own financial objectives,
third-party relationships and brand associations. Actions taken by them, including violations of generally accepted
ethical business practices or breaches of law or contractual obligations, such as not following our program or not
maintaining our quality and safety standards, could harm our reputation. Also, Weight Watchers products may be
subject to product recalls, brand confusion, litigation or other deficiencies, which could harm our brands. Any
negative publicity associated with these actions or these third parties would adversely affect our reputation and may
result in decreased recruitment, meeting attendance, Online product subscriptions and product sales and, as a result,
lower revenues and profits.
Our substantial amount of debt and our debt service obligations could adversely affect our financial
condition, and the restrictions of our debt covenants could impede our operations and flexibility.
As of December 30, 2017, our total debt was $1,865.0 million. In addition, at December 30, 2017, we had
$123.7 million available under our revolving credit facility. $1,565.0 million of our debt consists of variable-rate
instruments so we are subject to the risk of higher interest rates. We seek to manage our exposure to interest rates
through interest rate swaps. At the end of fiscal 2017, we had in effect an interest rate swap with a notional amount
of $1.25 billion.
Our high degree of debt leverage could have significant consequences, including the following:
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requiring a substantial portion of our cash flow from operations to be dedicated to the payment of
principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund
our operations, capital expenditures and future business opportunities;
exposing us to the risk of increased interest rates because certain of our borrowings, including the
borrowings under our credit facilities, are at variable rates of interest;
making it more difficult for us to make payments and otherwise satisfy our obligations with respect to
our indebtedness, and any failure to comply with the obligations of any of our debt instruments,
including restrictive covenants and borrowing conditions, could result in an event of default;
restricting our ability and flexibility to make strategic acquisitions and to take advantage of other
strategic opportunities to grow our business funded by significant additional indebtedness or causing us
to make non-strategic divestitures;
limiting our ability to obtain additional financing for working capital, capital expenditures, product
development, debt service requirements, acquisitions and other general corporate purposes;
limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage
compared to our competitors who may be less leveraged or may have greater financial resources than
us;
increasing our vulnerability to general adverse economic and industry conditions; and
limiting, along with the financial and other restrictive covenants in our indebtedness, among other
things, our ability to borrow additional funds on commercially reasonable terms, if at all.
Our credit facilities and the indenture governing our notes permit us to incur additional indebtedness in the
future. If we incur additional indebtedness, the risks we face as a result of our leverage could intensify.
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While there is no net debt to EBITDA (earnings before interest, taxes, depreciation and amortization) leverage
ratio maintenance requirement on the debt outstanding under our credit facilities, our credit facilities and the
indenture governing our notes contain customary covenants for a non-investment grade company, including
covenants that in certain circumstances restrict our ability to incur additional indebtedness and liens, pay dividends
on and redeem capital stock, make investments, sell our assets and enter into acquisitions, mergers and transfers of
all or substantially all of our assets, prepay subordinated debt and enter into transactions with affiliates, in each case
subject to baskets, thresholds and other exceptions. Under the terms of our credit facilities, depending on our
leverage ratio, we are obligated to offer to prepay our term loan facilities in an aggregate amount determined by our
excess cash flow. In addition, our revolving credit facility includes a maintenance covenant that requires compliance
with certain first lien secured net leverage ratios when the aggregate principal amount of all revolving loans plus
available, undrawn letters of credit and unreimbursed letters of credit (subject to customary exceptions and
thresholds) exceeds 33 1/3% of the amount of the lenders’ revolving commitments.
Our failure to comply with these covenants could result in an acceleration of our debt, cause cross-defaults
under our other debt, lead to the foreclosure on assets collateralizing secured debt (and the lenders of that secured
debt would rank ahead of the holders of unsecured debt, including our notes, in the proceeds of those assets) and
result in our lenders terminating all commitments to extend further credit. If our indebtedness is accelerated, we may
not be able to repay our indebtedness, and we may not be able to borrow sufficient funds to refinance such
indebtedness. Any such prepayment or refinancing could adversely affect our financial condition and liquidity. In
addition, if we incur additional debt in the future, we may be subject to additional covenants, which may be more
restrictive than those to which we are currently subject.
We may not be able to generate sufficient cash to service all of our debt and satisfy our other liquidity
requirements.
Our ability to make scheduled payments on or to refinance our debt obligations and to fund our planned
capital expenditures and other ongoing liquidity needs 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. We have a term loan facility in an aggregate principal amount of $1,540.0 million
due in November 2024, a revolving credit facility of $150.0 million due in November 2022 and $300.0 million in
aggregate principal amount of outstanding 8.625% senior notes due in December 2025. We expect to pay the
principal and interest due on the term loan facility and our notes from a combination of our cash flows provided by
operating activities and by opportunistically using other means to repay or refinance our obligations as we determine
appropriate. There can be no assurance that we will maintain a level of cash flows provided by operating activities in
an amount sufficient to permit us to pay the principal and interest on all of our outstanding debt.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced
to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or
refinance our indebtedness. Our ability, if any, to restructure or refinance our debt will depend on the condition of
the capital markets and our financial condition at such time. Any refinancing of our debt, if available on acceptable
terms or at all, could be at higher interest rates and may require us to comply with more onerous covenants, which
could further restrict our business operations. The terms of existing or future debt instruments may restrict us from
adopting some of these alternatives. In addition, any deterioration in our performance may result in a reduction of
our credit rating, which could harm our ability to incur additional indebtedness or the ability to refinance our debt
obligations on favorable terms or at all.
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Any failure of our technology or systems to perform satisfactorily could result in an adverse impact on our
business.
We rely on software, hardware, network systems and similar technology, including cloud-based technology,
that is either developed by us or licensed from or maintained by third parties to operate our websites, Online
subscription product offerings and other services and products such as the recurring billing system associated with
certain of our commitment plans, and to support our business operations. As much of this technology is complex,
there may be future errors, defects or performance problems, including when we update our technology or integrate
new technology to expand and enhance our capabilities. Our technology may malfunction or suffer from defects that
become apparent only after extended use. The integrity of our technology may also be compromised as a result of
third-party cyber-attacks, such as hacking, spear phishing campaigns and denial of service (DOS) attacks, which are
increasingly negatively impacting companies. In addition, our operations depend on our ability to protect our
information technology systems against damage from third-party cyber-attacks, fire, power loss, water, earthquakes,
telecommunications failures and similar unexpected adverse events. Interruptions in our websites, services and
products or network systems could result from unknown technical defects, insufficient capacity or the failure of our
third party providers to provide continuous and uninterrupted service. While we maintain disaster recovery
capabilities to return to normal operation in a timely manner, we do not have a fully redundant system that includes
an instantaneous recovery capability.
As a result of such possible defects, failures, interruptions or other problems, our services and products could
be rendered unreliable or be perceived as unreliable by customers, which could result in harm to our reputation and
brands. Any failure of our technology or systems could result in an adverse impact on our business.
Our reputation and the appeal of our services and products may be harmed by security breaches or privacy
concerns.
Breaches of security, vandalism and other malicious acts, which are increasingly negatively impacting
companies, could result in unauthorized access to proprietary or customer information or data, including credit card
transaction data, or cause interruptions to our services and products. Such unauthorized access or interruptions could
harm our reputation, expose us to liability claims and may result in the loss of existing or potential customers. We
rely upon sophisticated information technology systems to operate our business. In the ordinary course of business,
we collect, store and utilize confidential information (including, but not limited to, personal customer information
and data), and it is critical that we do so in a secure manner to maintain the confidentiality and integrity of such
confidential information as well as comply with applicable regulatory requirements and contractual obligations.
We also have outsourced significant elements of our information technology infrastructure and, as a result, we
are managing many independent vendor relationships with third parties who may or could have access to our
confidential information. The size and complexity of our information technology and information security systems,
and those of our third-party vendors with whom we contract, make such systems potentially vulnerable to security
breaches. While we have invested and developed systems and processes designed to protect such proprietary or
customer information or data, there can be no assurance that our efforts will prevent service interruptions or security
breaches.
Many jurisdictions require that customers be notified if a security breach results in the disclosure of their
personal financial account or other information, and additional jurisdictions and governmental entities are
considering such 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. Prospective and existing customers and clients may have concerns
regarding our use of private information or data collected on our websites or through our services and products, such
as weight management information, financial data, email addresses and home addresses. These privacy concerns
could keep customers and clients from using our websites or purchasing our services or products, and third parties
from partnering with us.
In addition, the transmission of computer viruses, or similar malware, could adversely affect our information
technology systems and harm our business operations. As a result, it may become necessary to expend significant
additional amounts of capital and other resources to protect against, or to alleviate, problems caused by security
breaches. These expenditures, however, may not prove to be a sufficient remedy.
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We may be required to recognize asset impairment charges for indefinite- and definite-lived assets.
In accordance with GAAP (as defined hereafter), we perform impairment reviews of our indefinite-lived
assets, which include franchise rights acquired and goodwill, on at least an annual basis or more often if events so
require. We also continually evaluate whether current factors or indicators, such as the deterioration in relevant,
country macroeconomic conditions, an increased competitive environment, a decline in our financial performance,
and/or other prevailing conditions in the capital markets, require the performance of an interim impairment
assessment of those assets. The process of testing franchise rights acquired, goodwill and other indefinite-lived
assets for impairment involves numerous judgments, assumptions and estimates made by management which
inherently reflect a high degree of uncertainty. Certain factors, including the future profitability of our businesses,
the price of our stock and macroeconomic conditions (both at the global and local levels), might have a negative
impact on the fair value of these assets. In fiscal 2017, we recorded a $13.3 million impairment charge for goodwill
related to our Brazil reporting unit. We may incur additional impairment charges in the future, which would have an
adverse impact on our results of operations. See “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Critical Accounting Policies” in Part II of this Annual Report on Form 10-K
for additional information.
Additionally, we evaluate definite-lived assets, both tangible, which includes our physical plant and
equipment, and intangible, which includes both internally developed and purchased software, for impairment by
comparing the net realizable value of the asset to the carrying value of the capitalized cost. If the value of those
assets is not deemed to be recoverable, an assessment of the fair value of those assets is performed and to the extent
the carrying value exceeds the fair value an impairment charge is recognized. Should our investment in capitalized
definite-lived assets become impaired, there would also be an adverse impact on our results of operations.
Loss of key personnel, strategic partners or consultants or failure to effectively manage and motivate our
workforce could negatively impact our sales of services and products, business, financial condition and results
of operations.
We depend on senior management and other key personnel and consultants, and the loss of certain personnel
or consultants could result in the loss of management continuity and institutional knowledge and negatively affect
our brand image and goodwill. In October 2015, Ms. Winfrey and the Company entered into a long-term, strategic
partnership, which included her making a substantial equity investment in the Company, joining our Board of
Directors, providing certain consulting services and granting us the right to use her name and marks. Our ability to
maintain our brand image and leverage the goodwill associated with Ms. Winfrey’s name may be damaged if we
were to lose her services or if the nature of our partnership changes. The loss of Ms. Winfrey’s services or
partnership with us for any reason (including as a result of her death or disability), any negative market or industry
perception with respect to her or her participation in the Company’s programs, or the failure by Ms. Winfrey to
provide services in her discretion to promote the Company, our programs, services and products or to consult with
us and participate in developing, planning, executing and enhancing our programs and related initiatives, all in
accordance with our strategic partnership arrangements with her, could have an adverse effect on our business,
financial condition and results of operations.
We also depend heavily upon our service providers to support our customers in their weight management
efforts. If we fail to appropriately manage and motivate our service providers, we may not be able to adequately
service our customers which could negatively impact our sales of services and products. Changes in factors such as
overall unemployment levels, local competition for qualified personnel, prevailing wage rates and employment law,
as well as rising employee benefits costs, including insurance in the areas in which we operate, could increase our
labor costs and interfere with our ability to adequately retain qualified individuals to provide support to customers.
Additionally, our inability to attract and retain qualified service providers could delay or hinder our successfully
executing our strategic initiatives.
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The inability to renew certain of our licenses, or the inability to do so on terms that are favorable to us, could
have a material adverse effect on our financial results.
We have entered into licensing and endorsement relationships with numerous partners for the distribution and
sale of certain products and services that are relevant and helpful to weight- and health-conscious consumers. These
arrangements are typically for fixed terms, following which the parties decide whether to extend the term of the
arrangement. There is no guarantee that we will reach mutually agreeable terms with our partners for extending an
arrangement. Similarly, in those instances where a licensee enjoys the option to extend the term of a license as a
result of having achieved certain conditions, there is no guarantee that the licensee will avail itself of such option.
Our financial results could be materially adversely affected if we are unable to extend a licensing or endorsement
arrangement, if we are unable to do so on terms favorable to us, or if we cannot locate a suitable alternative to an
incumbent licensee who has decided not to renew its arrangement.
Expiration or early termination by us of leases could have an adverse impact on our financial results.
Our operations, including corporate headquarters and back-office and customer service operations, are located
in leased office space and many of our meetings are held in leased space in retail centers. As leases expire, we may
not be able to renew them on acceptable terms or secure suitable replacement locations. If we decide to relocate or
close meeting locations before the expiration of the applicable lease term, we may incur payments to landlords to
terminate or “buy out” the remaining term of the lease. Any of the above events could adversely impact our financial
results.
Our international operations expose us to regulatory, 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
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 regulations may also restrict
our ability to operate in some countries, acquire new businesses, recur bill our customers or repatriate cash from
foreign subsidiaries back to the United States. If we expand our operations into additional foreign countries, we may
be subject to additional risks, including the ability to successfully adapt to local culture and navigate regulatory,
economic, political and social risks. 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 presented 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 and payables with our foreign subsidiaries are generally recorded as a component of other expense
(income). Accordingly, changes in currency exchange rates will cause our revenues, operating costs, net income and
shareholders’ equity to fluctuate. For example, these changes had a negative impact on our fiscal 2015 and fiscal
2016 financial results.
17
Our business may decline as a result of a downturn in general economic conditions or consumer confidence.
Our business is highly dependent on meeting fees, Online product subscriptions and product sales. A
downturn in general economic conditions or consumer confidence in any of our markets could result in people
curtailing or reallocating their discretionary spending which, in turn, could reduce attendance at our meetings,
Online product subscriptions and product sales. Any reduction in consumer spending may adversely affect our
business, financial condition or results of operations.
We may not successfully make acquisitions or enter into joint ventures and we may not successfully integrate,
operate or realize the anticipated benefits of such businesses.
As part of our strategic initiatives, we may pursue selected acquisitions or joint ventures. We may not be able
to effect these transactions on commercially reasonable terms or at all. Any future acquisitions or joint ventures may
require access to additional capital, and we may not have access to such capital 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, technologies and products into our existing business or in
providing our services and products in newly acquired markets; 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.
Our ability to influence the control of, or distributions from, our joint ventures may be limited by contract or
otherwise. If any of the other investors in one of our joint ventures fails to observe its commitments, or its interests
are different than ours, the joint venture may not be able to operate according to its business plan, we may be
required to increase our level of commitment, or such entities may take actions which are not in our best interest. If
we are unable to maintain our relationships with our joint venture partners, we could lose our ability to operate in the
geographies and/or markets in which they operate, which could have an adverse effect on our business, financial
condition or results of operations.
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 an adverse effect on our business,
financial condition or results of operations. We may also issue additional equity in connection with these
transactions, which would dilute our existing shareholders.
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
due to the seasonal nature of our business. Typically, the first quarter of the fiscal year, known as our winter season,
is the most important quarter for recruitments. Given the subscription nature of our products, failure to realize
recruitments during the winter season could negatively impact our performance for the remainder of the year. 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.
Any event that discourages or impedes people from gathering with others or accessing resources could
adversely affect our business.
Our business is subject to conditions beyond our control, including extreme weather, terrorism, health
epidemics, loss of resources such as electricity and internet connections, national disasters and other extraordinary
events, that may prevent or impede meeting attendance or accessing our Online products. The occurrence of any
event that discourages people from gathering with others or impedes their ability to access our services and products
could adversely affect our business, financial condition or results of operations.
18
Third parties may infringe on our brands and other intellectual property rights, which may have an adverse
impact on our business.
We currently rely on a combination of trademark, copyright, trade dress, trade secret, patent and other
intellectual property laws and domain name dispute resolution systems to establish and protect our proprietary
rights, including our brands. If we fail to successfully enforce our intellectual property rights, the value of our
brands, services and products 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 brands and other intellectual 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. These evolving legal standards may not sufficiently protect our intellectual property rights in the
future.
We may be subject to intellectual property rights claims.
Third parties may 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 service or product 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 service, product, software, technology or content or develop alternative non-infringing services, products,
software, technology or content. If we cannot license on reasonable terms, develop alternatives or stop using the
service, product, software, technology or content for any infringing aspects of our business, we may be forced to
limit our service and product offerings. Any of these results could reduce our revenues or our ability to compete
effectively, increase our costs or harm our business.
Outcomes of litigation or regulatory actions could adversely impact our financial condition.
From time to time, we may be a party to lawsuits and regulatory actions relating to our business operations.
For example, in the past, we have had disputes with our franchisees regarding operations and other contractual
issues. Due to the inherent uncertainties of legal actions and regulatory proceedings, we cannot predict their
outcomes with certainty. Therefore, it is possible that our results of operations, financial condition or cash flows
could be adversely affected by the unfavorable resolution of one or more legal or regulatory actions. As we expand
our wellness offerings, consumers may misconstrue our program as providing medical advice. As we clearly state in
our consumer communications, most of our service providers do not have extensive training or certification in
nutrition, diet or health fields beyond the training they receive from us. Despite our disclaimers, as more customers
come to us seeking a healthy lifestyle, they may misperceive that our service providers are providing medical advice
regarding weight loss and related topics. We may also be subject to claims that our service providers have provided
inappropriate advice or have inappropriately referred or failed to refer customers to health care providers when
needed. Regardless of the outcome of any legal action or regulatory proceeding, such actions and proceedings could
result in substantial costs and may require that our management devote substantial time and resources to defend us.
For example, the previously disclosed adverse UK tax ruling relating to the self-employment status of our UK
leaders resulted in an aggregate adverse charge of approximately $37.0 million.
Our business is subject to legislative and regulatory restrictions.
A number of laws and regulations govern our advertising and marketing, services, products, operations and
relations with consumers, licensees, franchisees, employees and other service providers, and government authorities
in the countries in which we operate.
19
Certain federal, state and foreign agencies, such as the FTC and FDA, regulate and enforce such laws and
regulations relating to advertising and marketing, promotions, packaging, privacy, consumer pricing and billing
arrangements, and other consumer protection matters. A determination by a federal, state or foreign agency, or a
court in connection with a governmental enforcement action or private litigation, that any of our practices do not
meet existing or new laws or regulations could result in liability, adverse publicity, and restrictions of our business
operations. For example, 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 required us to comply with
certain procedures and disclosures in connection with our advertisements of services and products and expired by its
terms in 2017.
We are subject to many distinct employment, labor, commercial, benefits and tax laws and regulations in each
country in which we operate, including regulations affecting our employment and wage and hour practices and our
relations with our employees and service providers. If we are required to comply with new laws or regulations or
interpretations of existing laws and regulations that differ from our interpretations, are unable to comply with these
laws, regulations or interpretations, or are subject to litigation with respect to these laws, regulations or
interpretations, our business and results of operations could be adversely affected.
Laws and regulations directly applicable to communications, operations or commerce over the Internet, such
as those governing intellectual property, privacy and taxation, continue to evolve. For example, a new general data
protection regulation is expected to take effect in the European Union in 2018. If we are required to comply with
new laws or regulations or interpretations of existing laws or regulations that differ from our interpretations, or if we
are unable to comply with these laws, regulations or interpretations, our business and results of operations could be
adversely affected.
Future laws or regulations, including laws or regulations affecting our advertising and marketing practices,
consumer pricing and billing arrangements, relations with consumers, employees, service providers, licensees or
franchisees, or our services and products, may have an adverse impact on us.
If we do not maintain effective internal control over financial reporting, we could fail to report our financial
results accurately.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports. In
the past we have discovered, and in the future we may discover, areas of our internal control over financial reporting
that need improvement. In the future, if we identify a control deficiency that rises to the level of a material weakness
in our internal controls over financial reporting, this material weakness may adversely affect our ability to record,
process, summarize and report financial information timely and accurately and, as a result, our financial statements
may contain material misstatements or omissions. A material weakness is defined as a deficiency, or a combination
of deficiencies, in internal control over financial reporting, such that there is reasonable possibility that a material
misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
Artal effectively controls us and may have conflicts of interest with other shareholders in the future.
Artal effectively controls us and is effectively 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. So long as Artal owns 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. In addition, Artal Luxembourg entered into a Voting Agreement with
Ms. Winfrey on October 18, 2015, pursuant to which Ms. Winfrey has agreed to vote all of her shares of our
common stock so as to elect such individuals designated as directors by Artal. The interests of Artal may not
coincide with the interests of other holders of our common stock.
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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.
A group comprised of Artal and Ms. Winfrey controls a majority of the voting power of our outstanding
common stock. Under the New York Stock Exchange, or the NYSE, rules, a listed company of which more than
50% of the voting power for the election of directors 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 NYSE corporate governance
requirements, including (1) the requirement that a majority of the Board of Directors consist of independent
directors, (2) the requirement that the Board of Directors should have a nominating and corporate governance
committee 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, (4) that the compensation
committee be required to consider certain independence factors when engaging compensation consultants, legal
counsel and other committee advisors and (5) 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 NYSE 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 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. 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 with our US back-office and
customer support operations located in leased office spaces elsewhere in the United States. Each of our foreign
country operations generally also has leased office space to support its operations. Our meetings are typically held in
third-party locations (usually meeting rooms in well-located civic or other community centers) or space leased in
retail centers.
Our website and digital products and services are hosted on hardware and software co-located at a third-party
facility in Massachusetts and by third-party cloud service providers with facilities in various locations around the
United States. We also maintain a disaster recovery site with hardware and software co-located at a third-party
facility in Arizona.
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Item 3.
Legal Proceedings
Raymond Roberts v. Weight Watchers International, Inc.
On January 7, 2016, an OnlinePlus member filed a putative class action complaint against the Company in the
Supreme Court of New York, New York County, asserting class claims for breach of contract and violations of the
New York General Business Law. On February 5, 2016, the Company removed the case to the United States District
Court, Southern District of New York. On March 18, 2016, the plaintiff filed an amended complaint, alleging that,
as a result of the temporary glitches in the Company’s website and app in November and December 2015, the
Company has: (1) breached its Subscription Agreement with its OnlinePlus members; and (2) engaged in deceptive
acts and practices in violation of Section 350 of the New York General Business Law. The plaintiff is seeking
unspecified actual, punitive and statutory damages, as well as his attorneys’ fees and costs incurred in connection
with this action. The Company filed a motion to dismiss on May 6, 2016. The plaintiff filed his opposition papers on
June 9, 2016 and the Company filed its reply papers on June 23, 2016. The Court granted the Company’s motion to
dismiss on November 14, 2016. On November 16, 2016, the plaintiff filed a timely notice of appeal of the Court’s
decision to the Second Circuit Court of Appeals and on January 31, 2017, the plaintiff filed his brief in support of
appeal. The Company filed its opposition brief on April 5, 2017, and the plaintiff filed his reply brief on April 25,
2017. On October 25, 2017, the Second Circuit conducted oral arguments on the plaintiff’s appeal. On November 2,
2017, the Second Circuit issued its decision denying the plaintiff’s appeal and affirming the lower court’s dismissal
of the case. The plaintiff had until November 16, 2017 to file a petition for a rehearing with the Second Circuit, or
until January 31, 2018 to file a petition for appeal with the United States Supreme Court. The plaintiff failed to take
either action, and the matter is now closed.
Other Litigation Matters
Due to the nature of the Company’s activities, it is also, at times, subject to pending and threatened legal
actions, including patent and other intellectual property actions, that arise out of the ordinary course of business. In
the opinion of management, the disposition of any such matters is not expected, individually or in the aggregate, to
have a material adverse effect on the Company’s results of operations, financial condition or cash flows. However,
the results of legal actions cannot be predicted with certainty. Therefore, it is possible that the Company’s results of
operations, financial condition or cash flows could be materially adversely affected in any particular period by the
unfavorable resolution of one or more legal actions.
Item 4.
Mine Safety Disclosures
Not applicable.
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EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
Pursuant to General Instruction G(3) to Form 10-K, certain of the information regarding our directors and
executive officers required by Items 401(a), (b) and (e) of Regulation S-K is hereby included in Part I of this Annual
Report on Form 10-K.
Set forth below are the names, ages as of December 30, 2017 and current positions 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 our Board of Directors.
Position
Age
Name
60 President and Chief Executive Officer, Director
Mindy Grossman .............................................................................................................................................................................
52 Chief Financial Officer
Nicholas P. Hotchkin.......................................................................................................................................................................
52 General Counsel and Secretary
Michael F. Colosi ............................................................................................................................................................................
55 President, Americas
Stacey Mowbray..............................................................................................................................................................................
53 President, International
Corinne Pollier(-Bousquet) .............................................................................................................................................................
62 Chairman of the Board of Directors
Raymond Debbane(1) ........................................................................................................................................................................
64 Director
Steven M. Altschuler, M.D.(1)(2)........................................................................................................................................................
59 Director
Philippe J. Amouyal(1) ......................................................................................................................................................................
52 Director
Cynthia Elkins(2)...............................................................................................................................................................................
45 Director
Jonas M. Fajgenbaum......................................................................................................................................................................
68 Director
Denis F. Kelly(2) ...............................................................................................................................................................................
61 Director
Sacha Lainovic ................................................................................................................................................................................
52 Director
Thilo Semmelbauer .........................................................................................................................................................................
59 Director
Christopher J. Sobecki.....................................................................................................................................................................
63 Director
Oprah Winfrey.................................................................................................................................................................................
(1) Member of Compensation and Benefits Committee.
(2) Member of Audit Committee.
Mindy Grossman. Ms. Grossman has served as a director and our President and Chief Executive Officer since
July 2017. Prior to joining us, she served as Chief Executive Officer of HSN, Inc., an interactive, multichannel
retailer of fashion, household and lifestyle products, and a member of its Board of Directors from August 2008 to
May 2017. Prior to joining HSN, she served as Chief Executive Officer of IAC Retailing, a business segment of
HSN’s former parent company, IAC/InterActiveCorp, a media and internet company, from April 2006 to August
2008, and Global Vice President of Nike, Inc.’s apparel business from October 2000 to March 2006. Earlier in her
career, Ms. Grossman held various other executive positions in the retail industry, including President and CEO of
Polo Jeans Company, Vice President of New Business Development at Polo Ralph Lauren Corporation, President of
Chaps Ralph Lauren, and Senior Vice President of Menswear for Warnaco, Inc. Ms. Grossman is a director of
Bloomin’ Brands, Inc. and Fanatics, Inc. She also serves as Vice Chairman for UNICEF USA.
Nicholas P. Hotchkin. Mr. Hotchkin has served as our Chief Financial Officer since August 2012. He served
as a member of our Interim Office of the Chief Executive Officer from September 2016 to July 2017. Prior to
joining us, Mr. Hotchkin had spent several years at Staples, Inc., a global leader in the office supply industry. Most
recently, Mr. Hotchkin served as Senior Vice President of Finance for the U.S. Retail division of Staples based in
Massachusetts, a position he held from May 2010 to August 2012. Before assuming that position, he had been
Senior Vice President of Finance and Treasurer of Staples, a position he held from November 2006 to April 2010.
Prior to joining Staples, Mr. Hotchkin held several corporate finance positions with Delphi Corporation and General
Motors Corporation including assignments in the United States, Asia and Europe. Mr. Hotchkin received a B.A. in
Economics from Harvard College and an M.B.A. from the Harvard Business School.
Michael F. Colosi. Mr. Colosi has served as our General Counsel and Secretary since May 2014. Prior to
joining us, Mr. Colosi most recently served as Senior Vice President, General Counsel and Corporate Secretary of
Kenneth Cole Productions, Inc. (KCP), a multi-brand retail, wholesale and licensing company, from March 2007 to
February 2014. His service as General Counsel and Secretary of KCP commenced in July 2000 and July 2004,
respectively. He also served as Corporate Vice President of KCP from July 2000 to February 2007. Prior to joining
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KCP, Mr. Colosi was Associate General Counsel and Assistant Secretary for The Warnaco Group, Inc., an
international apparel company, from 1996 to 2000. Mr. Colosi received a B.A. in Economics and English from
Cornell University and a J.D. from The University of Michigan Law School.
Stacey Mowbray. Ms. Mowbray has served as our President, Americas since March 2016. Prior to that time,
Ms. Mowbray served as President and General Manager of Weight Watchers Canada from November 2014 to
March 2016. Prior to joining us, Ms. Mowbray was with Second Cup Ltd., a Canadian, publicly traded, specialty
coffee business, where she served as Chief Executive Officer from May 2009 to February 2014 and President from
February 2008 to May 2009. Prior to joining Second Cup Ltd., Ms. Mowbray was Chief Marketing Officer at
Molson Coors Brewing Company and held various senior roles at Cara Operations Limited and PepsiCo Canada.
Ms. Mowbray received a Bachelor of Business degree from Wilfrid Laurier University and an M.B.A. from the
Schulich School of Business at York University.
Corinne Pollier(-Bousquet). Ms. Pollier has served as our President, International since March 2016. Prior to
that time, Ms. Pollier served as our President, Continental Europe & Australia-New Zealand from January 2014 to
March 2016, our President, Continental Europe from May 2013 to January 2014, our Senior Vice President of
France and Switzerland from October 2008 to May 2013 and our General Manager of France from October 2003 to
October 2008. Prior to joining us, from 1991 to 2003, Ms. Pollier was with VIVARTE Group (France), a European
retailer of footwear and apparel, where she held various positions in the finance and planning analysis department
from 1991 to 1995, various senior positions in the organization and strategy department from 1995 to 2000 and as
General Manager of Kookai from 2001 to 2003. Ms. Pollier also held various product management and project
management positions for the central buying office of Le Printemps department stores from 1987 to 1991. Ms.
Pollier holds a Masters in Management from the HEC Business School Paris.
Raymond Debbane. Mr. Debbane has been the Chairman of our Board of Directors since our acquisition by
Artal Luxembourg on September 29, 1999. Mr. Debbane is a co-founder and the Chief Executive Officer 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 University of Beirut. Mr. Debbane is the Chairman of the Board of
Directors of Lexicon Pharmaceuticals, Inc. and a director of Blue Buffalo Pet Products, Inc. He is also the Chief
Executive Officer and a director of Artal Group S.A., and the Chairman of the Board of Directors of a number of
private companies of which Artal or Invus, L.P. are shareholders. Mr. Debbane was previously a director of Ceres,
Inc.
Steven M. Altschuler, M.D. Dr. Altschuler has been a director since September 2012. Dr. Altschuler currently
serves as Chair of the Board of Directors of Spark Therapeutics, Inc. He previously served as a consultant to the
University of Miami Health Care System from September 2017 through December 2017, the Chief Executive
Officer of University of Miami Health Care System and Executive Vice President for Healthcare at the University of
Miami from January 2016 to September 2017, and the Chief Executive Officer of The Children's Hospital of
Philadelphia (CHOP) from April 2000 until June 2015. Prior to assuming the role of Chief Executive Officer, Dr.
Altschuler held several positions at CHOP and the Perelman School of Medicine at the University of Pennsylvania,
including Physician-in-Chief/ Chair of Pediatrics and chief of the Division of Gastroenterology, Hepatology and
Nutrition. Dr. Altschuler received a B.A. in mathematics and an M.D. from Case Western Reserve University.
Philippe J. Amouyal. Mr. Amouyal has been a director since November 2002. Mr. Amouyal is a Managing
Director of The Invus Group, LLC, a position he has held since 1999. Previously, Mr. Amouyal was a Vice
President and Director of The Boston Consulting Group 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 and member of the Compensation
Committee of Lexicon Pharmaceuticals, Inc. and Blue Buffalo Pet Products, Inc., as well as a number of private
companies of which Artal or Invus, L.P. are shareholders.
Cynthia Elkins. Ms. Elkins has been a director since March 2014. Since December 2017, Ms. Elkins has
served as Chief Information Officer and Executive Vice President at Juno Therapeutics, Inc., a biopharmaceutical
company. Previously, Ms. Elkins served as Vice President of IT Americas from March 2011 through December
2016 and Senior Director of IT Enterprise Applications from December 2007 to February 2011 at Genentech, Inc., a
biotechnology company and member of the Roche Group. Prior to joining Genentech, Ms. Elkins was Vice
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President and General Manager of Supplier Solutions and Commerce Services at Ariba, Inc. and Vice President of
Product Engineering at ATP Inc. Prior to that, she held various technology leadership positions at Aspect
Telecommunications, VeriFone and Digital Equipment Corporation. Ms. Elkins received a B.S. in Applied
Mathematics from the University of California, Los Angeles and an M.B.A. from Santa Clara University.
Jonas M. Fajgenbaum. Mr. Fajgenbaum has been a director since our acquisition by Artal Luxembourg 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. in Economics with a concentration in Finance from The Wharton
School of the University of Pennsylvania and a B.A. in Economics from the University of Pennsylvania. Mr.
Fajgenbaum is a director of a number of private companies of which Artal or Invus, L.P. are shareholders.
Denis F. Kelly. Mr. Kelly has been a director since May 2015. Mr. Kelly is affiliated with, and has served as a
Managing Partner of, Scura Partners Securities LLC, a private investment banking firm which he co-founded, since
2001. From 1993 to 2001, he was a Managing Director of Prudential Securities Incorporated. Previously, he served
as the President and Chief Executive Officer of Denbrook Capital Corporation, a merchant banking firm, from 1991
to 1993. From 1980 to 1991, Mr. Kelly held various positions at Merrill Lynch, including Managing Director of
Mergers and Acquisitions and Managing Director of Merchant Banking. Mr. Kelly began his investment banking
career at Lehman Brothers in 1974. Mr. Kelly received a B.A. from Amherst College and an M.B.A. from the
Wharton School of Business of the University of Pennsylvania. Mr. Kelly is also a director of MSC Industrial Direct
Co., Inc., where he serves as a member of the Audit Committee and the chairman of the Compensation Committee.
Mr. Kelly previously served as a director of Kenneth Cole Productions, Inc., which is no longer a public company.
Sacha Lainovic. Mr. Lainovic has been a director since our acquisition by Artal Luxembourg on September
29, 1999. Since 2007, Mr. Lainovic has been Managing Partner of Invus Financial Advisors, LLC, a New York-
based investment firm, which he co-founded. From 1985 to 2006, Mr. Lainovic was Executive Vice President of
The Invus Group, LLC, which he co-founded. 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.
Thilo Semmelbauer. Mr. Semmelbauer has been a director since September 2016. He served as a member of
our Interim Office of the Chief Executive Officer from September 2016 to July 2017. Since 2015, Mr. Semmelbauer
has been a Venture Partner of Insight Venture Partners, a global private equity and venture capital firm. He has been
involved in technology ventures for over 25 years. From 2010 to 2015, he served as President and Chief Operating
Officer of Shutterstock, Inc., a global marketplace for licensing images, videos, and music to businesses worldwide.
From 2009 to 2010, he served as Executive Vice President, Consumer Business, of TheLadders.com, a career
management company. Mr. Semmelbauer was also Weight Watchers International, Inc.'s Global Chief Operating
Officer from 2006 to 2008 and Chief Operating Officer for North America from 2004 to 2006, after serving as
President and Chief Operating Officer of WeightWatchers.com from 2000 to 2004 when he was part of the founding
team. He holds an A.B. in Electrical Engineering and Computer Science from Dartmouth College and a dual M.S. in
Management and Electrical Engineering from the Massachusetts Institute of Technology.
Christopher J. Sobecki. Mr. Sobecki has been a director since our acquisition by Artal Luxembourg on
September 29, 1999. He served as a member of our Interim Office of the Chief Executive Officer from September
2016 to July 2017. Mr. Sobecki is a Managing Director of The Invus Group, LLC, which he joined in 1989. He
received an M.B.A. from the Harvard Business School. He also obtained a B.S. in Industrial Engineering from
Purdue University. Mr. Sobecki is a director of Lexicon Pharmaceuticals, Inc. and a number of private companies of
which Artal or Invus, L.P. are shareholders.
Oprah Winfrey. Ms. Winfrey has been a director since October 2015. Since January 2009, Ms. Winfrey has
served as the Chairman of her cable network, OWN: Oprah Winfrey Network, taking on the role of Chief Executive
Officer in July 2011. Previously, she founded Harpo, Inc. in 1986, under which she has launched numerous media
and entertainment businesses, including O, The Oprah Magazine and Harpo Films, in addition to producing the
award-winning talk show 'The Oprah Winfrey Show' for 25 years. Ms. Winfrey is a global media leader,
philanthropist, producer and actress. She also has been serving as a member of the Smithsonian's advisory council
since 2004.
25
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 NYSE. Our common stock trades on the NYSE under the symbol “WTW.”
The following table sets forth, for the periods indicated, the high and low sales prices per share for our
common stock as reported on the NYSE composite price history.
Fiscal 2017 (Year ended December 30, 2017)
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2016 (Year ended December 31, 2016)
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
$
$
$
$
$
$
$
High
Low
19.86 $
34.22 $
49.32 $
54.47 $
High
Low
23.42 $
16.13 $
12.58 $
12.65 $
11.02
15.16
32.16
41.15
10.03
10.74
9.37
9.55
On October 9, 2003, our Board of Directors authorized, and we announced, a program to repurchase up to
$250.0 million of our outstanding common stock. On each of June 13, 2005, May 25, 2006 and October 21, 2010,
our Board of Directors authorized, and we announced, adding $250.0 million 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 Holdings Sp. z o.o., Succursale de Luxembourg, or Artal
Holdings, and its parents and subsidiaries under this program. The repurchase program currently has no expiration
date. We repurchased no shares of our common stock during the fourth quarter of fiscal 2017. As of the end of fiscal
2017, $208.9 million remained available to purchase shares of our common stock under the repurchase program.
Holders
The approximate number of holders of record of our common stock as of February 1, 2018 was 220. This
number does not include beneficial owners of our securities held in the name of nominees.
Dividends
We do not currently pay a dividend and we have no current plans to pay dividends in the foreseeable future.
Any future determination to declare and pay dividends will be made at the sole discretion of our Board of Directors,
after taking into account our financial condition and results of operations, capital requirements, contractual, legal,
tax and regulatory restrictions, the provisions of Virginia law affecting the payment of distributions to shareholders
and such other factors our Board of Directors may deem relevant. In addition, our ability to pay dividends may be
limited by covenants in our existing indebtedness, including the New Credit Facilities (as defined below) and the
indenture governing our notes, and may be limited by the agreements governing other indebtedness we or our
subsidiaries incur in the future.
26
Stock Performance Graph
The following graph sets forth the cumulative return on our common stock from December 28, 2012, the last
trading day of our 2012 fiscal year, through December 29, 2017, the last trading day of our 2017 fiscal year, as
compared to the cumulative return of the Standard & Poor’s 500 Index, or the S&P 500 Index, and the cumulative
return of the Standard & Poor’s MidCap 400 Index, or the S&P MidCap 400 Index. We selected the S&P 500 Index
because it is a broad index of equity markets. We selected the S&P MidCap 400 Index, which is generally
comprised of issuers having a similar market capitalization with the Company at the times presented, because we
believe that there are no other lines of business or published industry indices or peer groups that provide a more
meaningful comparison of the cumulative return of our stock. The graph assumes that $100 was invested on
December 28, 2012 in each of (1) our common stock, (2) the S&P 500 Index and (3) the S&P MidCap 400 Index,
and that all dividends were reinvested.
Cumulative Total Return ($)
Company/Index
Weight Watchers International, Inc.
S&P 500 Index
S&P MidCap 400 Index
1.2.15
12.31.15 12.30.16 12.29.17
12.28.12 12.27.13
100.00
88.10
100.00 134.11 153.03 155.18 173.74 211.67
100.00 134.98 148.78 145.65 175.86 204.42
42.84
45.37
22.78
65.10
27
Item 6.
Selected Financial Data
The following schedule sets forth our selected financial data for the last five fiscal years.
SELECTED FINANCIAL DATA
(in millions, except per share amounts)
Revenues, net
Net income attributable to the Company
Working capital deficit (1)
Total assets (1)
Long-term debt (1)
Earnings per share:
Basic
Diluted
Dividends declared per
common share
Fiscal 2017 Fiscal 2016 Fiscal 2015 Fiscal 2014
(53 weeks)
(52 weeks)
$ 1,479.9
$ 1,306.9
117.8
$
163.5
$
$
$
(29.7)
(134.0)
$ 1,479.8
$ 1,246.0
$ 2,244.9
$ 1,740.6
(52 weeks)
$ 1,164.9
67.7
$
$
(57.2)
$ 1,271.0
$ 1,981.3
(52 weeks)
$ 1,164.4
32.9
$
$
(151.7)
$ 1,394.3
$ 1,996.4
Fiscal 2013
(52 weeks)
$ 1,724.1
202.7
$
$
(54.6)
$ 1,343.5
$ 2,318.4
$
$
$
2.54
2.40
$
$
1.06
1.03
$
$
0.56
0.56
$
$
2.08
2.08
$
$
3.61
3.60
-
$
-
$
-
$
-
$
0.53
(1)
Pursuant to the retrospective adoption in the first quarter of fiscal 2016 of the Financial Accounting Standards Board guidance on debt
issuance costs and classification of deferred tax assets, the Company has reclassified unamortized debt issuance costs and deferred tax
assets, respectively, in fiscal 2015, 2014 and 2013 from what had been previously reported.
Items Affecting Comparability
Several events occurred during each of the last five fiscal years that affect the comparability of our financial
statements. The nature of these events and their impact on underlying business trends are as follows:
Long-Term Debt
During the fourth quarter of fiscal 2017, we incurred fees of $53.8 million in connection with the refinancing
of $1,930.4 million of borrowings under our then-existing term loan facility. We wrote-off fees associated with this
refinancing which resulted in the Company recording a charge of $10.5 million in early extinguishment of debt in
the fourth quarter of fiscal 2017.
On April 1, 2016, we paid in full, with cash on hand, a principal amount of loans equal to $144.3 million,
which constituted the entire remaining principal amount of loans outstanding under our then-existing tranche B-1
term facility due April 2, 2016.
During the first quarter of fiscal 2015, we wrote-off fees of $0.3 million, incurred fees of $0.6 million and
recorded a gain on early extinguishment of debt of $4.7 million, inclusive of these fees, in connection with the
prepayment of $65.6 million in aggregate principal amount of term loans outstanding under our then-existing
tranche B-1 term facility. During the second quarter of fiscal 2015, we wrote-off fees of $0.3 million, incurred fees
of $0.6 million and recorded a gain on early extinguishment of debt of $6.7 million, inclusive of these fees, in
connection with our prepayment of $84.9 million in aggregate principal amount of term loans under our then-
existing tranche B-1 term facility.
During the third quarter of fiscal 2014, we wrote-off deferred financing fees of $1.6 million in connection with
an amendment to our then-existing revolving credit facility. Concurrently with and in order to effect this
amendment, we reduced the amount of our then-existing revolving credit facility from $250.0 million to
$50.0 million.
28
During the second quarter of fiscal 2013, we incurred fees of $44.8 million in connection with the refinancing
of $2,399.9 million of outstanding loans under our then-existing credit facilities. We wrote-off fees associated with
this refinancing which resulted in our recording a charge of $21.7 million in early extinguishment of debt in the
second quarter of fiscal 2013.
For additional details on the New Credit Facilities entered into during the fourth quarter of fiscal 2017, see
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and
Capital Resources—Long-Term Debt” in Part II of this Annual Report on Form 10-K.
Early Extinguishment of Debt, Net
Net income and earnings per fully diluted share, or EPS, for the full year of fiscal 2017 were impacted by a
$10.5 million ($6.4 million after tax or $0.09 per fully diluted share) early extinguishment of debt charge recorded in
the fourth quarter of fiscal 2017 resulting from the write-off of fees in connection with our November 2017 debt
refinancing, or the November 2017 debt refinancing. For additional details on this refinancing, see “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital
Resources—Long-Term Debt” in Part II of this Annual Report on Form 10-K. This charge was offset in part by a
$1.6 million ($0.9 million after tax or $0.01 per fully diluted share) gain on early extinguishment of debt recorded in
the second quarter of fiscal 2017 in connection with the payment of an aggregate amount of cash proceeds totaling
$73.0 million plus an amount sufficient to pay accrued and unpaid interest on the amount prepaid to prepay $75.5
million in aggregate principal amount of term loans under our then-existing tranche B-2 term facility.
Net income and EPS for the full year of fiscal 2015 were impacted by an $11.4 million ($7.0 million after tax
or $0.12 per fully diluted share) gain on early extinguishment of debt in connection with the payment of an
aggregate amount of cash proceeds totaling $134.6 million plus an amount sufficient to pay accrued and unpaid
interest on the amount prepaid to prepay $148.0 million in aggregate principal amount of term loans under our then-
existing tranche B-1 term facility.
Net income and EPS for the full year of fiscal 2013 were impacted by a $21.7 million ($13.3 million after tax
or $0.24 per fully diluted share) early extinguishment of debt charge recorded in fiscal 2013 resulting from the
write-off of fees in connection with our previously disclosed April 2013 debt refinancing.
Net Tax Benefit
In fiscal 2017, we recognized a $56.6 million, or $0.83 per fully diluted share, tax benefit due to the 2017 Tax
Act (defined hereafter). We also recognized (i) an $11.6 million, or $0.17 per fully diluted share, tax benefit related
to the cessation of operations of our Spanish subsidiary, (ii) a $3.7 million, or $0.05 per fully diluted share, tax
benefit due to a change in estimate related to the availability of certain foreign tax credits and (iii) a $2.3 million, or
$0.03 per fully diluted share, tax benefit related to the reversal of tax reserves resulting from an updated transfer
pricing study.
In fiscal 2016, we recognized (i) an $11.4 million, or $0.17 per fully diluted share, net tax benefit due to a
research and development credit and a Section 199 deduction for the tax years 2012 through 2015 and (ii) a reversal
of a $2.5 million, or $0.04 per fully diluted share, valuation allowance related to tax benefits for foreign losses that
are now expected to be realized. These benefits were partially offset by a $2.0 million, or $0.03 per fully diluted
share, tax expense for out-of-period adjustments in income taxes in the third quarter of fiscal 2016.
In fiscal 2014, we recognized a $2.4 million, or $0.04 per fully diluted share, net tax benefit related to an
intercompany loan write-off in connection with the closure of our China business, partially offset by the recognition
of a valuation allowance related to tax benefits for foreign losses not expected to be realized.
Impairment of Goodwill
In fiscal 2017, we recorded a $13.3 million, or $0.20 per fully diluted share, impairment charge for goodwill
related to our Brazil reporting unit.
29
Working Capital
In fiscal 2017, the change in working capital was driven primarily by the November 2017 debt refinancing
which resulted in higher debt repayments due in fiscal 2018 (increase in current portion of long-term debt). This,
coupled with cash on hand used in connection with debt payments in the second quarter of fiscal 2017 and for such
refinancing, increased our working capital deficit.
In fiscal 2016, the change in working capital was driven primarily by the April 1, 2016 payment of a principal
amount of loans equal to $144.3 million, which constituted the entire remaining principal amount of loans outstanding
under our then-existing tranche B-1 term facility, and paying down in the aggregate the outstanding principal amount of
$48.0 million on our then-existing revolving credit facility.
In fiscal 2015, the change in working capital was driven in large part by the increase in short-term debt due within
one year and the decline in cash resulting from the prepayment of debt during the fiscal year.
The refinancing of our credit facilities in April 2013 resulted in much lower debt repayments in fiscal 2013 and
fiscal 2014, which drove increases in cash in those years thereby lowering the working capital deficit.
Other Comprehensive Income (Loss)
Other comprehensive income, net of taxes, was $16.6 million in fiscal 2017 as compared to $10.6 million in
fiscal 2016 primarily due to the positive mark to market of our interest rate swap and to a lesser extent the favorable
impact of foreign currency translation adjustments. In fiscal 2017, due to hedge accounting, changes in other
comprehensive income increased to $17.4 million ($10.6 million after tax) as compared to an increase of
$11.8 million ($7.1 million after tax) in fiscal 2016. In addition, foreign currency translation adjustments favorably
impacted results by $9.8 million ($6.0 million after tax) in fiscal 2017 as compared to a favorable impact of
$5.6 million ($3.5 million after tax) in fiscal 2016 primarily due to the revaluation of intercompany receivables and
payables.
Other comprehensive income, net of taxes, was $10.6 million in fiscal 2016 as compared to other
comprehensive loss, net of taxes, of $18.3 million in fiscal 2015 primarily due to the positive mark to market of our
interest rate swap and to a lesser extent the favorable impact of foreign currency translation adjustments. In fiscal
2016, due to hedge accounting, changes in other comprehensive income increased to $11.8 million ($7.1 million
after tax) as compared to a loss of $2.1 million ($1.3 million after tax) in fiscal 2015. In addition, foreign currency
translation adjustments favorably impacted results by $5.6 million ($3.5 million after tax) in fiscal 2016 as
compared to a loss of $27.8 million ($17.0 million after tax) in fiscal 2015 primarily due to the revaluation of
intercompany receivables and payables.
Other comprehensive loss, net of taxes, was $18.3 million in fiscal 2015 as compared to $28.9 million in fiscal
2014 primarily due to the unfavorable impact of foreign currency translation adjustments and to a lesser extent the
mark to market of our interest rate swap. In fiscal 2015, foreign currency translation adjustments unfavorably
impacted results by $27.8 million ($17.0 million after tax) as compared to $19.2 million ($11.7 million after tax) in
fiscal 2014 primarily due to the devaluation of the Euro, Canadian dollar, and the British Pound. In addition, due to
hedge accounting, changes in other comprehensive loss decreased to $2.1 million ($1.3 million after tax) in fiscal
2015 as compared to $28.3 million ($17.3 million after tax) in fiscal 2014.
Winfrey Transaction
On October 19, 2015, pursuant to the Winfrey Purchase Agreement, we issued and sold to Ms. Winfrey an
aggregate of 6.4 million shares of our common stock for an aggregate cash purchase price of $43.2 million.
In consideration of Ms. Winfrey entering into the Strategic Collaboration Agreement and the performance of
her obligations thereunder, on October 18, 2015, we granted Ms. Winfrey the Winfrey Option to purchase
3.5 million shares of our common stock at an exercise price of $6.97 per share, which remains outstanding in full.
In fiscal 2015, net income and EPS were negatively impacted by expenses of $8.3 million after tax, or $0.14
per fully diluted share, in connection with the Winfrey Transaction. More specifically, we recorded compensation
expense of $7.8 million after tax for the full value of the Winfrey Option in the fourth quarter of fiscal 2015 (based
on the Black Scholes option pricing model), as well as $0.5 million after tax of expenses for legal, compliance and
other fees in connection with the Winfrey Transaction. See “Item 1. Business—History—Winfrey Transaction” for
additional details on the Winfrey Transaction.
30
Restructuring Charges
In fiscal 2015 and fiscal 2014, we recorded $8.4 million ($5.1 million after tax or $0.09 per fully diluted
share) and $11.8 million ($7.2 million after tax or $0.13 per fully diluted share) of charges, respectively, associated
with the previously disclosed restructuring of our organization.
Acquisition of Additional Equity Interest in Brazil and Gain on Brazil Acquisition
Prior to March 12, 2014, the Company had owned 35% of Vigilantes do Peso Marketing Ltda., or VPM, a
Brazilian limited liability partnership. On March 12, 2014, the Company acquired an additional 45% equity interest
in VPM for a net purchase price of $14.2 million. VPM was converted into a joint-stock corporation prior to closing
and subsequently operates as a subsidiary of the Company with rights to conduct typical business lines. As a result
of the acquisition, the Company gained a direct controlling financial interest in VPM and began to consolidate this
entity as of the date of acquisition.
As a result of our Brazil acquisition, we adjusted our previously held equity interest to fair value of
$11.0 million and recorded a charge of $0.5 million associated with the settlement of the royalty-free arrangement of
the Brazilian partnership. The net effect of these items resulted in our recognizing a gain of $10.5 million
($6.4 million after tax or $0.11 per fully diluted share) in fiscal 2014.
Acquisition of Wello
On April 16, 2014, the Company acquired Knowplicity, Inc., d/b/a Wello, an online fitness and personal
training company for a net purchase price of $9.0 million. Payment was in the form of common stock issued of
$4.2 million and cash of $4.8 million. As a result of the acquisition, Wello became a wholly-owned subsidiary of the
Company and the Company began to consolidate the entity as of the date of acquisition.
Acquisition of Weilos
On March 11, 2015, the Company acquired for a purchase price of $6.7 million Weilos, Inc., or Weilos, a
California-based startup with an online social platform. Payment was in the form of common stock issued of
$2.8 million, restricted stock issued of $0.1 million and cash of $2.8 million plus cash in reserves of $1.0 million. As
a result of the acquisition, Weilos became a wholly owned subsidiary of the Company and the Company began to
consolidate the entity as of the date of acquisition.
Franchisee Acquisitions
The following are our acquisitions since the beginning of fiscal 2013:
Acquisition of Miami Franchise. On June 27, 2016, we acquired substantially all of the assets of our
franchisee for certain territories in South Florida, Weight Watchers of Greater Miami, Inc., for a purchase price of
$3.3 million, or the Miami Acquisition.
Acquisitions of Alberta and Saskatchewan, West Virginia, Columbus, Reno, Manitoba and Franklin and St.
Lawrence Counties. On March 4, 2013, we acquired substantially all of the assets of our Alberta and Saskatchewan,
Canada franchisees, Weight Watchers of Alberta Ltd. and Weight Watchers of Saskatchewan Ltd., for an aggregate
purchase price of $35.0 million. On July 15, 2013, we acquired substantially all of the assets of our West Virginia
franchisee, Weight Watchers of West Virginia, Inc., for a net purchase price of $16.0 million. On July 22, 2013, we
acquired substantially all of the assets of our Columbus, Ohio franchisee, Weight Watchers of Columbus, Inc., for a
net purchase price of $23.4 million and our Reno, Nevada franchisee, Weight Watchers of Northern Nevada, Inc.,
for a net purchase price of $4.0 million. On October 28, 2013, we acquired substantially all of the assets of our
Manitoba, Canada franchisee, Weight Watchers of Manitoba Ltd., for a net purchase price of $5.2 million and our
Franklin and St. Lawrence Counties, New York franchisee, Weight Watchers of Franklin and St. Lawrence Counties
Inc., for a net purchase price of $0.3 million.
These acquisitions were financed through cash from operations. These acquisitions have been accounted for as
purchases and financial results have been included in our consolidated operating results since their respective dates
of acquisition.
31
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 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 global wellness company and the world’s leading commercial weight management program. We are
focused on inspiring people to adopt healthy habits and helping people lead healthier, more active and more
fulfilling lives. With over five 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. We educate our members and provide them with guidance and a supportive community to enable them
to develop healthy habits for real life. Weight Watchers-branded services and products include meetings conducted
by us and our franchisees, digital offerings provided through our websites, mobile sites and apps, consumer products
sold at meetings and through our websites, licensed and endorsed products sold in retail channels and magazine
subscriptions and other publications. Our primary sources of revenue are subscriptions for our commitment plans for
Weight Watchers meetings and Online subscriptions. Our “meetings” business refers to providing access to
combined meetings and digital offerings to our commitment plan subscribers (including Total Access subscribers),
as well as access to meetings to our “pay-as-you-go” members and other meetings members. “Online” refers to
Weight Watchers Online, Weight Watchers OnlinePlus, Personal Coaching and other digital subscription products.
We operate in numerous countries around the world, including through our franchise operations. We have four
reportable segments based on an integrated geographical structure as follows: North America, United Kingdom,
Continental Europe (CE) and Other. See the section entitled “Business—Business Organization and Global
Operations” in Item 1 of this Annual Report on Form 10-K for further information on these reportable segments and
the countries in which we operate.
U.S. Tax Reform
On December 22, 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) was enacted. The 2017 Tax Act
made significant changes to the Federal tax code, including a reduction in the Federal corporate statutory rate from
35% to 21%. The 2017 Tax Act also made changes to the Federal taxation of foreign earnings, to the timing of
recognition of certain revenue and expenses, and the deductibility of certain business expenses. During 2018, the
Company will continue to gain a more thorough understanding of the 2017 Tax Act and additional regulatory
guidance that may be issued. In the fourth quarter of fiscal 2017, we recorded a net tax benefit of $56.6 million in
connection with the 2017 Tax Act. This net tax benefit is principally due to the remeasurement of our net deferred
tax liabilities. See Note 12 of our audited consolidated financial statements, contained in Part IV, Item 15 of this
Annual Report on Form 10-K for further information on the financial statement impact of the 2017 Tax Act.
Components of our Results of Operations
Revenues
We derive our revenues principally from:
•
Service Revenues. Our “Service Revenues” consist of “Meeting Fees” and “Online Subscription
Revenues”. “Meeting Fees” consist of the fees associated with our subscription plans for combined
meetings and digital offerings and other payment arrangements for access to meetings. “Online
Subscription Revenues” consist of the fees associated with subscriptions for our Online subscription
products, including our Personal Coaching product.
32
•
•
In-meeting product sales. We sell a range of consumer products, including bars, snacks, cookbooks,
food and restaurant guides with SmartPoints values and Weight Watchers magazines, and certain third-
party products.
Licensing, franchise royalties and other. We license the Weight Watchers trademarks and our other
intellectual property in certain categories of food, beverages and other relevant consumer products and
services. We also endorse carefully selected branded consumer products and services. In addition, our
franchisees typically pay us a royalty fee of 10% of their meeting fee revenues as well as purchase
products for sale in their meetings.
We also generate other revenues including revenues from sales of products to members online, magazine
subscriptions, publishing and third-party advertising in our publications and on our website and sales from the By
Mail product.
The following table sets forth our revenues by category for the past three fiscal years.
Revenue Sources
(in millions)
Service Revenues
In-meeting product sales
Licensing, franchise royalties and other
Total
Fiscal 2017 Fiscal 2016 Fiscal 2015
937.4
$ 1,081.7 $
127.3
137.9
99.7
87.3
$ 1,306.9 $ 1,164.9 $ 1,164.4
949.1 $
125.5
90.3
Note: Totals may not sum due to rounding.
From fiscal 2015 through fiscal 2017, our revenues increased at a compound annual rate of 5.9% driven
primarily by an increase in Service Revenues. Additional revenue details are as follows:
•
•
•
Service Revenues. Service Revenues increased at a compound annual rate of 7.4% from fiscal 2015
through fiscal 2017 due to an increase in Total Paid Weeks. Total Paid Weeks increased as a result of
year-over-year recruitment growth and a higher number of End of Period Subscribers, in each case on a
year-over-year basis. Led by our North America business, recruitment growth in fiscal 2016 was driven
by the successful launch of our Beyond the Scale program, coupled with the successful response to our
advertising, including television advertising featuring Ms. Winfrey in certain key markets. In fiscal
2017, recruitment growth continued in North America and expanded to all of our other major markets.
In addition, member retention improved across all our major markets. Recruitment and retention
continue to be a key strategic focus.
In-meeting product sales. In-meeting product sales increased at a compound annual rate of 4.1% from
fiscal 2015 through fiscal 2017. This increase was driven primarily by an increase in the number of our
meeting subscribers.
Licensing, franchise royalties and other. All other revenues were down 6.4% on a compound annual
rate from fiscal 2015 through fiscal 2017. This decline was driven primarily by licensing revenues
which declined at a compound annual rate of 26.0% from fiscal 2015 through fiscal 2017. Our licensing
business was negatively impacted by increased competition in the category. This decline was offset in
part by an increase of 8.0% on a compound annual growth rate in revenues from our franchisees during
this period, largely driven by market performance.
33
Cost of Revenues
Total cost of revenues primarily consists of expenses to operate our meetings, costs to sell products in our
meeting rooms and online and costs to operate our websites and Online products. Operating costs primarily consist
of salary, commissions and expenses paid to our service providers, salary expense of field staff, meeting room rent,
customer service costs (both in-house and third-party), program material expenses, depreciation and amortization
associated with field automation, credit card and fulfillment fees and training and other expenses incurred to support
our field organization. Operating costs also include costs associated with our 24/7 Expert Chat and Personal
Coaching offerings. Cost to sell products includes costs of products purchased from our third-party suppliers,
inventory reserves, royalties, and inbound and outbound shipping and related costs incurred in making our products
available for sale or use. Costs to operate our websites include salaries and related benefits, depreciation and
amortization of website development, credit card processing fees and other costs incurred in developing our digital
offerings.
Marketing Expenses
Marketing expenses primarily consist of costs to produce advertising and marketing materials as well as media
costs to advertise our brand and products on television, on the Internet, on the radio and in print, costs paid to third-
party agencies who help us develop our marketing campaigns and strategy, expenses in support of market research,
as well as costs incurred in connection with local marketing and promotions.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of compensation, benefits and other related costs,
including stock-based compensation, third-party consulting, temp help, audit, legal and litigation expenses as well as
facility costs and depreciation and amortization of systems in support of the business infrastructure and head offices
globally. Selling, general and administrative expenses also include amortization expense of certain of our intangible
assets and certain one-time transaction expenses.
Gross Margin
The following table sets forth our gross profit and gross margin for the past three fiscal years, as adjusted to
exclude the impact of charges from our previously disclosed 2015 restructuring plan:
(in millions except percentages)
Gross Profit
Gross Margin
Adjustments to Reported Amounts (1)
Restructuring charges
Gross Profit, as adjusted (1)
Gross Margin impact from above
adjustments (1)
Gross Margin, as adjusted (1)
2017
$ 692.6
2016
$ 585.5
2015
$ 574.1
53.0%
50.3%
49.3%
—
$ 692.6
—
$ 585.5
1.5
$ 575.6
0.0%
53.0%
0.0%
50.3%
(0.1%)
49.4%
Note: Totals may not sum due to rounding.
(1)
The “As adjusted” measure is a non-GAAP financial measure that adjusts the consolidated statements of net income for fiscal 2015 to
exclude the impact of the $1.5 million of restructuring charges associated with our previously disclosed 2015 restructuring plan. See
“Non-GAAP Financial Measures” below for an explanation of our use of non-GAAP financial measures.
In fiscal 2016, the gross margin increase from fiscal 2015 was driven primarily by declining operating
expenses and increased leverage driven by higher revenues in the meetings business partially offset by a decline in
licensing revenues.
34
In fiscal 2017, the gross margin increase from fiscal 2016 was driven primarily by improved operating
leverage and a mix shift to the higher margin Online business. This expansion was partially offset by lower revenues
in our high margin licensing business.
Operating Income Margin
The following table sets forth our Operating Income for the past three fiscal years, as adjusted to exclude the
impairment charge for goodwill related to our Brazil reporting unit and the impact of our previously disclosed 2015
restructuring plan and the expenses associated with the Winfrey Transaction:
(in millions except percentages)
Operating Income
Operating Income Margin
Adjustments to Reported Amounts (1)
Goodwill impairment
Restructuring charges
Winfrey Transaction Expenses
Operating Income, as adjusted (1)
Operating Income Margin impact from
above adjustments (1)
Operating Income Margin, as adjusted (1)
2017
$ 267.3
2016
$ 200.8
2015
$ 168.1
20.5%
17.2%
14.4%
13.3
—
—
$ 280.6
—
—
—
$ 200.8
—
8.4
13.6
$ 190.1
(1.0%)
21.5%
0.0%
17.2%
(1.9%)
16.3%
Note: Totals may not sum due to rounding.
(1)
The “As adjusted” measure is a non-GAAP financial measure that adjusts the consolidated statements of net income as follows: (i) with
respect to fiscal 2017, to exclude the $13.3 million goodwill impairment charge related to our Brazil reporting unit and (ii) with respect to
fiscal 2015, to exclude the impact of the $8.4 million of restructuring charges associated with our previously disclosed fiscal 2015
restructuring plan and the $13.6 million of expenses associated with the Winfrey Transaction, which includes $12.8 million of stock
compensation related to the Winfrey Option. See “Non-GAAP Financial Measures” below for an explanation of our use of non-GAAP
financial measures.
In fiscal 2016, the increase in operating income margin from fiscal 2015 was primarily the result of the
decrease in selling, general and administrative expenses as a percentage of revenue, higher gross margin, and a
decrease in marketing expense as a percentage of revenue. Excluding expenses associated with the Winfrey
Transaction in fiscal 2015 and the previously disclosed 2015 restructuring charges, selling, general and
administrative expenses as a percentage of revenue increased in fiscal 2016 versus the prior year primarily due to
higher compensation and incentive related costs and higher professional fees partially offset by lower technology
related expenses.
In fiscal 2017, the increase in operating income margin from fiscal 2016 was driven by an increase in gross
margin and a decrease in marketing expenses as a percentage of revenue, both as compared to the prior year.
Material Trends
Performance Indicators
Our management reviews and analyzes several key performance indicators in order to manage our business
and assess the quality and potential variability of our cash flows and earnings. These key performance indicators
include:
•
Revenues—Our “Service Revenues” consist of “Meeting Fees” and “Online Subscription Revenues”.
“Meeting Fees” consist of the fees associated with our subscription plans for combined meetings and
digital offerings and other payment arrangements for access to meetings. “Online Subscription
Revenues” consist of the fees associated with subscriptions for our Online subscription products,
including our Personal Coaching product. In addition, “product sales and other” consists of sales of
products to members in meetings and online, revenues from licensing, magazine subscriptions,
publishing and third-party advertising in publications and on our website and sales from the By Mail
product, other revenues, and, in the case of the consolidated financial results and Other reportable
segment, franchise fees with respect to commitment plans and commissions;
35
•
•
•
•
Paid Weeks—The “Paid Weeks” metric reports paid weeks by Weight Watchers customers in
Company-owned operations for a given period as follows: (i) “Meeting Paid Weeks” is the sum of total
paid commitment plan weeks (including Total Access) and total “pay-as-you-go” weeks; (ii) “Online
Paid Weeks” is the total paid subscription weeks for our digital subscription products (including
Personal Coaching); and (iii) “Total Paid Weeks” is the sum of Meeting Paid Weeks and Online Paid
Weeks;
Incoming Subscribers—“Subscribers” refer to meetings members and Online subscribers who
participate in recurring billing programs. The “Incoming Subscribers” metric reports Weight Watchers
subscribers in Company-owned operations at a given period start as follows: (i) “Incoming Meeting
Subscribers” is the total number of Weight Watchers commitment plan subscribers (including Total
Access); (ii) “Incoming Online Subscribers” is the total number of Weight Watchers Online, Weight
Watchers OnlinePlus and Personal Coaching subscribers; and (iii) “Incoming Subscribers” is the sum of
Incoming Meeting Subscribers and Incoming Online Subscribers. Recruitment and retention are key
drivers for this metric;
End of Period Subscribers—The “End of Period Subscribers” metric reports Weight Watchers
subscribers in Company-owned operations at a given period end as follows: (i) “End of Period Meeting
Subscribers” is the total number of Weight Watchers commitment plan subscribers (including Total
Access); (ii) “End of Period Online Subscribers” is the total number of Weight Watchers Online,
Weight Watchers OnlinePlus and Personal Coaching subscribers; and (iii) “End of Period Subscribers”
is the sum of End of Period Meeting Subscribers and End of Period Online Subscribers. Recruitment
and retention are key drivers for this metric; and
Gross profit and operating expenses as a percentage of revenue.
Market Trends
We believe that our revenues and profitability can be sensitive to major trends in the wellness and weight
management industries. In particular, we believe that our business could be adversely impacted by:
•
•
•
•
•
•
•
•
increased competition from hardware and software-based mobile app and web-based programs and
approaches;
the development of more effective or more favorably perceived weight management methods, including
pharmaceuticals;
a failure to develop and market new, innovative services and products or to successfully expand into
new channels of distribution or respond to consumer trends, including consumer focus on integrated
lifestyle and fitness approaches;
a failure to successfully implement new strategic initiatives;
a decrease in the effectiveness of our marketing, advertising, and social media programs;
an impairment of the Weight Watchers brands and our other intellectual property;
a failure of our technology or systems to perform as designed; and
a downturn in general economic conditions or consumer confidence.
North America Metrics and Business Trends
In fiscal 2015, North America Total Paid Weeks declined 20.9%, driven by a decline in both Online Paid
Weeks of 22.6% and Meeting Paid Weeks of 18.8%, versus the prior year. The decline in North America Total Paid
Weeks primarily resulted from the lower number of Incoming Subscribers at the beginning of fiscal 2015 versus the
beginning of fiscal 2014 as well as from lower recruitments in fiscal 2015 versus the prior year. In response to
weakening recruitment trends in early fiscal 2015, North America introduced new advertising and promotions.
Although recruitments remained lower year-over-year in fiscal 2015, the year-over-year recruitment trend in the
second and third quarters of fiscal 2015 improved as compared to the first quarter of fiscal 2015, benefitting
from these actions. In the fourth quarter of fiscal 2015, following the announcement of our partnership with
Ms. Winfrey in October and our early December launch of our Beyond the Scale program through the end of the
fiscal 2015, recruitments increased as compared to the same period in the prior year.
36
In fiscal 2016, North America Total Paid Weeks increased 9.2% versus the prior year. The increase in North
America Total Paid Weeks primarily resulted from higher recruitments in each quarter of fiscal 2016 versus the
comparable prior year quarter. This increase in recruitments was driven by the successful launch of our Beyond the
Scale program, which included the launch of SmartPoints, in late fiscal 2015 and to a lesser extent increased
promotional activities. This launch, coupled with the successful response to our strategic collaboration with
Ms. Winfrey, drove momentum in our North America business.
In fiscal 2017, North America Total Paid Weeks increased 18.4% versus the prior year. The increase in North
America Total Paid Weeks was driven by both the higher number of Incoming Subscribers at the beginning of fiscal
2017 versus the beginning of fiscal 2016 and higher recruitments in fiscal 2017 versus the prior year. The higher
recruitments were a continuation of the positive trend which began in the fourth quarter of fiscal 2015. This
recruitment increase was further accelerated by the successful launch of our WW Freestyle program in late fiscal
2017.
United Kingdom Metrics and Business Trends
In fiscal 2015, UK Total Paid Weeks declined 14.3% versus the prior year. Total Paid Weeks performance in
fiscal 2015 was driven by the lower number of Incoming Subscribers at the beginning of fiscal 2015 versus the
beginning of fiscal 2014 coupled with lower recruitments in fiscal 2015 as compared to the prior year.
In fiscal 2016, UK Total Paid Weeks declined 5.0% versus the prior year. Total Paid Weeks performance in
fiscal 2016 was driven by the lower number of Incoming Subscribers at the beginning of fiscal 2016 versus the
beginning of fiscal 2015 coupled with lower recruitments, primarily in the meetings business in fiscal 2016 as
compared to the prior year reflecting the impact of a direct competitor.
In fiscal 2017, UK Total Paid Weeks increased 6.4% versus the prior year. Total Paid Weeks performance in
fiscal 2017 was driven primarily by recruitment strength in our Online business.
Continental Europe Metrics and Business Trends
In fiscal 2015, Continental Europe Total Paid Weeks declined 8.0% versus the prior year. Although
recruitments in fiscal 2015 remained lower year-over-year, the year-over-year recruitment trend in the second, third
and fourth quarters of fiscal 2015 in Continental Europe improved as compared to the first quarter of fiscal 2015
driven by the use of new promotional tactics and the Beyond the Scale program launch in early December 2015.
In fiscal 2016, Continental Europe Total Paid Weeks declined 0.2% versus the prior year, driven by a decline
in Meeting Paid Weeks of 5.1% partially offset by an increase in Online Paid Weeks of 2.4% versus the prior year.
This decline in Meeting Paid Weeks was driven by the lower number of Incoming Meeting Subscribers at the start
of fiscal 2016 versus the start of fiscal 2015 coupled with lower meeting recruitments in fiscal 2016 as compared to
the prior year. The increase in Online Paid Weeks was driven by improved recruitments in the Online business in
fiscal 2016 versus the prior year.
In fiscal 2017, Continental Europe Total Paid Weeks increased 20.4% versus the prior year, driven by the
higher number of Incoming Subscribers at the beginning of fiscal 2017 versus the beginning of fiscal 2016,
improved retention in fiscal 2017 versus the prior year and recruitment strength in our Online business in fiscal 2017
versus the prior year.
37
Non-GAAP Financial Measures
To supplement our consolidated results presented in accordance with accounting principles generally accepted
in the United States, or GAAP, we have disclosed non-GAAP financial measures of operating results that exclude or
adjust certain items. Gross profit and gross profit margin, operating income and operating income margin, total cost
of revenues, and selling, general and administrative expenses, including components thereof, are discussed in this
Annual Report on Form 10-K both as reported (on a GAAP basis) and as adjusted (on a non-GAAP basis), as
applicable, as follows: (i) with respect to fiscal 2017 to exclude the impairment charge for our goodwill related to
the Brazil reporting unit; and (ii) with respect to fiscal 2015 to exclude the impact of charges associated with our
previously disclosed plan to restructure our organization and to exclude the impact of expenses associated with the
Winfrey Transaction. We generally refer to such non-GAAP measures as excluding or adjusting for the impact of
the goodwill impairment charge, expenses associated with the Winfrey Transaction and the restructuring charges.
We also present within this Annual Report on Form 10-K the non-GAAP financial measures earnings before
interest, taxes, depreciation, amortization and stock-based compensation (“EBITDAS”), earnings before interest,
taxes, depreciation, amortization, stock-based compensation and goodwill impairment (“Adjusted EBITDAS”) and
net debt. See “—Liquidity and Capital Resources—EBITDAS and Adjusted EBITDAS” for the calculations. Our
management believes these non-GAAP financial measures provide useful supplemental information to investors
regarding the performance of our business and are useful for period-over-period comparisons of the performance of
our business. While we believe that these non-GAAP financial measures are useful in evaluating our business, this
information should be considered as supplemental in nature and is not meant to be considered in isolation or as a
substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP
financial measures may not be the same as similarly entitled measures reported by other companies.
Use of Constant Currency
As exchange rates are an important factor in understanding period-to-period comparisons, we believe in
certain cases the presentation of results on a constant currency basis in addition to reported results helps improve
investors’ ability to understand our operating results and evaluate our performance in comparison to prior periods.
Constant currency information compares results between periods as if exchange rates had remained constant period-
over-period. We use results on a constant currency basis as one measure to evaluate our performance. In this Annual
Report on Form 10-K, we calculate constant currency by calculating current-year results using prior-year foreign
currency exchange rates. We generally refer to such amounts calculated on a constant currency basis as excluding or
adjusting for the impact of foreign currency or being on a constant currency basis. These results should be
considered in addition to, not as a substitute for, results reported in accordance with GAAP and are not meant to be
considered in isolation. Results on a constant currency basis, as we present them, may not be comparable to
similarly titled measures used by other companies and are not measures of performance presented in accordance
with GAAP.
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 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, share-based compensation, income taxes, tax 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 basis 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.
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.
38
Revenue Recognition
We earn revenue by conducting meetings, for which we charge a fee, predominantly through commitment
plans, prepayment plans or the “pay-as-you-go” arrangement. We also earn revenue from subscriptions for our
Online products, selling products in our meetings, online and to our franchisees, collecting commissions from
franchisees, collecting royalties related to licensing agreements, selling magazine subscriptions, publishing, selling
advertising space on our websites and in copies of our publications, and By Mail product sales.
Commitment plans, prepaid meeting fees and magazine subscription revenue is recorded to deferred revenue
and amortized into revenue over the period earned. Online Subscription Revenues are recognized over the period
that products are provided. One-time Online sign-up fees are deferred and recognized over the expected customer
relationship period. Online Subscription Revenues that are paid in advance are deferred and recognized on a
straight-line basis over the subscription period. Revenue from “pay-as-you-go” meeting fees, product sales, By Mail,
commissions and royalties is recognized when services are rendered, products are sold or shipped to customers and
title and risk of loss pass to the customers, and commissions and royalties are earned, respectively. Revenue from
advertising in magazines is recognized when advertisements are published. Revenue from magazine sales is
recognized when the magazine is sent to the customer. In the meetings business, we generally charge non-refundable
registration and starter fees in exchange for an introductory information session and materials we provide to new
members. Revenue from these registration and starter fees is recognized when the service and products are provided,
which is generally at the same time payment is received from the customer. For revenue transactions that involve
multiple deliverables, the amount of revenue recognized is determined using the relative fair value of each element,
which is generally based on each element’s stand-alone selling price. Discounts to customers, including free
registration offers, are recorded as a deduction from gross revenue in the period such revenue was recognized.
Revenue from advertising on our websites is recognized when the advertisement is viewed by the user.
We grant refunds in 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 over the same period.
Goodwill and Franchise Rights Acquired Impairment Test
In fiscal 2016, we changed the timing of our annual impairment review of goodwill and other indefinite-lived
intangible assets to the first day of fiscal May. Previously, we had performed the test as of the last day of our fiscal
year. We determined this accounting change was preferable because it allows us to consider the data from the winter
season results from the first fiscal quarter. This quarter typically represents approximately 40% of the full year
recruitments, and the accounting change allows us to incorporate this data into the current and future year
performance estimates. We believe the resulting change in accounting principle related to changing the annual
impairment testing date did not delay, accelerate, or avoid an impairment charge. We review goodwill and other
indefinite-lived intangible assets, including franchise rights acquired with indefinite lives, for potential impairment
on at least an annual basis or more often if events so require. We performed fair value impairment testing as of
May 7, 2017 and May 8, 2016, each the first day of fiscal May, on our goodwill and other indefinite-lived intangible
assets. In performing our goodwill impairment analysis for our reporting units for fiscal 2017, fiscal 2016 and fiscal
2015 no impairment was identified as the respective fair values of each reporting unit exceeded its carrying value.
Given the ongoing challenging economic environment in Brazil and the negative performance trends and our
reduced expectations regarding the future impact of our business growth strategies in the country, a triggering event
in the Brazil reporting unit was identified which required us to perform an interim goodwill impairment analysis.
Based on this interim test, we determined that the carrying amount of this reporting unit exceeded its fair value and
therefore recorded a $13.3 million impairment charge.
In performing the impairment analysis for our franchise rights acquired with indefinite lives for fiscal 2017,
fiscal 2016 and fiscal 2015, we determined that the carrying amounts of these units of account did not exceed their
respective fair values and therefore no impairment existed.
39
With respect to our impairment analysis, a change in the underlying assumptions would cause a change in the
results of the impairment assessments and, as such, could result in an impairment of those assets, 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 they are appropriate.
In performing our annual impairment analysis, we also considered the trading value of both our equity and
debt. If the trading values of both our equity and debt were to significantly decline from their current levels, we may
have to take an impairment charge at the appropriate time, which could be material. For additional information on
risks associated with our recognizing asset impairment charges, see “Item 1A. Risk Factors”.
The following is a more detailed discussion of our goodwill and franchise rights acquired impairment analysis.
Goodwill
In performing the impairment analysis for goodwill, the fair value for our reporting units is estimated using a
discounted cash flow approach. This approach involves projecting future cash flows attributable to the reporting unit
and discounting those estimated cash flows using an appropriate discount rate. The estimated fair value is then
compared to the carrying value of the reporting unit. We have determined the appropriate reporting unit for purposes
of assessing annual impairment to be the country for all reporting units. The values of goodwill in the United States,
Canada, Brazil and other countries at December 30, 2017 were $97.8 million, $42.6 million, $5.4 million and $10.5
million, respectively.
Based on the results of our annual impairment test performed for all of our reporting units except for Brazil, as
of December 30, 2017, we estimated that for reporting units that hold approximately 96.6% of our goodwill, those
units had a fair value at least 50% higher than the respective reporting unit’s carrying amount. Based on the results
of our interim impairment test performed on December 30, 2017 and after recording an impairment charge of $13.3
million, our Brazil reporting unit held 3.4% of our goodwill, and the fair value of this reporting unit was equivalent
to its carrying value.
For all of our reporting units except for Brazil (see below), we estimated future cash flows by utilizing the
historical debt-free cash flows (cash flows provided by operating activities less capital expenditures) attributable to
that country and then applied expected future operating income growth rates for such country. We utilized operating
income as the basis for measuring our potential growth because we believe it is the best indicator of the performance
of our business. We then discounted the estimated future cash flows utilizing a discount rate which was calculated
using the average cost of capital, which included the cost of equity and the cost of debt. The cost of equity was
determined by combining a risk-free rate of return and a market risk premium for the Company’s peer group. The
risk-free rate of return was determined based on the average rate of long-term U.S. Treasury securities. The market
risk premium was determined by reviewing external market data. The cost of debt was determined by estimating our
current borrowing rate.
The following are the more significant assumptions utilized in our annual impairment analysis (except for
Brazil) for fiscal 2017 and fiscal 2016:
Debt-Free Cumulative Annual Cash
Flow Growth Rate
Discount Rate
3.6% to 4.1%
3.1% to 4.9%
8.9%
9.4%
July 1,
2017
July 2,
2016
40
As it relates to our impairment analysis for Brazil, we estimated future debt free cash flows in contemplation
of our growth strategies for that market. In developing these projections, we considered the historical impact of
similar growth strategies in other markets as well as the current market conditions in Brazil. We then discounted the
estimated future cash flows utilizing a discount rate which was calculated using the average cost of capital, which
included the cost of equity and the cost of debt. The cost of equity was determined by combining a risk-free rate of
return and a market risk premium for the Company’s peer group. The risk-free rate of return was determined based
on the average rate of long-term U.S. Treasury securities. The market risk premium was determined by reviewing
external market data including the current economic conditions in Brazil and the country specific risk thereon. A
further risk premium was included to reflect the risk associated with the rate of growth projected in the analysis,
except for the interim test at December 30, 2017, which projected significantly lower growth rates. The cost of debt
was determined by estimating the Company’s current borrowing rate.
The following are the more significant assumptions utilized in our interim and our annual impairment analysis
for Brazil for fiscal 2017 and fiscal 2016:
Cumulative Annual Revenue Cash Flow Growth
Rate
Average Operating Income Margin
Average Operating Income Margin Range
Discount Rate
Franchise Rights Acquired
December 30,
2017
16.8%
(0.4%)
July 1,
2017
19.4%
18.6%
July 2,
2016
19.0%
20.0%
(16.3%) to 13.8%
(10.8%) to 31.0% (6.9%) to 31.0%
17.0%
16.9%
16.8%
Finite-lived franchise rights acquired are amortized over the remaining contractual period, which is generally
less than one year. In performing the impairment analysis for our indefinite-lived franchise rights acquired, the fair
value for our franchise rights acquired is estimated using a discounted cash flow approach referred to as the
hypothetical start-up approach for our franchise rights related to our meetings business and a relief from royalty
methodology for our franchise rights related to our Online business. The aggregate estimated fair value for these
rights is then compared to the carrying value of the unit of account for those franchise rights. We have determined
the appropriate unit of account for purposes of assessing impairment to be the combination of the rights in the
meetings and Online businesses in the country in which the acquisitions have occurred. The values of these
franchise rights in the United States, Canada, United Kingdom, Australia, and New Zealand at December 30, 2017
were $671.9 million, $57.5 million, $12.7 million, $7.0 million, and $5.0 million, respectively.
Based on the results of our fiscal 2017 annual impairment analysis, we estimated that approximately 100.0%
of our franchise rights acquired had a fair value at least 40% higher than their carrying amount.
In our hypothetical start-up approach analysis for fiscal 2017, we assumed that the year of maturity was
reached after 7 years. Subsequent to the year of maturity, we estimated future cash flows for the meetings business
in each country based on assumptions regarding revenue growth and operating income margins. The cash flows
associated with the Online business were based on the expected Online revenue for such country and the application
of a market-based royalty rate. The cash flows for the meetings and Online businesses were discounted utilizing
rates consistent with those utilized in the goodwill impairment analysis.
In performing this impairment analysis for fiscal 2017, for the year of maturity we assumed meeting room
revenue (comprised of Meeting Fees and revenues from products sold to members in meetings) growth of 16.2% to
58.3% in the year of maturity from fiscal 2016, in each case, earned in the applicable country and assumed
cumulative annual revenue growth rates for the years beyond the year of maturity of 1.9%. For the year of maturity
and beyond, we assumed operating income margin rates of 7.1% to 22.5%.
Information concerning significant accounting policies affecting us is set forth in note 2 of our audited
consolidated financial statements, contained in Part IV, Item 15 of this Annual Report on Form 10-K.
41
RESULTS OF OPERATIONS FOR FISCAL 2017 (52 weeks) COMPARED TO FISCAL 2016 (52 weeks)
The table below sets forth selected financial information for fiscal 2017 from our consolidated statements of
net income for fiscal 2017 versus selected financial information for fiscal 2016 from our consolidated statements of
net income for fiscal 2016.
Summary of Selected Financial Data
Revenues, net
Cost of revenues
Gross profit
Gross Margin %
Marketing expenses
Selling, general & administrative expenses
Goodwill impairment
Operating income
Operating Income Margin %
Interest expense
Other expense, net
Early extinguishment of debt, net
Income before income taxes
(Benefit from) provision for income taxes
Net income
Net loss attributable to the noncontrolling
interest
Net income attributable to Weight
Watchers International, Inc.
(In millions, except
per share amounts)
Fiscal 2017
1,306.9
$
614.3
Fiscal 2016
1,164.9
$
579.4
Increase/
(Decrease)
%
Change
% Change
Constant
Currency
$
142.0
34.9
12.2%
6.0%
12.1%
6.0%
692.6
53.0%
585.5
50.3%
107.1
18.3%
18.1%
200.8
211.2
13.3
267.3
20.5%
112.8
0.5
9.0
145.1
(18.2)
163.3
0.2
194.4
190.3
—
200.8
17.2%
115.2
1.5
—
84.1
16.6
67.5
0.2
6.4
20.9
13.3
66.5
3.3%
11.0%
100.0%
33.1%
3.5%
10.8%
100.0%
32.5%
(2.4)
(1.0)
9.0
61.0
(2.1%)
69.0%
(2.1%)
69.0%
100.0%
100.0%
72.5%
70.9%
(34.9)
95.8
(100.0%)
100.0%
(100.0%)
100.0%
0.0
(4.5%)
(13.3)%
$
163.5
$
67.7
$
95.8
100.0%
100.0%
Weighted average diluted shares outstanding
$
Diluted earnings per share
68.2
2.40
$
65.9
1.03
$
2.4
1.37
3.6%
3.6%
100.0%
100.0%
Note: Totals may not sum due to rounding.
42
Certain results for fiscal 2017 are adjusted to exclude the $13.3 million impairment charge for goodwill
related to our Brazil reporting unit. See “Non-GAAP Financial Measures” above. The table below sets forth a
reconciliation of certain of those components of our selected financial data for the fiscal year ended December 30,
2017 which have been adjusted.
(in millions except percentages)
Fiscal 2017
Adjustments to Reported Amounts (1)
Goodwill impairment
Total Adjustments (1)
Operating
Income
Operating
Income
Margin
$
267.3
20.5%
13.3
13.3
Fiscal 2017, as adjusted (1)
$
280.6 21.5%
Note: Totals may not sum due to rounding.
(1)
The “As adjusted” measure is a non-GAAP financial measure that adjusts the consolidated statements of net income for fiscal 2017 to
exclude the $13.3 million impairment charge for goodwill related to our Brazil reporting unit. See “Non-GAAP Financial Measures”
above for an explanation of our use of non-GAAP financial measures.
Consolidated Results
Revenues
Revenues in fiscal 2017 were $1,306.9 million, an increase of $142.0 million, or 12.2%, versus fiscal 2016.
Excluding the impact of foreign currency, which positively impacted our revenues for fiscal 2017 by $1.4 million,
revenues in fiscal 2017 would have increased 12.1% versus the prior year. This increase was driven by revenue
growth, on a constant currency basis, in all major markets. See “—Segment Results” for additional details on
revenues.
Cost of Revenues and Gross Profit
Total cost of revenues in fiscal 2017 increased $34.9 million, or 6.0%, versus the prior year. Gross profit
increased $107.1 million, or 18.3%, in fiscal 2017 compared to fiscal 2016 primarily due to the increase in revenues.
Excluding the impact of foreign currency, which positively impacted gross profit for fiscal 2017 by $1.3 million,
gross profit in fiscal 2017 would have increased 18.1% versus the prior year. Gross margin in fiscal 2017 increased
2.7% to 53.0% versus 50.3% in fiscal 2016. Gross margin expansion was driven primarily by improved operating
leverage and a mix shift to the higher margin Online business. This expansion was partially offset by lower revenues
in our high margin licensing business.
Marketing
Marketing expenses for fiscal 2017 increased $6.4 million, or 3.3%, versus fiscal 2016. Excluding the impact
of foreign currency, which decreased marketing expenses for fiscal 2017 by $0.4 million, marketing expenses in
fiscal 2017 would have increased 3.5% versus fiscal 2016. Marketing expenses as a percentage of revenue decreased
to 15.4% in fiscal 2017 as compared to 16.7% in the prior year.
Selling, General and Administrative
Selling, general and administrative expenses for fiscal 2017 increased $20.9 million, or 11.0%, versus fiscal
2016. Excluding the impact of foreign currency, which increased selling, general and administrative expenses for
fiscal 2017 by $0.3 million, selling, general and administrative expenses in fiscal 2017 would have increased 10.8%
versus the prior year. The increase in selling, general and administrative expenses in fiscal 2017 was driven
primarily by higher compensation and incentive related costs. Selling, general and administrative expenses as a
percentage of revenue for fiscal 2017 decreased to 16.2% from 16.3% for fiscal 2016.
43
Impairment
In performing our interim impairment analysis for our Brazil reporting unit, we determined that, based on the
fair values calculated, the carrying amount of goodwill related to our Brazil reporting unit exceeded our fair value
and recorded an impairment charge of $13.3 million for fiscal 2017.
Operating Income
Operating income for fiscal 2017 increased $66.5 million, or 33.1%, versus fiscal 2016. Excluding the $13.3
million impairment charge for goodwill related to our Brazil reporting unit and the impact of foreign currency,
which positively impacted operating income for fiscal 2017 by $1.3 million, operating income in fiscal 2017 would
have increased 39.0% versus the prior year. This increase in operating income was driven by higher operating
income in all major markets as compared to the prior year. Operating income margin increased 3.2% for fiscal 2017
compared to fiscal 2016. This increase in operating income margin was driven primarily by an increase in gross
margin and a decrease in marketing expenses as a percentage of revenue, both as compared to the prior year.
Interest Expense
Interest expense in fiscal 2017 decreased $2.4 million, or 2.1%, versus fiscal 2016. The decrease in interest
expense was driven primarily by (i) the decrease in the notional amount of our interest rate swap from $1.5 billion to
$1.25 billion and (ii) the decrease in our average debt outstanding under our then-existing tranche B-2 term facility
which decreased to $2.0 billion in the first nine months of fiscal 2017 from $2.1 billion in fiscal 2016. The increase
in LIBOR rates partially offset the benefits set forth in items (i) and (ii). These decreases were also offset by the
higher interest expense arising from the interest rates under our New Term Loan Facility and on our Notes in
connection with our November 2017 debt refinancing. The effective interest rate on our debt, based on interest
incurred (which includes amortization of our deferred financing costs and debt discount) and our average
borrowings during fiscal 2017 and fiscal 2016 and excluding the impact of our interest rate swap, increased
to 4.96% per annum at fiscal 2017 year end from 4.38% per annum at fiscal 2016 year end. Including the impact of
our interest rate swap, our effective interest rate on our debt, based on interest incurred (which includes amortization
of our deferred financing costs and debt discount) and our average borrowings during fiscal 2017 and fiscal 2016,
increased to 5.78% per annum at fiscal 2017 year end from 5.56% per annum at fiscal 2016 year end. See “—
Liquidity and Capital Resources—Long-Term Debt” for additional details regarding our current and prior credit
facilities and our notes, including interest rates on our debt outstanding, and on payments on our debt. For
additional details on our interest rate swap, see “Item 7A. Quantitative and Qualitative Disclosures about Market
Risk” in Part II of this Annual Report on Form 10-K.
Early Extinguishment of Debt, Net
In the fourth quarter of fiscal 2017, we wrote-off $10.5 million of fees in connection with our November 2017
debt refinancing that we recorded as an early extinguishment of debt charge.
In May 2017, we paid an aggregate amount of cash proceeds totaling $73.0 million plus an amount sufficient
to pay accrued and unpaid interest on the amount prepaid to prepay $75.5 million in aggregate principal amount of
term loans under our then-existing tranche B-2 term facility. As a result of this prepayment, in the second quarter of
fiscal 2017, we wrote-off fees of $0.6 million, incurred fees of $0.3 million and recorded a gain on early
extinguishment of debt of $1.6 million, inclusive of these fees.
Other Expense, Net
Other expense, net, which consists primarily of the impact of foreign currency on intercompany transactions,
decreased by $1.0 million in fiscal 2017 to $0.5 million as compared to $1.5 million in the prior year.
44
Tax
Our effective tax rate for fiscal 2017 was (12.6%) as compared to 19.8% for fiscal 2016. On December 22,
2017, the 2017 Tax Act was signed into law making significant changes to the Internal Revenue Code. For
additional details on the 2017 Tax Act, see Note 12 of our consolidated financial statements, contained in Part IV,
Item 15 of this Annual Report on Form 10-K. The 2017 Tax Act benefited our tax expense by $56.6 million for
fiscal 2017, such benefit being comprised of the following items: (i) a $68.7 million tax benefit related to the
revaluation of deferred tax liabilities to reflect the decrease in the corporate tax rate from 35% to 21%, (ii) a $9.0
million charge to record a valuation allowance against foreign tax credit carryforwards that as a result of the 2017
Tax Act are no longer expected to be realized and (iii) a net charge of $3.1 million related to other 2017 Tax Act
items, which include the transition tax on foreign earnings. In addition, the effective tax rate for fiscal 2017 was
impacted by the following one-time discrete items: (i) an $11.6 million tax benefit related to the cessation of
operations of our Spanish subsidiary; (ii) a $3.7 million tax benefit due to a change in estimate related to the
availability of certain foreign tax credits and (iii) a $2.3 million tax benefit related to the reversal of tax reserves
resulting from an updated transfer pricing study.
The effective tax rate for fiscal 2016 was impacted by: (i) an $11.4 million net tax benefit due to a research
and development credit and a Section 199 deduction for tax years 2012 through 2015 and (ii) the reversal of a
$2.5 million valuation allowance related to tax benefits for foreign losses that are now expected to be realized. These
benefits were partially offset by $2.0 million of out-of-period adjustments in income taxes in fiscal 2016.
Net Income Attributable to the Company and Earnings Per Share
Net income attributable to the Company in fiscal 2017 increased $95.8 million, or 141.5%, from fiscal 2016.
Excluding the impact of foreign currency, which positively impacted net income attributable to the Company in
fiscal 2017 by $0.8 million, net income attributable to the Company in fiscal 2017 would have increased by 140.4%
versus the prior year.
EPS in fiscal 2017 was $2.40 compared to $1.03 in fiscal 2016. EPS for fiscal 2017 included an $0.83 tax
benefit related to the 2017 Tax Act and the following additional significant items: (i) a tax benefit of $0.18 that was
offset by $0.01 of expense, both related to the cessation of operations of our Spanish subsidiary; (ii) $0.05 tax
benefit due to a change in estimate related to the availability of certain foreign tax credits and (iii) $0.03 tax benefit
related to the reversal of tax reserves resulting from an updated transfer pricing study. EPS for fiscal 2017 also
included the following one-time items: (i) $0.20 impairment charge for goodwill related to our Brazil reporting unit
and (ii) $0.09 write-off due to our November 2017 debt refinancing that was offset by a $0.01 gain related to our
previously disclosed debt prepayment in the second quarter of fiscal 2017. For fiscal 2016, our tax rate of 19.8%
benefited from a (i) $0.17 net tax benefit in connection with a research and development credit and a Section 199
deduction for the tax years 2012 through 2015 and (ii) $0.04 benefit for the reversal of a valuation allowance related
to tax benefits for foreign losses that are now expected to be realized, partially offset by a $0.03 expense for out-of-
period tax adjustments.
45
Segment Results
Metrics and Business Trends
The following tables set forth key metrics by reportable segment for fiscal 2017 and the percentage change in
those metrics versus the prior year:
(in millions except percentages and as noted)
GAAP
Product
Sales &
Other
Service
Revenues
North America $ 775.2
UK
73.6
195.8
CE
Other (1)
37.0
$1,081.7
Total
$135.1
26.4
43.5
20.3
$225.2
Total
Revenues
$ 910.3
100.0
239.2
57.3
$1,306.9
Fiscal 2017
Constant Currency
Product
Sales &
Other
Service
Revenues
Total
Revenues
$ 774.2
77.5
192.3
35.6
$1,079.5
$135.0
27.9
43.1
19.9
$225.9
$ 909.2
105.4
235.4
55.5
$1,305.5
Total
Paid
Weeks
119.7
17.5
39.4
5.0
181.5
Incoming
Subscribers
EOP
Subscribers
(in thousands)
1,719.2
265.1
564.7
72.2
2,621.1
2,116.4
296.1
723.2
78.3
3,213.9
North America
UK
CE
Other (1)
Total
14.6% 10.4%
(4.4%)
0.5%
(5.4%)
18.9%
2.3%
6.4%
4.4%
14.0%
Note: Totals may not sum due to rounding.
% Change Fiscal 2017 vs. Fiscal 2016
14.5% 10.2%
1.4%
5.7%
(6.2%)
16.8%
0.5%
2.3%
4.7%
13.7%
13.8% 18.4%
4.6% 6.4%
11.8% 20.4%
1.6% 3.9%
12.1% 17.1%
14.0%
(0.8%)
13.6%
4.9%
12.2%
12.3%
0.8%
6.4%
12.2%
9.7%
23.1%
11.7%
28.1%
8.4%
22.6%
(1)
Represents Australia, New Zealand and emerging markets operations and franchise revenues.
(in millions except percentages and as noted)
Meeting Fees
GAAP
Constant
Currency
Meeting
Paid
Weeks
Incoming
Meeting
Subscribers
EOP
Meeting
Subscribers
(in thousands)
Online Subscription
Revenues
GAAP
Constant
Currency
Online
Paid
Weeks
Incoming
Online
Subscribers
EOP
Online
Subscribers
(in thousands)
Fiscal 2017
$493.8
52.2
93.7
25.3
$665.0
$ 493.1
55.0
92.3
24.2
$ 664.6
52.1
10.3
11.3
2.7
76.4
743.9
154.8
171.7
31.6
1,102.0
865.8
161.7
188.5
34.0
1,250.1
$ 281.4
21.5
102.0
11.8
$ 416.7
$ 281.1
22.5
100.0
11.4
$ 415.0
67.6
7.2
28.1
2.3
105.2
975.3
110.3
393.0
40.6
1,519.1
1,250.6
134.3
534.6
44.3
1,963.9
% Change Fiscal 2017 vs. Fiscal 2016
12.9%
(4.2%)
4.5%
5.4%
9.9%
12.8%
0.9%
2.9%
1.0%
9.8%
13.6%
0.6%
2.7%
5.6%
9.7%
15.3%
1.1%
(0.4%)
16.2%
10.4%
16.4%
4.5%
9.8%
7.7%
13.4%
17.7%
14.4%
36.0%
8.5%
21.2%
17.5% 22.3%
19.9% 16.0%
33.3% 29.3%
1.9%
5.0%
20.7% 23.1%
10.0%
0.3%
9.7%
9.3%
9.2%
28.2%
21.8%
36.1%
9.0%
29.3%
North
America
UK
CE
Other (1)
Total
North
America
UK
CE
Other (1)
Total
Note: Totals may not sum due to rounding.
(1)
Represents Australia, New Zealand and emerging markets operations and franchise revenues.
46
North America Performance
The increase in North America revenues in fiscal 2017 versus the prior year was driven primarily by the
increase in Service Revenues. The increase in North America Total Paid Weeks was driven by both the higher
number of Incoming Subscribers at the beginning of fiscal 2017 versus the beginning of fiscal 2016 and higher
recruitments and improved retention in fiscal 2017 versus the prior year.
The increase in North America product sales and other in fiscal 2017 versus the prior year was driven
primarily by an increase in product sales, partially offset by a decline in licensing revenue.
United Kingdom Performance
The decline in UK revenues in fiscal 2017 versus the prior year was driven by the negative impact of foreign
currency. Excluding the impact of foreign currency, UK revenues would have increased, driven by an increase in
Service Revenues on a constant currency basis. This increase in Service Revenues on a constant currency basis was
the result of recruitment strength in our Online business in fiscal 2017 versus the prior year and improved retention
in fiscal 2017 versus the prior year.
The decrease in UK product sales and other in fiscal 2017 versus the prior year was driven by the negative
impact of foreign currency. Excluding the impact of foreign currency, UK in-meeting and other products sales
would have increased primarily due to an increase in product sales. This increase would have been almost entirely
offset by the decline in licensing revenue.
Continental Europe Performance
The increase in Continental Europe revenues in fiscal 2017 versus the prior year was driven primarily by the
increase in Service Revenues. This increase in Service Revenues in fiscal 2017 versus the prior year was driven
primarily by the increase in Online Subscription Revenues. The increase in Continental Europe Total Paid Weeks
was driven primarily by the higher number of Incoming Subscribers at the beginning of fiscal 2017 versus the
beginning of fiscal 2016, improved retention in fiscal 2017 versus the prior year and recruitment strength in our
Online business in fiscal 2017 versus the prior year.
The increase in Continental Europe revenues was partially offset by the decline in Continental Europe product
sales and other in fiscal 2017 versus the prior year.
Other Performance
The increase in Other revenues in fiscal 2017 versus the prior year was driven primarily by the increase in
Service Revenues. The increase in Other Total Paid Weeks was driven primarily by the higher number of Incoming
Subscribers at the beginning of fiscal 2017 versus the beginning of fiscal 2016.
The increase in product sales and other in fiscal 2017 versus fiscal 2016 was driven primarily by an increase in
in-meeting product sales and commissions from our franchisees partially offset by a decline in licensing revenue.
47
RESULTS OF OPERATIONS FOR FISCAL 2016 (52 weeks) COMPARED TO FISCAL 2015 (52 weeks)
The table below sets forth selected financial information for fiscal 2016 from our consolidated statements of
net income for fiscal 2016 versus selected financial information for fiscal 2015 from our consolidated statements of
net income for fiscal 2015.
Summary of Selected Financial Data
Revenues, net
Cost of revenues
Gross profit
Gross Margin %
(In millions, except per share amounts)
Increase/
(Decrease)
0.5
$
(10.9)
Fiscal 2015
$ 1,164.4
590.3
Fiscal 2016
$ 1,164.9
579.4
%
Change
% Change
Constant
Currency
0.0%
(1.9)%
1.4%
(0.3)%
585.5
50.3%
574.1
49.3%
11.4
2.0%
3.2%
Marketing expenses
Selling, general & administrative expenses
194.4
190.3
201.0
205.0
(6.6)
(14.7)
(3.3%)
(7.2%)
(1.5)%
(6.1%)
Operating income
Operating Income Margin %
200.8
17.2%
168.1
14.4%
32.8
19.5%
20.2%
Interest expense
Other expense, net
Gain on early extinguishment of debt
Income before income taxes
Provision for income taxes
Net income
Net loss attributable to the noncontrolling
interest
Net income attributable to Weight
Watchers International, Inc.
Weighted average diluted shares outstanding
Diluted earnings per share
Note: Totals may not sum due to rounding.
115.2
1.5
—
84.1
16.6
67.5
121.8
2.0
(11.4)
55.6
22.8
32.8
(5.5%)
(24.8%)
(100.0%)
51.3%
(27.2%)
(6.7)
(0.5)
11.4
28.5
(6.2)
34.7 100.0%
(5.5%)
(24.8%)
(100.0%)
53.4%
(26.1%)
100.0%
0.2
0.2
0.0
24.1%
25.1%
$
$
67.7
$
32.9
$
34.8 100.0%
100.0%
65.9
1.03
$
59.0
0.56
$
6.9
0.47
11.8%
83.9%
11.8%
86.4%
48
Certain results for fiscal 2015 are adjusted to exclude the impact of the $8.4 million of restructuring charges
associated with our previously disclosed 2015 restructuring plan and the $13.6 million of expenses associated with
the Winfrey Transaction, which includes $12.8 million of stock compensation related to the Winfrey Option. See
“Non-GAAP Financial Measures” above. The table below sets forth a reconciliation of certain of those components
of our selected financial data for the fiscal year ended January 2, 2016 which have been adjusted.
(in millions except percentages)
Fiscal 2015
Adjustments to Reported Amounts (1)
Restructuring charges
Winfrey Transaction Expenses
Total Adjustments (1)
Fiscal 2015, as adjusted (1)
Note: Totals may not sum due to rounding.
Gross
Profit
Gross
Profit
Margin
Operating
Income
Operating
Income
Margin
$
574.1
49.3% $
168.1
14.4%
1.5
—
1.5
575.6
$
8.4
13.6
22.0
190.1
16.3%
49.4% $
(1)
The “As adjusted” measure is a non-GAAP financial measure that adjusts the consolidated statements of net income for fiscal 2015 to
exclude the impact of the $8.4 million of restructuring charges associated with our previously disclosed 2015 restructuring plan and the
$13.6 million of expenses associated with the Winfrey Transaction, which includes $12.8 million of stock compensation related to the
Winfrey Option. See “Non-GAAP Financial Measures” above for an explanation of our use of non-GAAP financial measures.
Consolidated Results
Revenues
Revenues in fiscal 2016 were $1,164.9 million, an increase of $0.5 million versus fiscal 2015. Excluding the
impact of foreign currency, which negatively impacted our revenues for fiscal 2016 by $15.9 million, revenues in
fiscal 2016 would have increased 1.4% versus the prior year. This increase was driven primarily by revenue growth
in North America which was offset by declines in Continental Europe and the United Kingdom. See “—Segment
Results” for additional details on revenues.
Cost of Revenues and Gross Profit
Total cost of revenues in fiscal 2016 declined $10.9 million, or 1.9%, versus the prior year. Excluding the
impact of the previously disclosed 2015 restructuring charges, which increased total cost of revenues by $1.5 million
in fiscal 2015, total cost of revenues in fiscal 2016 would have declined $9.4 million, or 1.6%, versus the prior year.
Gross profit increased $11.4 million, or 2.0%, in fiscal 2016 compared to fiscal 2015 primarily due to the decrease
in cost of revenues. Excluding the impact of the previously disclosed 2015 restructuring charges, gross profit for
fiscal 2016 would have increased $9.9 million, or 1.7%, from fiscal 2015. Excluding the impact of foreign currency,
which negatively impacted gross profit for fiscal 2016 by $7.1 million, gross profit in fiscal 2016 would have
increased 3.2% versus the prior year. Gross margin in fiscal 2016 increased 1.0% to 50.3% versus 49.3% in fiscal
2015. Gross margin expansion was driven primarily by expansion in North America, partially offset by declines in
both Continental Europe and the United Kingdom. The expansion in North America gross margin was driven
primarily by operating efficiencies and lower costs to support 24/7 Expert Chat in the United States as well as
improved meetings leverage from higher volumes in North America. Globally, gross margin was negatively
impacted by promotional activity as well as the lower contribution from the high margin licensing business.
Marketing
Marketing expenses for fiscal 2016 decreased $6.6 million, or 3.3%, versus fiscal 2015. Excluding the impact
of foreign currency, which decreased marketing expenses for fiscal 2016 by $3.6 million, marketing expenses in
fiscal 2016 would have decreased 1.5% versus fiscal 2015. Marketing expenses as a percentage of revenue were
16.7% in fiscal 2016 as compared to 17.3% in the prior year.
49
Selling, General and Administrative
Selling, general and administrative expenses for fiscal 2016 decreased $14.7 million, or 7.2%, versus fiscal
2015. Excluding the impact of foreign currency, which decreased selling, general and administrative expenses for
fiscal 2016 by $2.3 million, selling, general and administrative expenses in fiscal 2016 would have declined 6.1%
versus the prior year. Excluding the impact of the previously disclosed 2015 restructuring charges and the expenses
associated with the Winfrey Transaction, which increased selling, general and administrative expenses in the
aggregate by $20.5 million in fiscal 2015, selling, general and administrative expenses for fiscal 2016 would have
increased $5.8 million, or 3.1% (4.4% on a constant currency basis), versus the prior year. The increase in adjusted
selling, general and administrative expenses in fiscal 2016 was driven primarily by higher compensation and
incentive related costs and higher professional fees, partially offset by lower technology related expenses. Selling,
general and administrative expenses as a percentage of revenue for fiscal 2016 decreased to 16.3% from 17.6% for
fiscal 2015. Excluding the impact of the previously disclosed 2015 restructuring charges and the expenses associated
with the Winfrey Transaction, selling, general and administrative expenses as a percentage of revenue for fiscal
2016 would have increased to 16.3% from 15.8% for fiscal 2015.
Operating Income
Operating income for fiscal 2016 increased $32.8 million, or 19.5%, versus fiscal 2015. Excluding the impact
of foreign currency, which negatively impacted operating income for fiscal 2016 by $1.2 million, operating income
in fiscal 2016 would have increased 20.2% versus the prior year. Excluding the impact of the previously disclosed
2015 restructuring charges, the expenses associated with the Winfrey Transaction and the impact of foreign
currency, our operating income for fiscal 2016 would have increased $11.9 million, or 6.3%, as compared to the
prior year. This increase in operating income was driven primarily by higher operating income in North America
partially offset by lower operating income in both Continental Europe and the United Kingdom in fiscal 2016 as
compared to the prior year. Operating income margin increased 2.8% for fiscal 2016 compared to fiscal 2015.
Excluding the impact of the previously disclosed 2015 restructuring charges and the expenses associated with the
Winfrey Transaction, our operating income margin in fiscal 2016 would have increased to 17.2%, or 17.1% on a
constant currency basis, from 16.3% in fiscal 2015. This increase in operating income margin was driven by the
increase in gross margin and a decrease in marketing expenses as a percentage of revenue as compared to the prior
year partially offset by an increase in selling, general and administrative expenses as a percentage of revenue as
compared to the prior year.
Interest Expense
Interest expense in fiscal 2016 decreased $6.7 million, or 5.5%, versus fiscal 2015. The decrease in interest
expense was driven primarily by the decrease in our average debt outstanding, which decreased to $2.1 billion in
fiscal 2016 from $2.3 billion in fiscal 2015. This decrease was primarily due to the payment in full in April 2016 of
the principal amount of loans outstanding under our then-existing tranche B-1 term facility and the previously
disclosed debt prepayments in March and June of fiscal 2015. The effective interest rate on our debt, based on
interest incurred (which includes amortization of our deferred financing costs) and our average borrowings during
fiscal 2016 and fiscal 2015 and excluding the impact of our interest rate swap, increased to 4.38% per annum at
fiscal 2016 year end compared to 4.34% per annum at fiscal 2015 year end. Including the impact of our interest rate
swap, our effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred
financing costs) and our average borrowings during fiscal 2016 and fiscal 2015, increased to 5.56% per annum at
fiscal 2016 year end from 5.45% per annum at fiscal 2015 year end. For additional details on our interest rate swap,
see “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in Part II of this Annual Report on Form
10-K.
Early Extinguishment of Debt
In March 2015, we paid an aggregate amount of cash proceeds totaling $57.4 million plus an amount
sufficient to pay accrued and unpaid interest on the amount prepaid to prepay $63.1 million in aggregate principal
amount of term loans under our then-existing tranche B-1 term facility. In June 2015, we paid an aggregate amount
of cash proceeds totaling $77.2 million plus an amount sufficient to pay accrued and unpaid interest on the amount
prepaid to prepay $84.9 million in aggregate principal amount of term loans under our then-existing tranche B-1
term facility. As a result of these prepayments, we wrote-off fees of $0.6 million, incurred fees of $1.2 million and
recorded a gain on early extinguishment of debt of $11.4 million, inclusive of these fees, in fiscal 2015.
50
Other Expense, Net
Other expense, net, which consists primarily of the impact of foreign currency on intercompany transactions,
decreased by $0.5 million in fiscal 2016 compared to the prior year.
Tax
Our effective tax rate for fiscal 2016 was 19.8% as compared to 41.1% for fiscal 2015. This decrease was
primarily due to the following discrete items occurring in fiscal 2016: (i) an $11.4 million net tax benefit due to a
research and development credit and a Section 199 deduction for tax years 2012 through 2015 and (ii) the reversal of
a $2.5 million valuation allowance related to tax benefits for foreign losses that are now expected to be realized.
These benefits were partially offset by $2.0 million of out-of-period adjustments in income taxes in fiscal 2016.
Net Income Attributable to the Company and Earnings Per Share
Net income attributable to the Company in fiscal 2016 reflected a $34.8 million, or 105.5%, increase from
fiscal 2015. Excluding the impact of foreign currency, which negatively impacted net income attributable to the
Company in fiscal 2016 by $0.9 million, net income attributable to the Company in fiscal 2016 would have
increased by 108.4% versus the prior year. Net income attributable to the Company in fiscal 2016 was impacted by
the following items that affect year-over-year comparability: (i) an $11.4 million net tax benefit due to a research
and development credit and a Section 199 deduction for the tax years 2012 through 2015 and (ii) a reversal of a
$2.5 million valuation allowance related to tax benefits for foreign losses that are now expected to be realized, both
offset by (iii) tax expenses of $2.0 million for out-of-period adjustments. Net income attributable to the Company in
fiscal 2015 was impacted by the following items that affect year-over-year comparability: (i) $5.1 million of
restructuring charges associated with our previously disclosed 2015 restructuring plan; (ii) $8.3 million of expenses
associated with the Winfrey Transaction; and (iii) a $7.0 million gain on early extinguishment of debt. This increase
in net income attributable to the Company was driven primarily by an increase in operating income, lower tax
expense and a decline in interest expense in fiscal 2016 versus the prior year, partially offset by the gain on early
extinguishment of debt in fiscal 2015.
Earnings per fully diluted share, or EPS, in fiscal 2016 was $1.03 compared to $0.56 in fiscal 2015. The lower
tax rate of 19.8% in fiscal 2016 compared to 41.1% in fiscal 2015 resulted in a net benefit to the Company. This
benefit was primarily comprised of a (i) $0.17 net tax benefit in connection with a research and development credit
and a Section 199 deduction for the tax years 2012 through 2015 and (ii) $0.04 benefit for the reversal of a valuation
allowance related to tax benefits for foreign losses that are now expected to be realized, partially offset by a $0.03
expense for out-of-period tax adjustments. The higher share count in fiscal 2016, which was driven primarily by the
Winfrey Transaction, diluted EPS by $0.12 in fiscal 2016. For fiscal 2015, EPS included a $0.09 charge in
connection with the impact of the 2015 restructuring charges, a $0.14 charge associated with the Winfrey
Transaction and a $0.12 benefit related to the gain on early extinguishment of debt.
51
Segment Results
Metrics and Business Trends
The following tables set forth key metrics by reportable segment for fiscal 2016 and the percentage change in
those metrics versus the prior year:
(in millions except percentages and as noted)
Fiscal 2016
GAAP
Product
Sales &
Other
Service
Revenues
Total
Revenues
Constant Currency
Product
Sales &
Other
Service
Revenues
Total
Revenues
Total
Paid
Weeks
Incoming
Subscribers
EOP
Subscribers
(in thousands)
North
America
UK
CE
Other (1)
Total
North
America
UK
CE
Other (1)
Total
$ 676.4
73.3
164.7
34.8
$ 949.1
$122.4
27.6
45.9
19.8
$215.8
$ 798.8
100.8
210.6
54.6
$1,164.9
$ 678.2
82.4
165.3
35.2
$ 961.1
$122.7
30.8
46.2
20.0
$219.7
$ 800.9
113.2
211.5
55.2
$1,180.8
101.1
16.5
32.7
4.8
155.1
1,531.5
263.1
530.7
64.3
2,389.6
1,719.2
265.1
564.7
72.2
2,621.1
% Change Fiscal 2016 vs. Fiscal 2015
5.8%
5.5%
(16.4%) (25.9%)
(6.5%) (13.4%)
(4.6%)
1.5%
(5.0%)
1.3%
5.7%
(19.2%)
(8.1%)
(0.8%)
0.0%
5.8%
6.1%
(5.9%) (17.1%)
(6.2%) (12.9%)
(4.0%)
2.7%
(3.2%)
2.5%
6.0% 9.2%
(9.3%) (5.0%)
(7.7%) (0.2%)
0.2% 10.7%
1.4% 5.5%
(5.3%)
(5.3%)
(3.8%)
3.7%
(4.8%)
12.3%
0.8%
6.4%
12.2%
9.7%
Note: Totals may not sum due to rounding.
(1)
Represents Australia, New Zealand and emerging markets operations and franchise revenues.
(in millions except percentages and as noted)
Meeting Fees
GAAP
Constant
Currency
Meeting
Paid
Weeks
Incoming
Meeting
Subscribers
EOP
Meeting
Subscribers
(in thousands)
Online Subscription
Revenues
GAAP
Constant
Currency
Online
Paid
Weeks
Incoming
Online
Subscribers
EOP
Online
Subscribers
(in thousands)
Fiscal 2016
$437.2
54.5
89.6
24.0
$605.3
$ 438.4
61.2
90.0
24.3
$ 614.0
45.8
10.3
11.0
2.6
69.6
645.1
153.2
172.4
27.2
997.9
743.9
154.8
171.7
31.6
1,102.0
$239.1
18.8
75.0
10.9
$343.8
$ 239.8
21.2
75.2
10.9
$ 347.1
55.3
6.2
21.7
2.2
85.5
886.4
109.9
358.3
37.2
1,391.7
975.3
110.3
393.0
40.6
1,519.1
% Change Fiscal 2016 vs. Fiscal 2015
9.4%
(16.4%)
(9.8%)
0.8%
3.0%
9.7% 12.3%
(4.4%)
(6.0%)
(5.1%)
(9.4%)
6.2%
2.2%
6.2%
4.5%
(6.9%)
(3.1%)
(3.3%)
2.7%
(5.4%)
(0.3%)
15.3%
1.1% (16.3%)
(2.2%)
(0.4%)
3.0%
16.2%
(1.7%)
10.4%
0.0% 6.9%
(5.6%) (5.8%)
(2.0%) 2.4%
3.8% 16.4%
(0.7%) 4.9%
(4.2%)
(8.2%)
(4.1%)
4.4%
(4.3%)
10.0%
0.3%
9.7%
9.3%
9.2%
North
America
UK
CE
Other (1)
Total
North
America
UK
CE
Other (1)
Total
Note: Totals may not sum due to rounding.
(1)
Represents Australia, New Zealand and emerging markets operations and franchise revenues.
52
North America Performance
The increase in North America revenues in fiscal 2016 versus the prior year was driven primarily by the
increase in Service Revenues. The increase in Service Revenues was driven entirely by an increase in Meeting Fees.
Although Online Paid Weeks increased in fiscal 2016 as compared to fiscal 2015, Online Subscription Revenues
were negatively impacted by increased promotional activity. The increase in North America Total Paid Weeks
primarily resulted from the higher recruitments in fiscal 2016 versus the prior year. This increase in recruitments
was driven by the successful launch of our Beyond the Scale program, which included the launch of SmartPoints, in
late fiscal 2015 and increased promotional activities. This launch, coupled with the successful response to our
strategic collaboration with Ms. Winfrey, has driven momentum in our North America business.
The increase in North America product sales and other in fiscal 2016 versus the prior year was driven
primarily by an increase in in-meeting product sales and e-commerce, partially offset by a decline in licensing
revenue and website advertising revenue.
United Kingdom Performance
The decline in UK revenues in fiscal 2016 versus the prior year was driven in part by the decline in Service
Revenues. The decline in UK Total Paid Weeks was driven by the lower number of Incoming Subscribers at the
beginning of fiscal 2016 versus the beginning of fiscal 2015 coupled with lower recruitments in fiscal 2016 as
compared to the prior year reflecting the impact of a direct competitor.
Additionally, the decline in UK revenues in fiscal 2016 was driven in part by the decline in UK product sales
and other in fiscal 2016 versus the prior year, which was driven by the decline in in-meeting product sales and
licensing revenue.
Continental Europe Performance
The decline in Continental Europe revenues in fiscal 2016 versus the prior year was driven in part by the
decline in Service Revenues. The decrease in Service Revenues in fiscal 2016 versus the prior year was primarily
the result of a decrease in Meeting Fees, as well as a decrease in Online Subscription Revenues. This decrease in
Meeting Fees was driven by the lower number of Incoming Meeting Subscribers at the beginning of fiscal 2016
versus the beginning of fiscal 2015 coupled with lower recruitments in the meetings business in fiscal 2016 as
compared to the prior year. The decrease in Online Subscription Revenues was driven by the lower number of
Incoming Online Subscribers at the start of fiscal 2016 versus the start of fiscal 2015 partially offset by an increase
in recruitments in the Online business for fiscal 2016 versus the prior year. In response to soft performance in our
largest Continental Europe markets, in the first quarter of 2016, we changed our advertising creative and approach
and we increased promotional activity. These factors led to improved recruitment trends in our largest markets
during the remainder of fiscal 2016.
Additionally, the decline in Continental Europe revenues was driven in part by the decline in Continental
Europe product sales and other in fiscal 2016, which was driven primarily by a decline in in-meeting product sales.
Other Performance
The increase in Other revenues in fiscal 2016 versus the prior year was driven primarily by the increase in
Service Revenues. The increase in Other Total Paid Weeks was driven primarily by higher recruitments in fiscal
2016 as compared to fiscal 2015 and also by the higher number of Incoming Subscribers at the beginning of fiscal
2016 versus the beginning of fiscal 2015. A change in promotional activities that negatively impacted the Service
Revenues in both the meetings and Online businesses in fiscal 2016 was more than offset by the increase in Other
Total Paid Weeks versus the prior year. The net impact of these items resulted in an increase in Other Service
Revenues in fiscal 2016 versus the prior year.
The decline in Other product sales and other in fiscal 2016 versus fiscal 2015 was driven by a decline in in-
meeting product sales and a decline in Asia Pacific licensing and magazines revenues partially offset by an increase
in revenue from our franchisees.
53
Liquidity and Capital Resources
Cash flows provided by operating activities have historically supplied, and are expected to continue to supply,
us with our primary source of liquidity. We use these cash flows, supplemented with long-term debt and short-term
borrowings, to fund our operations and global initiatives, pay down debt and opportunistically engage in selective
acquisitions. We believe that cash generated by operations during fiscal 2017, our cash on hand of approximately
$83.1 million at December 30, 2017, our $123.7 million of availability under our New Revolving Credit Facility and
our continued cost focus will provide us with sufficient liquidity to meet our obligations for the next twelve months.
Balance Sheet Working Capital
The following table sets forth certain relevant measures of our balance sheet working capital at:
Total current assets
Total current liabilities
Working capital deficit
Cash and cash equivalents
Current portion of long-term debt
Working capital deficit, excluding cash and cash
equivalents and current portion of long-term debt
December 30,
2017
December
31,
2016
(in millions)
Increase/
(Decrease)
$
209.0 $
343.0
(134.0)
83.1
82.8
235.2 $
292.4
(57.2)
108.7
21.0
(26.2)
50.6
76.8
(25.6)
61.8
$
(134.3) $
(144.9) $
(10.6)
The following table sets forth a summary of the primary factors contributing to the $10.6 million decrease in
our working capital deficit:
Derivative payable
Operational liabilities and other, net of assets
Deferred revenue
Other current assets
Accrued salaries and wages
Prepaid income taxes
Working capital deficit change
December 30,
December
31,
2017
2016
Impact to
Working
Increase/
(Decrease) Capital Deficit
$
$
$
$
$
$
12.2 $
55.8 $
74.3 $
26.8 $
62.2 $
43.4 $
(in millions)
32.0 $
66.8 $
62.9 $
30.9 $
49.6 $
35.5 $
(19.8) $
(11.0) $
11.4 $
(4.1) $
12.6 $
7.9 $
$
(19.8)
(11.0)
11.4
4.1
12.6
(7.9)
(10.6)
The decrease in operational liabilities and other, net of assets, and prepaid income taxes was driven primarily
by timing of payments. The increase in accrued salaries and wages and deferred revenue was driven by improved
business performance.
Cash Flows
The following table sets forth a summary of the Company’s cash flows for the fiscal years ended:
Net cash provided by operating activities
Net cash used for investing activities
Net cash used for financing activities
December 30,
2017
December
31, 2016
(in millions)
January 2,
2016
$
$
$
222.3 $
(40.8) $
(211.5) $
119.0 $
(37.5) $
(212.2) $
54.8
(40.3)
(68.6)
54
Operating Activities
Fiscal 2017
Cash flows provided by operating activities of $222.3 million for fiscal 2017 reflected an increase of $103.3
million from $119.0 million of cash flows used for operating activities in fiscal 2016. The increase in cash provided
by operating activities was primarily the result of $95.8 million of higher net income attributable to the Company in
fiscal 2017 as compared to the prior year.
Fiscal 2016
Cash flows provided by operating activities of $119.0 million for fiscal 2016 reflected an increase of
$64.2 million from $54.8 million of cash flows provided by operating activities for fiscal 2015. The increase in cash
provided by operating activities was primarily the result of $34.7 million of higher net income attributable to the
Company in fiscal 2016 as compared to the prior year and the year-over-year working capital benefit of
$41.2 million.
Fiscal 2015
Cash flows provided by operating activities of $54.8 million for fiscal 2015 reflected a decrease of
$176.8 million from $231.6 million of cash flows provided by operating activities for fiscal 2014. The decrease in
cash provided by operating activities was primarily the result of $84.9 million of lower net income attributable to the
Company in fiscal 2015 as compared to the prior year and the year-over-year working capital deficit decrease of
$84.1 million.
Investing Activities
Fiscal 2017
Net cash used for investing activities totaled $40.8 million in fiscal 2017, an increase of $3.3 million as
compared to fiscal 2016. This increase is primarily attributable to higher capital expenditures for technology in fiscal
2017, which were partially offset by the Miami Acquisition. For additional information on our acquisitions, see
“Item 6. Selected Financial Data.”
Fiscal 2016
Net cash used for investing activities totaled $37.5 million in fiscal 2016, a decrease of $2.8 million as
compared to fiscal 2015. Due to the significant progress against our previously disclosed transformation plan in
fiscal 2015, our expenditures on technology and operating infrastructure declined in fiscal 2016 as compared to
fiscal 2015.
Fiscal 2015
Net cash used for investing activities totaled $40.3 million in fiscal 2015, a decrease of $28.7 million as
compared to fiscal 2014. This decrease was primarily attributable to the lower investment in acquisitions in fiscal
2015 versus the prior year. For additional information on our acquisitions, see “—Item 6. Selected Financial Data.”
In addition, we invested $15.4 million less in our technology and operating infrastructure in fiscal 2015 as compared
to fiscal 2014.
55
Financing Activities
Fiscal 2017
Net cash used for financing activities totaled $211.5 million in fiscal 2017, primarily related to (i) in
connection with the November 2017 debt refinancing, the payment in full of the $1,930.4 million of outstanding
borrowings under our then-existing tranche B-2 term facility and the aggregate payment $53.8 million for financing
costs and (ii) the previously disclosed debt prepayment and other scheduled debt repayments of an aggregate
$88.4 million with respect to our then-existing tranche B-2 term facility during fiscal 2017. These payments were
offset by the proceeds we received from the issuance of long-term debt totaling $1,840.0 million and the draw down
on the New Revolving Credit Facility of $25.0 million in connection with the November 2017 debt refinancing.
Fiscal 2016
Net cash used for financing activities totaled $212.2 million in fiscal 2016, primarily due to the April 1, 2016
payment of a principal amount of loans equal to $144.3 million, which constituted the entire remaining principal
amount of loans outstanding under the then-existing tranche B-1 term facility, paying down in the aggregate the
outstanding principal amount of $48.0 million on our then-existing revolving credit facility, and other scheduled
debt repayments of $21.0 million in connection with our then-existing tranche B-2 term facility. These payments
were offset by a tax benefit for restricted stock units vested and stock options exercised of $1.0 million in fiscal
2016.
Fiscal 2015
Net cash used for financing activities totaled $68.6 million in fiscal 2015, primarily due to $137.1 million of
debt prepayments in connection with the previously disclosed debt tender offers and our then-existing revolving
credit facility debt repayments of $21.0 million offset by the proceeds of our revolver borrowing of $48.0 million
under our then-existing revolving credit facility as well as the $43.2 million cash payment we received, offset by
$1.7 million of related legal fees, from the sale of our common stock to Ms. Winfrey in fiscal 2015.
Long-Term Debt
We currently plan to meet our long-term debt obligations by using cash flows provided by operating activities
and opportunistically using other means to repay or refinance our obligations as we determine appropriate.
The following schedule sets forth our long-term debt obligations at December 30, 2017:
Long-Term Debt
At December 30, 2017
(Balances in millions)
New Revolving Credit Facility due
November 29, 2022
New Term Loan Facility due
November 29, 2024
Notes due December 1, 2025
Total
Less: Current Portion
Unamortized Deferred Financing Costs
Unamortized Debt Discount
Total Long-Term Debt
Balance
$
25.0
1,540.0
300.0
1,865.0
82.8
11.2
30.4
1,740.6
$
56
On November 29, 2017, we refinanced our then-existing credit facilities consisting of $1,930.4 million of
borrowings under a term loan facility and an undrawn $50.0 million revolving credit facility with $1,565.0 million
of borrowings under our new credit facilities, consisting of a $1,540.0 million term loan facility and a $150.0 million
revolving credit facility (of which $25.0 million was drawn upon at the time of the November 2017 debt
refinancing) (collectively referred to herein as the New Credit Facilities), and $300.0 million in aggregate principal
amount of 8.625% Senior Notes due 2025, or the Notes. During the fourth quarter of fiscal 2017, we incurred fees of
$53.8 million (which included $30.8 million of a debt discount) in connection with the November 2017 debt
refinancing. In addition, we recorded a loss on early extinguishment of debt of $10.5 million in connection thereto.
This early extinguishment of debt write-off was comprised of $5.7 million of deferred financing fees paid in
connection with the November 2017 debt refinancing and $4.8 million of pre-existing deferred financing fees.
Senior Secured Credit Facilities
The New Credit Facilities were issued under a new credit agreement, dated November 29, 2017, or the Credit
Agreement, among the Company, as borrower, the lenders party thereto, JPMorgan Chase Bank, N.A., or JPMorgan
Chase, as administrative agent and an issuing bank, Bank of America, N.A., as an issuing bank, and Citibank, N.A.,
as an issuing bank. The New Credit Facilities consist of (1) $1,540.0 million in aggregate principal amount of
senior secured tranche B term loans due in 2024, or the New Term Loan Facility and (2) a $150.0 million senior
secured revolving credit facility (which includes borrowing capacity available for letters of credit) due in 2022, or
the New Revolving Credit Facility.
As of December 30, 2017, we had $1,565.0 million debt outstanding under the New Credit Facilities with
$123.7 million of availability and $1.3 million in issued but undrawn letters of credit outstanding under the New
Revolving Credit Facility. The outstanding balance under the New Revolving Credit Facility is included in the
current portion of long-term debt on the accompanying consolidated balance sheet as of December 30, 2017
included elsewhere in this Annual Report on Form 10-K, due to our intent to repay the borrowings within the next
twelve months.
All obligations under the Credit Agreement are guaranteed by, subject to certain exceptions, each of the
Company’s current and future wholly-owned material domestic restricted subsidiaries. All obligations under the
Credit Agreement, and the guarantees of those obligations, are secured by substantially all of the assets of the
Company and each guarantor, subject to customary exceptions, including:
• a pledge of 100% of the equity interests directly held by the Company and each guarantor in any wholly-
owned domestic material subsidiary of the Company or any guarantor (which pledge, in the case of any
non-U.S. subsidiary of a U.S. subsidiary, will not include more than 65% of the voting stock of such first-
tier non-U.S. subsidiary), subject to certain exceptions; and
• a security interest in substantially all other tangible and intangible assets of the Company and each
guarantor, subject to certain exceptions.
Under the terms of the Credit Agreement, depending on our Consolidated Leverage Ratio (as defined in the
Credit Agreement), on an annual basis on or about the time we are required to deliver our financial statements for
any fiscal year, we are obligated to offer to prepay a portion of the outstanding principal amount of the New Term
Loan Facility in an aggregate amount determined by a percentage of our annual excess cash flow (as defined in the
Credit Agreement) (said payment referred to herein as a Cash Flow Sweep).
57
Borrowings under the New Term Loan Facility bear interest at a rate per annum equal to, at our option, either
(1) an applicable margin plus a base rate determined by reference to the highest of (a) 0.50% per annum plus the
higher of (i) the Federal Funds Effective Rate and (ii) the Overnight Bank Funding Rate as determined by the
Federal Reserve Bank of New York, (b) the prime rate of JPMorgan Chase and (c) the LIBOR rate determined by
reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain
additional costs, plus 1.00%; provided that such rate is not lower than a floor of 1.75% or (2) an applicable margin
plus a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period
relevant to such borrowing adjusted for certain additional costs, provided that LIBOR is not lower than a floor of
0.75%. Borrowings under the New Revolving Credit Facility bear interest at a rate per annum equal to an applicable
margin based upon a leverage-based pricing grid, plus, at our option, either (1) a base rate determined by reference
to the highest of (a) 0.50% per annum plus the higher of (i) the Federal Funds Effective Rate and (ii) the Overnight
Bank Funding Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of JPMorgan Chase
and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of
one month adjusted for certain additional costs, plus 1.00% or (2) a LIBOR rate determined by reference to the costs
of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional
costs. As of December 30, 2017, the applicable margins for the LIBOR rate borrowings under the New Term Loan
Facility and the New Revolving Credit Facility were 4.75% and 2.75%, respectively.
On a quarterly basis, we pay a commitment fee to the lenders under the New Revolving Credit Facility in
respect of unutilized commitments thereunder, which commitment fee fluctuates depending upon our Consolidated
Leverage Ratio. Based on our Consolidated Leverage Ratio as of December 30, 2017, the commitment fee was
0.50% per annum.
The Credit Agreement contains other customary terms, including (1) representations, warranties and
affirmative covenants, (2) negative covenants, including limitations on indebtedness, liens, mergers, acquisitions,
asset sales, investments, distributions, prepayments of subordinated debt, amendments of material agreements
governing subordinated indebtedness, changes to lines of business and transactions with affiliates, in each case
subject to baskets, thresholds and other exceptions, and (3) customary events of default.
The availability of certain baskets and the ability to enter into certain transactions are also subject to
compliance with certain financial ratios. In addition, the New Revolving Credit Facility includes a maintenance
covenant that will require, in certain circumstances, compliance with certain first lien secured net leverage ratios.
As of December 30, 2017, we were in compliance with all covenants in the Credit Agreement governing the
New Credit Facilities.
Senior Notes
The Notes were issued pursuant to an Indenture, dated November 29, 2017, or the Indenture, among the
Company, the guarantors named therein and The Bank of New York Mellon, as trustee. The Indenture contains
customary covenants, events of default and other provisions for an issuer of non-investment grade debt securities.
These covenants include limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments,
distributions, prepayments of subordinated debt and transactions with affiliates, in each case subject to baskets,
thresholds and other exceptions.
The Notes accrue interest at a rate per annum equal to 8.625% and are due on December 1, 2025. Interest on
the Notes is payable semi-annually on June 1 and December 1 of each year, beginning on June 1, 2018. On or after
December 1, 2020, the Company may on any one or more occasions redeem some or all of the Notes at a purchase
price equal to 104.313% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to, but not
including, the redemption date, such optional redemption price decreasing to 102.156% on or after December 1,
2021 and to 100.000% on or after December 1, 2022. Prior to December 1, 2020, the Company may on any one or
more occasions redeem up to 40% of the aggregate principal amount of the Notes with an amount not to exceed the
net proceeds of certain equity offerings at 108.625% of the aggregate principal amount thereof, plus accrued and
unpaid interest, if any, to, but not including, the redemption date. Prior to December 1, 2020, the Company may
redeem some or all of the Notes at a make-whole price plus accrued and unpaid interest, if any, to, but not including,
the redemption date. If a change of control occurs, the Company must offer to purchase for cash the Notes at a
purchase price equal to 101% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to, but
not including, the purchase date. Following the sale of certain assets and subject to certain conditions, the Company
must offer to purchase for cash the Notes at a purchase price equal to 100% of the principal amount of the Notes,
plus accrued and unpaid interest, if any, to, but not including, the purchase date. The Notes are guaranteed on a
senior unsecured basis by the Company’s subsidiaries that guarantee the New Credit Facilities.
58
Outstanding Debt
At December 30, 2017, we had $1,865.0 million outstanding under the New Credit Facilities consisting of the
New Term Loan Facility of $1,540.0 million and $25.0 million drawn down on the New Revolving Credit Facility,
and $300.0 million in aggregate principal amount of Notes issued and outstanding.
At the end of fiscal 2017, our debt consisted of both fixed and variable-rate instruments. At the end of fiscal
2016 and fiscal 2015, our debt consisted entirely of variable-rate instruments. An interest rate swap was entered into
to hedge a portion of the cash flow exposure associated with our variable-rate borrowings. Further information
regarding our interest rate swap can be found in Part IV, Item 15 of this Annual Report on Form 10-K under Note 18
“Derivative Instruments and Hedging” in the Notes to the Consolidated Financial Statements. The weighted average
interest rate (which includes amortization of deferred financing costs and debt discount) on our outstanding debt,
exclusive of the impact of the swap, was approximately 7.12%, 4.41% and 4.34% per annum at December 30, 2017,
December 31, 2016 and January 2, 2016, respectively, based on interest rates on the applicable dates. The weighted
average interest rate (which includes amortization of deferred financing costs and debt discount) on our outstanding
debt, including the impact of the swap, was approximately 7.34%, 5.32% and 5.45% per annum at December 30,
2017, December 31, 2016 and January 2, 2016, respectively, based on interest rates on the applicable dates.
Dividends
We do not currently pay a dividend and we have no current plans to pay dividends in the foreseeable future.
Any future determination to declare and pay dividends will be made at the sole discretion of our Board of Directors,
after taking into account our financial condition and results of operations, capital requirements, contractual, legal,
tax and regulatory restrictions, the provisions of Virginia law affecting the payment of distributions to shareholders
and such other factors our Board of Directors may deem relevant. In addition, our ability to pay dividends may be
limited by covenants in our existing indebtedness, including the New Credit Facilities and the indenture governing
the Notes, and may be limited by the agreements governing other indebtedness we or our subsidiaries incur in the
future.
EBITDAS and Adjusted EBITDAS
We define EBITDAS, a non-GAAP financial measure, as earnings before interest, taxes, depreciation,
amortization and stock-based compensation and Adjusted EBITDAS, a non-GAAP financial measure, as earnings
before interest, taxes, depreciation, amortization, stock-based compensation and goodwill impairment.
The table below sets forth the calculations for EBITDAS and Adjusted EBITDAS for the fiscal years ended
December 30, 2017, December 31, 2016 and January 2, 2016:
(in millions)
Net Income
Interest
Taxes
Depreciation and Amortization
Stock-based Compensation
EBITDAS
Goodwill Impairment
Adjusted EBITDAS
Note: Totals may not sum due to rounding.
Fiscal 2017 Fiscal 2016 Fiscal 2015
32.9
$
121.8
22.8
53.2
24.8
255.6
-
255.6
163.5 $
112.8
(18.2)
50.9
14.9
323.9
13.3
337.2 $
67.7 $
115.2
16.6
52.6
6.5
258.7
-
258.7 $
$
Reducing leverage is a capital structure priority for the Company. As of December 30, 2017 our net
debt/Adjusted EBITDAS ratio was 5.2x.
59
The table below sets forth the calculation for net debt, a non-GAAP financial measure:
(in millions)
Total debt
Less: Unamortized deferred financing costs
Less: Unamortized debt discount
Less: Cash on hand
Net debt
$
December 30,
2017
1,865.0
11.2
30.4
83.1
1,740.3
$
Note: Totals may not sum due to rounding.
We present EBITDAS, Adjusted EBITDAS and net debt/EBITDAS because we consider them to be useful
supplemental measures of our performance. In addition, we believe EBITDAS, Adjusted EBITDAS and net
debt/EBITDAS are useful to investors, analysts and rating agencies in measuring the ability of a company to meet its
debt service obligations. See “—Non-GAAP Financial Measures” herein for an explanation of our use of these non-
GAAP financial measures.
Contractual Obligations
We are obligated under non-cancelable agreements primarily for office and rent facilities operating leases.
Consolidated rent expense charged to operations under all our leases for fiscal 2017 was approximately $42.3
million.
The following table summarizes our future contractual obligations as of the end of fiscal 2017:
Payment Due by Period
Total
Less than
1 Year
1-3 Years 3-5 Years
(in millions)
More than
5 Years
Long-Term Debt(1)
Principal
Interest
Operating leases and non-cancelable agreements
Total (2)
$ 1,865.0 $
770.6
217.0
$ 2,852.6 $
82.7 $
122.2
45.6
250.5 $
173.3 $
230.9
57.9
462.1 $
154.0 $ 1,455.0
208.4
209.1
31.7
81.8
394.8 $ 1,745.2
(1)
(2)
Due to the fact that a portion 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 the end of fiscal 2017 remains constant for all periods presented. The above does not include the impact of our interest rate
swap which has a fair value of $12.2 million, or the $5.6 million of interest expense which is expected to be reclassified from accumulated
other comprehensive loss into earnings in fiscal 2018.
The provision for income tax contingencies included in other long-term liabilities on the consolidated balance sheet is not included in the
table above due to the fact that the Company is unable to estimate the timing of payment for this liability.
We currently plan to meet our long-term debt obligations by using cash flows provided by operating activities
and opportunistically using other means to repay or refinance our obligations as we determine appropriate. We
believe that cash flows from operating activities, together with cash on hand, will provide sufficient liquidity for the
next 12 months to fund currently anticipated capital expenditure and working capital requirements, as well as debt
service requirements.
60
Acquisition of Weilos
On March 11, 2015, we acquired Weilos, a California-based startup with an online social platform, for a
purchase price of $6.7 million. Payment was in the form of common stock issued of $2.8 million, restricted stock
issued of $0.1 million and cash of $2.8 million plus cash in reserves of $1.0 million.
Winfrey Transaction
On October 19, 2015, we issued and sold to Ms. Winfrey an aggregate of 6.4 million shares of our common
stock for an aggregate cash purchase price of $43.2 million. For additional details on the Winfrey Transaction, see
“Item 1. Business—History—Winfrey Transaction” in Part I of this Annual Report on Form 10-K.
Franchise Acquisition
On June 27, 2016, we acquired substantially all of the assets of our franchisee for certain territories in South
Florida, Weight Watchers of Greater Miami, Inc., for a purchase price of $3.3 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 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, and Director Independence” in Part III of this Annual Report on Form 10-K.
Seasonality
Our business is seasonal due to the importance of the winter season to our overall recruitment environment.
Our advertising schedule generally supports the three key recruitment-generating seasons of the year: winter, spring
and fall, with winter having the highest concentration of advertising spending.
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks relating to interest rate changes and foreign currency fluctuations. All of our
market risk sensitive instruments were entered into for purposes other than trading. The Company’s exposure to
market risk as of the end of fiscal 2017 is described below.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates to interest expense of variable rate debt, in
particular changes in LIBOR or the base rates which are used to determine the applicable interest rates for
borrowings under the New Credit Facilities.
61
On July 26, 2013, in order to hedge a portion of our variable rate debt, we entered into a forward-starting
interest rate swap with an effective date of March 31, 2014 and a termination date of April 2, 2020. The initial
notional amount of this swap was $1.5 billion. During the term of this swap, the notional amount decreased from
$1.5 billion effective March 31, 2014 to $1.25 billion on April 3, 2017 and will decrease to $1.0 billion on April 1,
2019. This interest rate swap effectively fixes the variable interest rate on the notional amount of this swap at 2.41%.
This swap qualifies for hedge accounting and, therefore, changes in the fair value of this swap have been recorded in
accumulated other comprehensive loss. As of the end of fiscal 2017, we had $1,565.0 million of variable rate debt,
of which $315.0 million remained unhedged.
As of December 30, 2017, borrowings under the New Credit Facilities bore interest at LIBOR plus an
applicable margin of 4.75%. For the New Term Loan Facility, the minimum interest rate for LIBOR applicable to
such facility pursuant to the terms of the Credit Agreement is set at 0.75%, referred to herein as the LIBOR Floor. In
addition, as of December 30, 2017, our interest rate swap in effect had a notional amount of $1.25 billion.
Accordingly, as of December 30, 2017, based on the amount of variable rate debt outstanding and the then-current
LIBOR rate, after giving consideration to the impact of the interest rate swap and the LIBOR Floor, a hypothetical
70 basis point increase in interest rates would have increased annual interest expense by approximately $2.2 million
and a hypothetical 70 basis point decrease in interest rates would have decreased annual interest expense by
approximately $3.0 million. This increase is driven primarily by the interest rate applicable to our New Term Loan
Facility. This decrease is driven primarily by the lower variable rate debt balance resulting from the November 2017
debt refinancing.
There have been no material changes to the Company’s exposure to market risk from the end of fiscal 2016 as
compared to the end of fiscal 2017.
Foreign Currency Risk
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. As a result, substantially all of our revenues and expenses in each jurisdiction in which we operate are in the
same functional currency. In general, we are a net receiver of currencies other than the US dollar. Accordingly,
changes in exchange rates may negatively affect our revenues and gross margins as expressed in US dollars. In the
future, 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.
Fluctuations in currency exchange rates, particularly with respect to the euro, canadian dollar and pound
sterling, may impact our shareholders’ equity. The assets and liabilities of our non-US subsidiaries are translated
into US dollars at the exchange rates in effect at the balance sheet date. Revenues and expenses are translated into
US dollars at the average exchange rate for the period. The resulting translation adjustments are recorded in
shareholders’ equity as a component of accumulated other comprehensive loss. In addition, exchange rate
fluctuations will cause the US dollar translated amounts to change in comparison to prior periods.
Item 8.
Financial Statements and Supplementary Data
This information is incorporated by reference to our consolidated financial statements on pages F-1 through F-
41 and our financial statement schedule on page S-1, including the report thereon of PricewaterhouseCoopers LLP
on pages F-2 and F-3.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
62
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 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 principal executive officer and our principal
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 principal executive officer and our
principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and
procedures as of December 30, 2017, the end of fiscal 2017. Based upon that evaluation and subject to the
foregoing, our principal executive officer and our principal financial officer concluded that, as of the end of fiscal
2017, the design and operation of our disclosure controls and procedures were effective at the reasonable assurance
level.
Internal Control Over Financial Reporting
Management’s Annual 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 our 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 (“GAAP”).
Our management assessed the effectiveness of our internal control over financial reporting as of December 30,
2017, the end of fiscal 2017. 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 (2013). Based on this assessment, our management, under the supervision and with the participation of
our principal executive officer and our principal financial officer, concluded that, as of December 30, 2017, our
internal control over financial reporting was effective based on those criteria.
The effectiveness of our internal control over financial reporting as of December 30, 2017 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which
appears on pages F-2 and F-3 to our consolidated financial statements.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during our most recent
fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
Item 9B.
Other Information
None.
63
PART III
Items 10, 11, 12, 13 and 14. Directors, Executive Officers and Corporate Governance; Executive
Compensation; Security Ownership of Certain Beneficial Owners and
Management and Related Shareholder Matters; Certain Relationships and
Related Transactions, and Director Independence; Principal Accountant Fees and
Services
Information called for by Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K is
incorporated by reference from our definitive Proxy Statement to be filed in connection with our 2018 Annual
Meeting of Shareholders pursuant to Regulation 14A, except that (i) certain of the information regarding our
directors and executive officers called for by Items 401(a), (b) and (e) of Regulation S-K has been included in Part I
of this Annual Report on Form 10-K; (ii) the information regarding certain Company equity compensation plans
called for by Item 201(d) of Regulation S-K is set forth below and (iii) the information regarding our Amended and
Restated Code of Business Conduct and Ethics, or the Code of Business Conduct and Ethics, called for by Item 406
of Regulation S-K is set forth below.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table summarizes our equity compensation plan information as of December 30, 2017:
Equity Compensation Plan Information
Plan category
Equity compensation plans approved by
security
holders
Equity compensation plans not approved by
security holders
Total
Number of securities
to be issued upon exercise
of outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column (a))(c)
7,010,156 (1)$
10.98 (2)
4,360,146 (3)
500,000 (4)$
7,510,156 $
60.00 (5)
14.24 (6)
—
4,360,146
(1) Consists of 1,870,452 shares of our common stock issuable upon the exercise of outstanding stock options
awarded under our Second Amended and Restated 2014 Stock Incentive Plan, or 2014 Plan, our 2008 Stock
Incentive Plan, or 2008 Plan, and our 2004 Stock Incentive Plan, or 2004 Plan; 3,513,468 shares of our
common stock issuable upon the exercise of the Winfrey Option granted pursuant to the Winfrey Option
Agreement; 1,076,817 shares of our common stock issuable upon the vesting of restricted stock units, or
RSUs, awarded under our 2014 Plan; and 549,419 shares of our common stock issuable upon the vesting of
performance-based stock units, or PSUs, awarded under our 2014 Plan. The number of shares to be issued in
respect of PSUs has been calculated based on the assumption that the maximum level of performance
applicable to the PSUs will be achieved. The Winfrey Option was approved by the written consent of Artal
Luxembourg which, as of the date thereof, controlled a majority of the voting power of our outstanding
common stock. For additional details on the Winfrey Option and Winfrey Option Agreement, see “Item 1.
Business—History—Winfrey Transaction” of this Annual Report on Form 10-K.
(2) Reflects the weighted average exercise price of outstanding stock options of $14.29, RSUs of $0, and PSUs of
$0.
64
(3) Consists of shares of our common stock available for future issuance under our 2014 Plan, pursuant to various
awards the Compensation and Benefits Committee may make, including non-qualified stock options, incentive
stock options, stock appreciation rights, RSUs, restricted stock, performance-based awards and other equity-
based awards. In connection with the initial approval of our 2014 Plan on May 6, 2014, our 2014 Plan
replaced our 2008 Plan and 2004 Plan with respect to prospective equity grants.
(4) Consists of 500,000 shares of our common stock issuable upon the exercise of a stock option granted on July
5, 2017 to Ms. Grossman in connection with her appointment as our President and Chief Executive Officer.
This stock option was granted in reliance on the employment inducement exemption provided under the
NYSE Listed Company Manual Rule 303A.08. This stock option has a seven year term and proportionately
vests annually over a four year period beginning with the first anniversary of Ms. Grossman’s July 5, 2017
employment commencement date. While the stock option was not awarded pursuant to our 2014 Plan, it is
subject to the same terms and conditions of the 2014 Plan.
(5) Reflects the weighted average exercise price of outstanding stock options of $60.00.
(6) Reflects the weighted average exercise price of outstanding stock options of $18.17, RSUs of $0, and PSUs of
$0.
Code of Business Conduct and Ethics
We have adopted the Code of Business Conduct and Ethics for our officers, including our principal executive
officer, principal financial officer, principal accounting officer or controller, and our employees and directors. Our
Code of Business Conduct and Ethics is available on the Corporate Governance – Governance Documents page of
our corporate website at www.weightwatchersinternational.com.
In addition to any disclosures required under the Exchange Act, the date and nature of any substantive
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 or persons performing similar
functions, and that relates to any element of the code of ethics definition enumerated in Item 406(b) of Regulation S-
K of the Exchange Act, will be disclosed within four business days of the date of such amendment or waiver on the
Corporate Governance – Governance Documents and Corporate Governance – Corporate Actions pages,
respectively, of our corporate website at www.weightwatchersinternational.com. In the case of a waiver, the name of
the person to whom the waiver was granted will also be disclosed on our corporate website within four business
days of the date of such waiver.
65
PART IV
Item 15.
Exhibits and Financial Statement Schedules
(a)
1.
Financial Statements
The financial statements listed in the Index to Financial Statements and Financial Statement Schedule on page
F-1 are filed as part of this 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 ...........................................................................................................
Pages
F-2
Consolidated Balance Sheets at December 30, 2017 and December 31, 2016 ..............................................................................
F-4
Consolidated Statements of Net Income for the fiscal years ended December 30, 2017, December 31, 2016
and January 2, 2016 ...................................................................................................................................................................
F-5
Consolidated Statements of Comprehensive Income for the fiscal years ended December 30, 2017,
December 31, 2016 and January 2, 2016 ..................................................................................................................................
F-6
Consolidated Statements of Changes in Total Deficit for the fiscal years ended December 30, 2017,
December 31, 2016 and January 2, 2016...................................................................................................................................
F-7
Consolidated Statements of Cash Flows for the fiscal years ended December 30, 2017, December 31, 2016
and January 2, 2016 ...................................................................................................................................................................
F-8
Notes to Consolidated Financial Statements ...................................................................................................................................
F-9
Schedule II—Valuation and Qualifying Accounts and Reserves for the fiscal years ended December 30,
2017, December 31, 2016 and January 2, 2016 ........................................................................................................................
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.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Weight Watchers International, Inc. and its
subsidiaries (the “Company”) as of December 30, 2017 and December 31, 2016, and the related consolidated
statements of net income, comprehensive income, changes in total deficit and cash flows for each of the three fiscal
years in the period ended December 30, 2017, including the related notes and financial statement schedule listed in
the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited
the Company's internal control over financial reporting as of December 30,2017, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 30, 2017 and December 31, 2016, and the results of their
operations and their cash flows for each of the three fiscal years in the period ended December 30, 2017 in
conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of December 30,
2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under
Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the
Company's internal control over financial reporting based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting
was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
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
F-2
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.
/s/ PricewaterhouseCoopers LLP
New York, NY
February 28, 2018
We have served as the Company’s auditor since 1999.
F-3
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AT
(IN THOUSANDS)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Receivables (net of allowances: December 30, 2017 - $2,001 and
December 31, 2016 - $2,973)
Inventories
Prepaid income taxes
Prepaid expenses and other current assets
TOTAL CURRENT ASSETS
Property and equipment, net
Franchise rights acquired
Goodwill
Other intangible assets, net
Other noncurrent assets
TOTAL ASSETS
LIABILITIES AND TOTAL DEFICIT
CURRENT LIABILITIES
Portion of long-term debt due within one year
Accounts payable
Salaries and wages payable
Accrued marketing and advertising
Accrued interest
Other accrued liabilities
Derivative payable
Deferred revenue
TOTAL CURRENT LIABILITIES
Long-term debt, net
Deferred income taxes
Other
TOTAL LIABILITIES
Commitments and contingencies (Note 15)
Redeemable noncontrolling interest
TOTAL DEFICIT
December 30,
2017
December 31,
2016
$
83,054
$
108,656
$
$
$
$
23,913
31,728
43,488
26,805
208,988
47,978
754,040
156,281
46,536
32,177
1,246,000
82,750
24,356
62,179
18,154
10,834
58,251
12,171
74,332
343,027
1,740,612
143,591
30,289
2,257,519
27,518
32,629
35,528
30,880
235,211
49,574
748,619
166,138
58,612
12,822
1,270,976
21,000
40,639
49,638
18,067
16,939
51,251
31,974
62,880
292,388
1,981,299
175,115
25,048
2,473,850
4,467
4,699
Common stock, $0 par value; 1,000,000 shares authorized; 118,947
shares issued at December 30, 2017 and at December 31, 2016
Treasury stock, at cost, 54,258 shares at December 30, 2017 and 55,021
shares at December 31, 2016
Retained earnings
Accumulated other comprehensive loss
TOTAL DEFICIT
TOTAL LIABILITIES AND TOTAL DEFICIT
0
0
(3,208,836)
2,203,317
(10,467)
(1,015,986)
1,246,000
$
(3,237,346)
2,056,893
(27,120)
(1,207,573)
1,270,976
$
The accompanying notes are an integral part of the consolidated financial statements.
F-4
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET INCOME FOR THE FISCAL YEARS ENDED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Service revenues, net
Product sales and other, net
Revenues, net
Cost of services
Cost of product sales and other
Cost of revenues
Gross profit
Marketing expenses
Selling, general and administrative expenses
Goodwill impairment
Operating income
Interest expense
Other expense, net
Early extinguishment of debt, net
Income before income taxes
(Benefit from) provision for income taxes
Net income
Net loss attributable to the noncontrolling interest
December 30,
2017
$ 1,081,679
225,232
1,306,911
486,293
127,969
614,262
692,649
200,797
211,224
13,323
267,305
112,784
472
8,969
145,080
(18,237)
163,317
197
163,514
$
December 31,
2016
949,121 $
215,781
1,164,902
468,761
110,640
579,401
585,501
194,398
190,292
0
200,811
115,160
1,524
0
84,127
16,634
67,493
206
67,699 $
January 2,
2016
937,368
227,051
1,164,419
477,926
112,406
590,332
574,087
201,021
205,008
0
168,058
121,843
2,027
(11,426)
55,614
22,835
32,779
166
32,945
$
Net income attributable to Weight Watchers International, Inc. $
Earnings Per Share attributable to Weight Watchers
International, Inc.
Basic
Diluted
Weighted average common shares outstanding
Basic
Diluted
$
$
2.54
2.40
$
$
1.06 $
1.03 $
0.56
0.56
64,329
68,248
63,742
65,897
58,369
58,966
The accompanying notes are an integral part of the consolidated financial statements.
F-5
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE FISCAL YEARS ENDED
(IN THOUSANDS)
Net income
Other comprehensive gain (loss):
Foreign currency translation gain (loss)
Income tax (expense) benefit on foreign currency
translation
gain (loss)
Foreign currency translation gain (loss), net of taxes
Gain (loss) on derivatives
Income tax (expense) benefit on gain (loss) on derivatives
Gain (loss) on derivatives, net of taxes
Total other comprehensive gain (loss)
Comprehensive income
Net loss attributable to the noncontrolling interest
Foreign currency translation loss (gain), net of taxes
attributable to the noncontrolling interest
Comprehensive loss (income) attributable to the noncontrolling
interest
Comprehensive income attributable to Weight Watchers
International, Inc.
December 30,
2017
163,317
$
December 31,
2016
January 2,
2016
$
67,493
$
32,779
9,848
5,556
(27,824)
(3,840)
6,008
17,393
(6,783)
10,610
16,618
179,935
197
35
232
(2,089)
3,467
11,821
(4,688)
7,133
10,600
78,093
206
(455)
(249)
10,851
(16,973)
(2,096)
817
(1,279)
(18,252)
14,527
166
937
1,103
$
180,167
$
77,844
$
15,630
The accompanying notes are an integral part of the consolidated financial statements.
F-6
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL DEFICIT
(IN THOUSANDS)
Redeemable
Weight Watchers International, Inc.
Accumulated
Other
Noncontrolling Common Stock Treasury Stock
Comprehensive Retained
Interest
Shares Amount Shares Amount
Loss
Earnings
Total
$
$
Balance at January 3, 2015
Comprehensive (loss) income
Issuance of treasury stock under
stock plans
Tax benefit of restricted stock units
vested and stock options exercised
Cash dividends
Compensation expense on share-
based awards
Sale of common stock
Acquisition of Weilos
Balance at January 2, 2016
Comprehensive income
Issuance of treasury stock under
stock plans
Tax benefit of restricted stock units
vested and stock options exercised
Compensation expense on share-
based awards
Issuance of common stock pursuant
to acquisition of Weilos
Balance at December 31, 2016
Comprehensive income
Issuance of treasury stock under
stock plans
Compensation expense on share-
based awards
Balance at December 30, 2017
$
$
5,553 112,195 $
(1,103)
0 55,485 $(3,253,597) $
(19,950) $1,900,506 $(1,373,041)
15,630
32,945
(17,315)
(184)
6,191
(7,179)
(988)
6,362
298
4,450 118,855 $
249
0 55,301 $(3,247,406) $
(932)
3
(932)
3
24,771
24,771
41,475
41,475
2,924
2,924
(37,265) $1,994,513 $(1,290,158)
77,844
67,699
10,145
(280)
10,060
(12,173)
(2,113)
327
327
6,527
6,527
92
4,699 118,947 $
(232)
0 55,021 $(3,237,346) $
0
0
(27,120) $2,056,893 $(1,207,573)
163,514
16,653
180,167
(763)
28,510
(32,039)
(3,529)
4,467 118,947 $
0 54,258 $(3,208,836) $
14,949
14,949
(10,467) $2,203,317 $(1,015,986)
The accompanying notes are an integral part of the consolidated financial statements.
tt
F-7
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE FISCAL YEARS ENDED
(IN THOUSANDS)
December 30,
2017
December 31,
2016
January 2,
2016
$
163,317
$
67,493
$
32,779
Operating activities:
Net income
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization
Amortization of deferred financing costs and debt discount
Goodwill impairment
Impairment of intangible and long-lived assets
Write-off of net assets due to cessation of Spain
operations
Share-based compensation expense
Deferred tax (benefit) provision
Allowance for doubtful accounts
Reserve for inventory obsolescence
Foreign currency exchange rate loss
Early extinguishment of debt, net
Changes in cash due to:
Receivables
Inventories
Prepaid expenses
Accounts payable
Accrued liabilities
Deferred revenue
Other long term assets and liabilities, net
Income taxes
Cash provided by operating activities
Investing activities:
Capital expenditures
Capitalized software expenditures
Cash paid for acquisitions
Other items, net
Cash used for investing activities
Financing activities:
Net borrowings (payments) on revolver
Proceeds from new long term debt
Financing costs and debt discount
Payments on long-term debt
Proceeds from the sale of common stock, net of fees
Taxes paid related to net share settlement of equity awards
Excess tax benefit of share-based compensation
Proceeds from stock options exercised
Payment of dividends
Cash used for financing activities
Effect of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents, beginning of fiscal year
Cash and cash equivalents, end of fiscal year
25,000
1,840,000
(53,636)
(2,018,773)
0
(9,548)
0
5,475
0
(211,482)
4,397
(25,602)
108,656
83,054
$
$
The accompanying notes are an integral part of the consolidated financial statements.
F-8
50,880
6,112
13,323
682
70
14,949
(48,216)
(587)
7,823
202
8,969
5,444
(4,504)
(4,359)
(14,507)
4,414
8,298
5,683
4,281
222,274
(13,732)
(26,916)
0
(143)
(40,791)
52,633
6,116
0
615
0
6,527
11,093
363
5,109
1,270
0
(37)
(9,513)
(14,755)
461
(8,823)
1,212
1,512
(2,232)
119,044
(5,556)
(28,785)
(2,898)
(291)
(37,530)
(48,000)
0
0
(165,323)
0
0
973
139
(11)
(212,222)
(2,162)
(132,870)
241,526
108,656
$
53,171
6,886
0
2,455
0
24,771
12,098
(446)
7,593
1,526
(12,667)
1,571
(3,055)
(18,284)
(13,930)
(32,418)
1,256
1,512
(10,003)
54,815
(3,952)
(32,307)
(3,112)
(936)
(40,307)
48,000
0
0
(158,113)
41,475
0
0
95
(42)
(68,585)
(5,609)
(59,686)
301,212
241,526
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
1.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of Weight Watchers International,
Inc. and all of its subsidiaries. The terms “Company” and “WWI” as used throughout these notes is used to indicate
Weight Watchers International, Inc. and all of its operations consolidated for purposes of its financial statements.
The Company’s “meetings” business refers to providing access to combined meetings and digital offerings to the
Company’s commitment plan subscribers (including Total Access subscribers), as well as access to meetings to the
Company’s “pay-as-you-go” members and other meetings members. “Online” refers to Weight Watchers Online,
Weight Watchers OnlinePlus, Personal Coaching and other digital subscription products.
The consolidated financial statements have been prepared in conformity with accounting principles generally
accepted in the United States of America (“GAAP”) and include all of the Company’s majority-owned subsidiaries.
All entities acquired, and any entity of which a majority interest was acquired, are included in the consolidated
financial statements from the date of acquisition. All intercompany accounts and transactions have been eliminated
in consolidation.
Out-of-Period Adjustments:
In fiscal 2016, the Company identified and recorded out-of-period adjustments related to (i) income tax errors
primarily related to reversing a foreign tax receivable originally recorded in fiscal 2008 that should have been
reversed in fiscal 2009; (ii) errors in the prior period tax provision identified upon filing of the tax return and
(iii) technology expenses that should have been capitalized in fiscal 2015. The impact of correcting these errors,
which were immaterial to prior period financial statements and corrected in fiscal 2016, increased income before
income taxes by $347, increased provision for income taxes by $2,138 and decreased net income attributable to the
Company by $1,791.
In fiscal 2015, the Company identified and recorded out-of-period adjustments that related to immaterial
errors in prior period financial statements, which were corrected in fiscal 2015, that increased income before income
taxes by $1,650, provision for income taxes by $1,970, and decreased net income attributable to the Company by
$320.
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 2017, fiscal year 2016 and fiscal year 2015 all contained 52 weeks.
Use of Estimates:
The preparation of financial statements, in conformity with GAAP, requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
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, share-based
compensation, income taxes, tax 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.
F-9
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Translation of Foreign Currencies:
For all foreign operations, the functional currency is the local currency. Assets and liabilities of these
operations are translated into US 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 loss.
Foreign currency gains and losses arising from the translation of intercompany receivables and intercompany
payables with the Company’s international subsidiaries are recorded as a component of other expense, net, unless
the receivable or payable is considered long-term in nature, in which case the foreign currency gains and losses are
recorded as a component of accumulated other comprehensive 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. Cash includes balances due from third-party credit card
companies.
Inventories:
Inventories, which consist of finished goods, are stated at the lower of cost or net realizable value 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:
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.
In fiscal 2017, fiscal 2016 and fiscal 2015, the Company recorded impairment charges of $674, $484 and
$2,028, respectively, related to internal-use computer software that was not expected to provide substantive service
potential.
In fiscal 2017, fiscal 2016 and fiscal 2015, the Company recorded impairment charges of $8, $131, and $427,
respectively, related to property, plant and equipment that were expected to be disposed of before the end of their
estimated useful lives.
F-10
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Goodwill and Franchise Rights Acquired:
The Company reviews goodwill and other indefinite-lived intangible assets, including franchise rights
acquired with indefinite lives, for potential impairment on at least an annual basis or more often if events so require.
The Company performed fair value impairment testing as of May 7, 2017 and May 8, 2016, each the first day of
fiscal May, on its goodwill and other indefinite-lived intangible assets.
In performing its annual impairment analysis as of May 7, 2017, the Company determined that the carrying
amounts of its goodwill reporting units and franchise rights acquired with indefinite lives units of account did not
exceed their respective fair values and therefore, no impairment existed. For all reporting units, except for Brazil,
there was significant headroom in the impairment analysis.
Given the ongoing challenging economic environment in Brazil and the negative performance trends and the
Company’s reduced expectations regarding the future impact of its business growth strategies in the country, a
triggering event in the Brazil reporting unit was identified which required the Company to perform an interim
goodwill impairment analysis. Based on this interim test, the Company determined that the carrying amount of this
reporting unit exceeded its fair value and therefore recorded an impairment charge of $13,323. Based on the results
of the Company’s annual impairment test performed for all of its reporting units except for Brazil, as of December
30, 2017, the Company estimated that for reporting units that hold approximately 96.6% of the Company’s
goodwill, those units had a fair value at least 50% higher than the respective reporting unit’s carrying amount. Based
on the results of the Company’s interim impairment test performed on December 30, 2017 and after recording an
impairment charge of $13,323, its reporting unit Brazil held 3.4% of the Company’s goodwill, and the fair value of
this reporting unit is now equivalent to its carrying value of $5,943.
When determining fair value, the Company utilizes various assumptions, including projections of future cash
flows, growth rates and discount rates. A change in these underlying assumptions would cause a change in the
results of the tests and, as such, could cause fair value to be less than the carrying amounts and result in an
impairment of those assets. In the event such a result occurred, the Company would be required to record a
corresponding charge, which would impact earnings. The Company would also be required to reduce the carrying
amounts of the related assets on its balance sheet. The Company continues to evaluate these assumptions and
believes that these assumptions are appropriate.
The following is a discussion of the goodwill and franchise rights acquired impairment analysis.
Goodwill
In performing the impairment analysis for goodwill, the fair value for the Company’s reporting units is
estimated using a discounted cash flow approach. This approach involves projecting future cash flows attributable to
the reporting unit and discounting those estimated cash flows using an appropriate discount rate. The estimated fair
value is then compared to the carrying value of the reporting units. The Company has determined the appropriate
reporting unit for purposes of assessing annual impairment to be the country for all reporting units. For all of the
Company’s reporting units except for Brazil (see below), the Company estimated future cash flows by utilizing the
historical debt-free cash flows (cash flows provided by operating activities less capital expenditures) attributable to
that country and then applied expected future operating income growth rates for such country. The Company utilized
operating income as the basis for measuring its potential growth because it believes it is the best indicator of the
performance of its business. The Company then discounted the estimated future cash flows utilizing a discount rate
which was calculated using the average cost of capital, which included the cost of equity and the cost of debt. The
cost of equity was determined by combining a risk-free rate of return and a market risk premium for the Company’s
peer group. The risk-free rate of return was determined based on the average rate of long-term U.S. Treasury
securities. The market risk premium was determined by reviewing external market data. The cost of debt was
determined by estimating the Company’s current borrowing rate.
F-11
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
As it relates to the impairment analysis for Brazil, the Company estimated future debt free cash flows in
contemplation of its growth strategies for that market. In developing these projections, the Company considered the
historical impact of similar growth strategies in other markets as well as the current market conditions in Brazil. The
Company then discounted the estimated future cash flows utilizing a discount rate which was calculated using the
average cost of capital, which included the cost of equity and the cost of debt. The cost of equity was determined by
combining a risk-free rate of return and a market risk premium for the Company’s peer group. The risk-free rate of
return was determined based on the average rate of long-term U.S. Treasury securities. The market risk premium
was determined by reviewing external market data including the current economic conditions in Brazil and the
country specific risk thereon. A further risk premium was included to reflect the risk associated with the rate of
growth projected in the analysis, except for the interim test at December 30, 2017, which projected significantly
lower growth rates. The cost of debt was determined by estimating the Company’s current borrowing rate.
Franchise Rights Acquired
Finite-lived franchise rights acquired are amortized over the remaining contractual period, which is generally
less than one year.
In performing the impairment analysis for indefinite-lived franchise rights acquired, the fair value for
franchise rights acquired is estimated using a discounted cash flow approach referred to as the hypothetical start-up
approach for franchise rights related to the Company’s meetings business and a relief from royalty methodology for
franchise rights related to the Company’s Online business. The aggregate estimated fair value for these rights is then
compared to the carrying value of the unit of account for those franchise rights. The Company has determined the
appropriate unit of account for purposes of assessing impairment to be the combination of the rights in the meetings
and Online businesses in the country in which the acquisitions have occurred. The book values of these franchise
rights in the United States, Canada, United Kingdom, Australia, New Zealand and other countries at December 30,
2017 were $671,914, $57,408, $12,680, $7,018, $5,020 and $0, respectively, totaling $754,040 and the values at
December 31, 2016 were $671,914, $53,638, $11,694, $6,473, $4,900 and $0, respectively, totaling $748,619.
In its hypothetical start-up approach analysis for fiscal 2017, the Company assumed that the year of maturity
was reached after 7 years. Subsequent to the year of maturity, the Company estimated future cash flows for the
meetings business in each country based on assumptions regarding revenue growth and operating income margins.
The cash flows associated with the Online business were based on the expected Online revenue for such country and
the application of a market-based royalty rate. The cash flows for the meetings and Online businesses were
discounted utilizing rates consistent with those utilized in the goodwill impairment analysis.
Other Intangible Assets:
Other finite-lived intangible assets are amortized using the straight-line method over their estimated useful
lives of 3 to 20 years. The Company expenses all software costs (including website development costs) incurred
during the preliminary project stage and capitalizes all internal and external direct costs of materials and services
consumed in developing software (including website development costs) 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 of 3 years for
website development costs and from 3 to 5 years for all other software costs. All costs incurred for upgrades,
maintenance and enhancements, including the cost of website content, which do not result in additional
functionality, are expensed as incurred.
F-12
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Revenue Recognition:
WWI earns revenue by conducting meetings, for which it charges a fee, predominantly through commitment
plans, prepayment plans or the “pay-as-you-go” arrangement. WWI also earns revenue from subscriptions for the
Company’s Online products, selling products (including publications) in its meetings, online and to its franchisees,
collecting commissions from franchisees, collecting royalties related to licensing agreements, selling magazine
subscriptions, publishing, selling advertising space on its websites and in copies of its publications, and By Mail
product sales.
Commitment plans, prepaid meeting fees and magazine subscription revenue is recorded to deferred revenue
and amortized into revenue over the period earned. Online subscription revenues are recognized over the period that
products are provided. One-time Online sign-up fees are deferred and recognized over the expected customer
relationship period. Online subscription revenues that are paid in advance are deferred and recognized on a straight-
line basis over the subscription period. Revenue from “pay-as-you-go” meeting fees, product sales, By Mail,
commissions and royalties is recognized when services are rendered, products are sold or shipped to customers and
title and risk of loss pass to the customers, and commissions and royalties are earned, respectively. Revenue from
advertising in magazines is recognized when advertisements are published. Revenue from magazine sales is
recognized when the magazine is sent to the customer. In the meetings business, WWI generally charges non-
refundable registration and starter fees in exchange for an introductory information session and materials it provides
to new members. Revenue from these registration and starter fees is recognized when the service and products are
provided, which is generally at the same time payment is received from the customer. For revenue transactions that
involve multiple deliverables, the amount of revenue recognized is determined using the relative fair value of each
element, which is generally based on each element’s stand-alone selling price. Discounts to customers, including
free registration offers, are recorded as a deduction from gross revenue in the period such revenue was recognized.
Revenue from advertising on its websites is recognized when the advertisement is viewed by the user.
The Company grants refunds in 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 over the same period.
Advertising Costs:
Advertising costs consist primarily of broadcast and digital media. All costs related to advertising are
expensed in the period incurred, except for media production-related costs, which are expensed the first time the
advertising takes place. Total advertising expenses for the fiscal years ended December 30, 2017, December 31,
2016, and January 2, 2016 were $193,423, $186,614 and $191,060, respectively.
Income Taxes:
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. The Company considers historic levels of income, estimates of future taxable
income and feasible tax planning strategies in assessing the need for a tax valuation allowance.
The Company recognizes a benefit for uncertain tax positions when a tax position taken or expected to be
taken in a tax return is more-likely-than-not to be sustained upon examination by taxing authorities. The amount
recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon
ultimate settlement. The Company recognizes accrued interest and penalties associated with uncertain tax positions
as part of the provision for income taxes on its consolidated statements of net income.
In addition, assets and liabilities acquired in purchase business combinations are assigned their fair values and
deferred taxes are provided for lower or higher tax bases.
F-13
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Derivative Instruments and Hedging:
The Company is exposed to certain risks related to its ongoing business operations, primarily interest rate risk
and foreign currency risk. An interest rate swap was entered into to hedge a portion of the cash flow exposure
associated with the Company’s variable-rate borrowings. The Company does not use any derivative instruments for
trading or speculative purposes.
The Company recognizes the fair value of all derivative instruments as either assets or liabilities on the
balance sheet. The Company has designated and accounted for the interest rate swap as cash flow hedges of its
variable-rate borrowings. For derivative instruments that are designated and qualify as cash flow hedges, the
effective portion of the gain or loss on the derivative is reported as a component of accumulated other
comprehensive loss and reclassified into earnings in the periods during which the hedged transactions affect
earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded
from the assessment of effectiveness are recognized in current earnings.
The fair value of the Company’s interest rate swap is reported as a component of accumulated other
comprehensive loss on its balance sheet. See Note 17 for a further discussion regarding the fair value of the
Company’s interest rate swap. The net effect of the interest payable and receivable under the Company’s interest
rate swap is included in interest expense on the consolidated statements of net income.
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 fourth quarter of fiscal 2017, the Company incurred fees
of $53,832 (which includes $30,800 of a debt discount) in connection with the November 2017 debt refinancing (as
described in Note 8). In addition, the Company recorded a loss on extinguishment of debt of $10,524 in connection
thereto. This early extinguishment of debt write-off was comprised of $5,716 of deferred financing fees paid in
connection with the November 2017 debt refinancing and $4,808 of pre-existing deferred financing fees. During the
fiscal year ended December 30, 2017 in connection with the prepayment of debt, the Company wrote-off deferred
financing fees of $618, incurred fees of $305 and recorded a gain on early extinguishment of debt of $1,554,
inclusive of these fees. During the fiscal year ended January 2, 2016, in connection with the prepayment of debt, the
Company wrote-off deferred financing fees of $647, incurred additional fees of $1,241 and recorded a gain on early
extinguishment of debt totaling $11,426. Amortization expense for the fiscal years ended December 30, 2017,
December 31, 2016 and January 2, 2016 was $6,112, $6,116 and $6,886, respectively.
Accumulated Other Comprehensive Loss:
The Company’s accumulated other comprehensive loss includes changes in the fair value of derivative
instruments and the effects of foreign currency translations. At December 30, 2017, December 31, 2016 and
January 2, 2016, the cumulative balance of changes in fair value of derivative instruments, net of taxes, was $5,392,
$16,002 and $23,135, respectively. At December 30, 2017, December 31, 2016 and January 2, 2016, the cumulative
balance of the effects of foreign currency translations, net of taxes, was $5,075, $11,118 and $14,130, respectively.
F-14
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
3.
Accounting Standards Adopted in Current Year
In March 2016, the Financial Accounting Standards Board (the “FASB”) issued updated guidance on stock
compensation which is intended to simplify several aspects of the accounting for share-based payment transactions,
including the income tax consequences, classification of awards as either equity or liabilities, and classification of
applicable income tax consequences on the statement of cash flows. This guidance requires recognition of excess tax
benefits and shortfalls (resulting from an increase or decrease in the fair value of an award from grant date to the
vesting date) in the provision for income taxes as a discrete item in the quarterly period in which they occur. In
addition, these amounts will be classified as an operating activity in the consolidated statement of cash flows instead
of as a financing activity. The amendments requiring recognition of excess tax benefits and tax shortfalls in the
income statement must be applied prospectively (See Note 12), and entities may elect to apply the amendments
related to the presentation of excess tax benefits on the statement of cash flows using either a prospective or
retrospective transition method. The amendments also require the classification of tax withheld for employee awards
exercised as cash flows from financing activities. In May 2017, the FASB issued updated guidance on stock
compensation which is intended to clarify when changes to the terms and conditions to a share-based payment
transaction requires modification accounting.
The company adopted this guidance during the first quarter of fiscal 2017. As required by the standard, the
Company recognized prospectively any excess tax benefits in the consolidated statements of net income
for the fiscal year ended December 30, 2017 and applied the amendments relating to the presentation of excess tax
benefits on the statement of cash flows and tax withheld for employee awards using the prospective method. For the
fiscal year ended December 31, 2016 the Company recorded $327 of excess tax benefits in equity and for the fiscal
year ended January 2, 2016 the Company recorded $932 of tax shortfalls in equity. For the fiscal years ended
December 31, 2016 and January 2, 2016, the Company paid taxes of $2,232 and $447, respectively, related to net
share settlement of equity awards. As permitted under the guidance, the Company will continue to account for
forfeitures in compensation cost by estimating the number of awards that are expected to vest.
In August 2016, the FASB issued updated guidance on the statement of cash flows presentation of certain
transactions where diversity in practice exists. The Company adopted this guidance during the first quarter of 2017,
which had no impact on the consolidated statement of cash flows.
In January 2017, the FASB issued updated guidance to assist Companies with evaluating whether transactions
should be accounted for as acquisitions (or disposals) of assets or businesses. The Company early adopted this
guidance during the first quarter of 2017. The adoption of this guidance had no impact on the consolidated financial
statements.
In January 2017, the FASB issued amended guidance to simplify the accounting for goodwill impairment.
This guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price
allocation. Under the amended guidance, a goodwill impairment charge will now be recognized for the amount by
which the carrying value of a reporting unit exceeds its fair value, not to exceed the carrying amount of goodwill.
This guidance is effective for interim and annual periods beginning after December 15, 2019, with early adoption
permitted for any impairment tests performed after January 1, 2017. The Company adopted this guidance in the
fourth quarter of fiscal 2017.
In August 2017, the FASB issued amended guidance to improve accounting for hedging activities. The
amendments in this update better align an entity’s risk management activities and financial reporting for hedging
relationships through changes to both the designation and measurement guidance for qualifying hedging
relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge
accounting for both nonfinancial and financial risk components and align the recognition and presentation of the
effects of the hedging instrument and the hedged item in the financial statements. This guidance is effective for
interim and annual periods beginning after December 15, 2018. Early adoption is permitted as of the issuance date.
The Company adopted this guidance the first day of the fourth quarter of fiscal 2017, which did not have a material
impact on the consolidated financial statements and related disclosures of the Company.
F-15
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
4. Winfrey Transaction
On October 18, 2015 (the “Agreement Date”), the Company entered into the following agreements with Oprah
Winfrey: the Strategic Collaboration Agreement, the Winfrey Purchase Agreement (defined below), and the Winfrey
Option Agreement (defined below). The transactions contemplated by these agreements are collectively referred to
herein as the “Winfrey Transaction”. Details of the Strategic Collaboration Agreement, Winfrey Purchase
Agreement and Winfrey Option Agreement are below. See Note 21 for related party transactions with Ms. Winfrey.
Strategic Collaboration Agreement
The Company and Ms. Winfrey granted each other certain intellectual property rights under the Strategic
Collaboration Agreement. The agreement has an initial term of five years, with additional successive one-year
renewal terms. During the term of this agreement, Ms. Winfrey will consult with the Company and participate in
developing, planning, executing and enhancing the Weight Watchers program and related initiatives, and provide it
with services in her discretion to promote the Company and its programs, products and services.
Winfrey Purchase Agreement
On October 19, 2015, pursuant to the Share Purchase Agreement between the Company and Ms. Winfrey (the
“Winfrey Purchase Agreement”), the Company issued and sold to Ms. Winfrey an aggregate of 6,362 shares of the
Company’s common stock (the “Purchased Shares”) at a price per share of $6.79 for an aggregate cash purchase
price of $43,199. The Company recorded fees related to the issuance of the Purchased Shares totaling $2,315, of
which $1,700 was recorded as a reduction of equity in the fourth quarter of fiscal 2015. The Purchased Shares are
subject to certain demand registration rights and piggyback rights held by Ms. Winfrey under the Winfrey Purchase
Agreement.
The Purchased Shares could not be transferred by Ms. Winfrey within the first two years of the Agreement
Date, subject to certain limited exceptions. Thereafter, Ms. Winfrey may generally transfer up to 15% of the
Purchased Shares prior to the third anniversary of the Agreement Date, up to 30% of the Purchased Shares prior to
the fourth anniversary of the Agreement Date and up to 60% of the Purchased Shares prior to the fifth anniversary of
the Agreement Date. On or after the fifth anniversary of the Agreement Date, Ms. Winfrey will be permitted to
transfer all of the Purchased Shares. In the event that Ms. Winfrey proposes to transfer any Purchased Shares or
Winfrey Option Shares (defined below), the Company will have (a) a right of first offer with respect to such shares
if such transfer is (i) for 1% or more of the Company’s issued and outstanding common stock and is proposed to be
made pursuant to Rule 144 under the Securities Act of 1933, as amended or (ii) proposed to be sold under a resale
shelf registration statement or (b) a right of first refusal with respect to such shares if such transfer is (i) for 1% or
more of the Company’s issued and outstanding common stock and is proposed to be made to a competitor of the
Company or (ii) for 5% or more of the Company’s issued and outstanding common stock. Such transfer restrictions,
right of first offer and right of first refusal terminate if Ms. Winfrey then has the right to be nominated as a director
and has met certain eligibility requirements under the Winfrey Purchase Agreement, but is not elected as a director
of the Company. If Ms. Winfrey is elected as a director of the Company, she shall receive compensation for her
services as a director consistent with that of other non-executive directors of the Company. Such transfer restrictions
also terminate if there is a change of control, including if another person (or group), other than Artal Luxembourg
S.A. and Ms. Winfrey and their respective affiliates, acquires more than 50% of the total voting power of the
Company.
Winfrey Option Agreement
In consideration of Ms. Winfrey entering into the Strategic Collaboration Agreement and the performance of
her obligations thereunder, on the Agreement Date, the Company granted Ms. Winfrey a fully vested option (the
“Winfrey Option”) to purchase 3,513 shares of common stock at an exercise price of $6.97 per share, which remains
outstanding in full. The term sheet, and related terms and conditions, for the Winfrey Option are referred to herein as
the “Winfrey Option Agreement”. Based on the Black Scholes option pricing method, the Company recorded
$12,759 of compensation expense in the fourth quarter of fiscal 2015 for the Winfrey Option. At the date of the
grant, the Company used a dividend yield of 0.0%, 63.88% volatility and a risk-free interest rate of 1.36%.
Compensation expense is included as a component of selling, general and administrative expenses.
F-16
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Subject to certain limited exceptions, shares of common stock issuable upon exercise of the Winfrey Option
(the “Winfrey Option Shares”) generally could not be transferred by Ms. Winfrey within the first year of the
Agreement Date. Ms. Winfrey generally could have transferred up to 20% of the Winfrey Option Shares prior to the
second anniversary of the Agreement Date, and generally may transfer up to 40% of such shares prior to the third
anniversary of the Agreement Date, up to 60% of such shares prior to the fourth anniversary of the Agreement Date
and up to 80% of such shares prior to the fifth anniversary of the Agreement Date. On or after the fifth anniversary
of the Agreement Date, Ms. Winfrey will be permitted to transfer all of the Winfrey Option Shares. Pursuant to the
Winfrey Purchase Agreement, in the event that Ms. Winfrey proposes to transfer any Winfrey Option Shares, the
Company will have a right of first offer or a right of first refusal with respect to such shares as described above.
Such transfer restrictions terminate under the same director service and change of control circumstances that would
result in the termination of the transfer restrictions relating to the Purchased Shares as described above.
5.
Acquisitions
Acquisition of Franchisee
On June 27, 2016, the Company acquired substantially all of the assets of its franchisee for certain territories
in South Florida, Weight Watchers of Greater Miami, Inc., for a purchase price of $3,250 (the “Miami
Acquisition”). Payment was in the form of cash ($2,898) plus cash in reserves ($300) and assumed net liabilities of
($52). The total purchase price has been allocated to franchise rights acquired ($114), goodwill ($2,945) and
customer relationship value ($191). The acquisition of the franchisee has been accounted for under the purchase
method of accounting and, accordingly, earnings of the acquired franchisee have been included in the consolidated
operating results of the Company since the date of acquisition. The goodwill will be deductible for tax purposes.
Acquisition of Weilos
On March 11, 2015, the Company acquired for a purchase price of $6,674 Weilos, Inc. (“Weilos”), a
California-based startup with an online social platform. Payment was in the form of common stock issued ($2,810),
restricted stock issued ($114) and cash ($2,775) plus cash in reserves ($975). The total purchase price of Weilos has
been allocated to goodwill ($5,588), identifiable intangibles ($1,741) and other assets ($24) offset by deferred tax
liabilities ($679). Restricted shares with a fair value at the date of grant ($908) were issued to key employees,
contingent upon 18 months post-combination employment, and are accounted for as stock compensation cost in the
post-combination financial statements. These restricted shares vested on September 11, 2016. As a result of the
acquisition, Weilos became a wholly owned subsidiary of the Company and the Company began to consolidate the
entity as of the date of acquisition. The acquisition resulted in goodwill related to, among other things, expected
synergies in operations. The goodwill was not deductible for tax purposes.
6.
Franchise Rights Acquired, Goodwill and Other Intangible Assets
The Company performed its annual impairment review of goodwill and other indefinite-lived intangible assets
for fiscal 2017 and fiscal 2016 on May 7 and May 8, respectively. Given the ongoing challenging economic
environment in Brazil and the negative performance trends and the Company’s reduced expectations regarding the
future impact of its business growth strategies in the country, a triggering event in the Brazil reporting unit was
identified which required the Company to perform an interim goodwill impairment analysis. Based on this interim
test, the Company determined that the carrying amount of this reporting unit exceeded its fair value and therefore
recorded an impairment charge of $13,323. As a result of the 2016 review, no impairment charges were recorded for
the fiscal year ended December 31, 2016.
Franchise rights acquired are due to acquisitions of the Company’s franchised territories as well as the
acquisition of franchise promotion agreements and other factors associated with the acquired franchise territories.
For the fiscal year ended December 30, 2017, the change in the carrying value of franchise rights acquired is due to
the effect of exchange rate changes.
F-17
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Goodwill primarily relates to the acquisition of the Company by H.J. Heinz Company in 1978, the acquisition
of WeightWatchers.com, Inc. in 2005, the acquisitions of the Company’s franchised territories, the acquisitions of
the majority interest in Vigilantes do Peso Marketing Ltda. (“VPM”) and of Knowplicity, Inc., d/b/a Wello, in fiscal
2014 and the acquisition of Weilos in fiscal 2015. See Note 5 for additional information about acquisitions by the
Company. For the fiscal year ended December 30, 2017, the change in the carrying amount of goodwill is due to the
impairment charge of its Brazil reporting unit and the effect of exchange rate changes as follows:
Balance as of December 31, 2016
Goodwill impairment
Effect of exchange rate changes
Balance as of December 30, 2017
Finite-lived Intangible Assets
North
America
$ 137,543
0
2,846
$ 140,389
United
Kingdom
1,145
$
0
108
1,253
$
Continental
Europe
$
Other
$ 20,566
(13,323)
(363)
6,880
$
Total
$ 166,138
(13,323)
3,466
$ 156,281
6,884
0
875
7,759
$
In fiscal 2017, the Company corrected the prior year presentation of fully amortized assets that were no longer
in service. Accordingly, the fiscal 2016 disclosures have been revised resulting in a reduction in the gross carrying
amount and the accumulated amortization of capitalized software costs, website development costs and other by
$23,375, $47,193 and $4,290, respectively. The below table reflects the carrying values of finite-lived intangible
assets as of December 30, 2017 and the revised December 31, 2016 carrying values of finite-lived intangible assets:
December 30, 2017
December 31, 2016
Capitalized software costs
Website development costs
Trademarks
Other
Trademarks and other intangible assets
Franchise rights acquired
Total finite-lived intangible assets
Gross
Amortization Amount
Gross
Carrying Accumulated Carrying Accumulated
Amortization
Amount
77,941
$111,617 $
40,543
90,096
10,647
11,231
3,144
3,793
$216,737 $ 170,201 $190,887 $ 132,275
4,551
$221,263 $ 174,727 $195,438 $ 136,826
94,697 $103,362 $
61,125 72,778
10,833 11,092
3,655
3,546
4,526
4,551
4,526
Aggregate amortization expense for finite-lived intangible assets was recorded in the amounts of $36,040,
$35,752 and $34,719, for the fiscal years ended December 30, 2017, December 31, 2016 and January 2, 2016,
respectively. The franchise rights acquired related to the VPM acquisition were amortized ratably over a 2 year
period. The franchise rights acquired related to the Miami Acquisition were amortized ratably over a 3 month
period.
Estimated amortization expense of existing finite-lived intangible assets for the next five fiscal years and
thereafter is as follows:
Fiscal 2018
Fiscal 2019
Fiscal 2020
Fiscal 2021
Fiscal 2022 and thereafter
$
$
$
$
$
25,237
14,273
5,949
1,051
26
F-18
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
7.
Property and Equipment
In fiscal 2017, the Company corrected the prior year presentation of fully depreciated assets that were no
longer in service. Accordingly, the fiscal 2016 disclosures have been revised resulting in a reduction in the gross
carrying amount and the accumulated depreciation and amortization of equipment and leasehold improvements by
$61,357 and $10,831, respectively. The below table reflects the carrying values of property and equipment as of
December 30, 2017 and the revised December 31, 2016 carrying values of property and equipment:
Equipment
Leasehold improvements
Less: Accumulated depreciation and amortization
$
$
December 30,
2017
70,126
71,469
141,595
(93,617)
47,978
$
December 31,
2016
63,597
68,959
132,556
(82,982)
49,574
$
Depreciation and amortization expense of property and equipment for the fiscal years ended December 30,
2017, December 31, 2016 and January 2, 2016 was $14,840, $16,881 and $18,452, respectively.
8.
Long-Term Debt
The components of the Company’s long-term debt were as follows:
December 30, 2017
December 31, 2016
Unamortized
Deferred
Financing
Costs
Unamortized
Debt
Discount
Principal
Balance
Effective
Rate (1)
Principal
Balance
Effective
Rate (1)
New Revolving Credit Facility due
November 29, 2022
Former Tranche B-2 Term Facility due April
2, 2020
New Term Loan Facility due
November 29, 2024
Notes due December 1, 2025
Total
Less: Current Portion
Unamortized Deferred Financing Costs
Unamortized Debt Discount
Total Long-Term Debt
$
25,000 $
0
1,540,000
300,000
1,865,000 $
82,750
11,205
30,433
$ 1,740,612
0 $
0
0
0
4.15%$
0
0.00%
4.76% 2,021,250
4.41%
9,783
1,422
11,205 $
30,433
0
30,433
0.00%
0.00%
4.38%
0
6.84%
0
8.82%
4.96% 2,021,250
21,000
18,951
0
$ 1,981,299
(1)
Includes amortization of deferred financing costs and debt discount. For fiscal 2017, the effective interest rate for the tranche B-2 term
facility of the Company’s then-existing term loan facility was computed based on interest expense incurred over the period for which
borrowings were outstanding. For fiscal 2016, the effective interest rate for the Company’s then-existing revolving facility and tranche B-
1 term facility of the Company’s then-existing term loan facility was computed based on interest expense incurred over the period for
which borrowings were outstanding.
F-19
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
On November 29, 2017, the Company refinanced its then-existing credit facilities (hereinafter referred to as
“the November 2017 debt refinancing”) consisting of $1,930,386 of borrowings under a term loan facility and an
undrawn $50,000 revolving credit facility with $1,565,000 of borrowings under its new credit facilities, consisting
of a $1,540,000 term loan facility, and a $150,000 revolving credit facility (of which $25,000 was drawn upon at the
time of the November 2017 debt refinancing) (collectively the “New Credit Facilities”), and $300,000 in aggregate
principal amount of 8.625% Senior Notes due 2025 (the “Notes”). During the fourth quarter of fiscal 2017, the
Company incurred fees of $53,832 (which included $30,800 of a debt discount) in connection with the November
2017 debt refinancing. In addition, the Company recorded a loss on early extinguishment of debt of $10,524 in
connection thereto. This early extinguishment of debt write-off was comprised of $5,716 of deferred financing fees
paid in connection with the November 2017 debt refinancing and $4,808 of pre-existing deferred financing fees.
Senior Secured Credit Facilities
The New Credit Facilities were issued under a new credit agreement, dated November 29, 2017 (the “Credit
Agreement”) among the Company, as borrower, the lenders party thereto, JPMorgan Chase Bank, N.A. (“JPMorgan
Chase”), as administrative agent and an issuing bank, Bank of America, N.A., as an issuing bank, and Citibank,
N.A., as an issuing bank. The New Credit Facilities consist of (1) $1,540,000 in aggregate principal amount of
senior secured tranche B term loans due in 2024 (the “New Term Loan Facility”) and (2) a $150,000 senior
secured revolving credit facility (which includes borrowing capacity available for letters of credit) due in 2022 (the
“New Revolving Credit Facility”).
As of December 30, 2017, the Company had $1,565,000 of debt outstanding under the New Credit Facilities,
with $123,735 of availability and $1,265 in issued but undrawn letters of credit outstanding under the New
Revolving Credit Facility. The outstanding balance under the New Revolving Credit Facility is included in current
portion of long-term debt on the accompanying consolidated balance sheet as of December 30, 2017 included in
these consolidated financial statements.
All obligations under the Credit Agreement are guaranteed by, subject to certain exceptions, each of the
Company’s current and future wholly-owned material domestic restricted subsidiaries. All obligations under the
Credit Agreement, and the guarantees of those obligations, are secured by substantially all of the assets of the
Company and each guarantor, subject to customary exceptions, including:
•
•
a pledge of 100% of the equity interests directly held by the Company and each guarantor in any
wholly-owned domestic material subsidiary of the Company or any guarantor (which pledge, in the case
of any non-U.S. subsidiary of a U.S. subsidiary, will not include more than 65% of the voting stock of
such first-tier non-U.S. subsidiary), subject to certain exceptions; and
a security interest in substantially all other tangible and intangible assets of the Company and each
guarantor, subject to certain exceptions.
Under the terms of the Credit Agreement, depending on the Company’s Consolidated Leverage Ratio (as
defined in the Credit Agreement), on an annual basis on or about the time the Company is required to deliver its
financial statements for any fiscal year, the Company is obligated to offer to prepay a portion of the outstanding
principal amount of the New Term Loan Facility in an aggregate amount determined by a percentage of its annual
excess cash flow (as defined in the Credit Agreement) (said payment, a “Cash Flow Sweep”).
F-20
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Borrowings under the New Term Loan Facility bear interest at a rate per annum equal to, at the Company’s
option, either (1) an applicable margin plus a base rate determined by reference to the highest of (a) 0.50% per
annum plus the higher of (i) the Federal Funds Effective Rate and (ii) the Overnight Bank Funding Rate as
determined by the Federal Reserve Bank of New York, (b) the prime rate of JPMorgan Chase and (c) the LIBOR
rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted
for certain additional costs, plus 1.00%; provided that such rate is not lower than a floor of 1.75% or (2) an
applicable margin plus a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the
interest period relevant to such borrowing adjusted for certain additional costs, provided that LIBOR is not lower
than a floor of 0.75%. Borrowings under the New Revolving Credit Facility bear interest at a rate per annum equal
to an applicable margin based upon a leverage-based pricing grid, plus, at the Company’s option, either (1) a base
rate determined by reference to the highest of (a) 0.50% per annum plus the higher of (i) the Federal Funds Effective
Rate and (ii) the Overnight Bank Funding Rate as determined by the Federal Reserve Bank of New York, (b) the
prime rate of JPMorgan Chase and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar
deposits for an interest period of one month adjusted for certain additional costs, plus 1.00% or (2) a LIBOR rate
determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such
borrowing adjusted for certain additional costs. As of December 30, 2017, the applicable margins for the LIBOR
rate borrowings under the New Term Loan Facility and the New Revolving Credit Facility were 4.75% and 2.75%,
respectively.
On a quarterly basis, the Company pays a commitment fee to the lenders under the New Revolving Credit
Facility in respect of unutilized commitments thereunder, which commitment fee fluctuates depending upon the
Company’s Consolidated Leverage Ratio. Based on the Company’s Consolidated Leverage Ratio as of December
30, 2017, the commitment fee was 0.50% per annum.
The Credit Agreement contains other customary terms, including (1) representations, warranties and
affirmative covenants, (2) negative covenants, including limitations on indebtedness, liens, mergers, acquisitions,
asset sales, investments, distributions, prepayments of subordinated debt, amendments of material agreements
governing subordinated indebtedness, changes to lines of business and transactions with affiliates, in each case
subject to baskets, thresholds and other exceptions, and (3) customary events of default.
The availability of certain baskets and the ability to enter into certain transactions are also subject to
compliance with certain financial ratios. In addition, the New Revolving Credit Facility includes a maintenance
covenant that will require, in certain circumstances, compliance with certain first lien secured net leverage ratios.
As of December 30, 2017, the Company was in compliance with all financial covenants in the Credit
Agreement governing the New Credit Facilities.
Senior Notes
The Notes were issued pursuant to an Indenture, dated November 29, 2017 (the “Indenture”), among the
Company, the guarantors named therein and The Bank of New York Mellon, as trustee. The Indenture contains
customary covenants, events of default and other provisions for an issuer of non-investment grade debt securities.
These covenants include limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments,
distributions, prepayments of subordinated debt and transactions with affiliates, in each case subject to baskets,
thresholds and other exceptions.
F-21
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
The Notes accrue interest at a rate per annum equal to 8.625% and are due on December 1, 2025. Interest on
the Notes is payable semi-annually on June 1 and December 1 of each year, beginning on June 1, 2018. On or after
December 1, 2020, the Company may on any one or more occasions redeem some or all of the Notes at a purchase
price equal to 104.313% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to, but not
including, the redemption date, such optional redemption price decreasing to 102.156% on or after December 1,
2021 and to 100.000% on or after December 1, 2022. Prior to December 1, 2020, the Company may on any one or
more occasions redeem up to 40% of the aggregate principal amount of the Notes with an amount not to exceed the
net proceeds of certain equity offerings at 108.625% of the aggregate principal amount thereof, plus accrued and
unpaid interest, if any, to, but not including, the redemption date. Prior to December 1, 2020, the Company may
redeem some or all of the Notes at a make-whole price plus accrued and unpaid interest, if any, to, but not including,
the redemption date. If a change of control occurs, the Company must offer to purchase for cash the Notes at a
purchase price equal to 101% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to, but
not including, the purchase date. Following the sale of certain assets and subject to certain conditions, the Company
must offer to purchase for cash the Notes at a purchase price equal to 100% of the principal amount of the Notes,
plus accrued and unpaid interest, if any, to, but not including, the purchase date. The Notes are guaranteed on a
senior unsecured basis by the Company’s subsidiaries that guarantee the New Credit Facilities.
Outstanding Debt
At December 30, 2017, the Company had $1,865,000 outstanding under the New Credit Facilities, consisting
of the New Term Loan Facility of $1,540,000 and $25,000 drawn down on the New Revolving Credit Facility, and
$300,000 in aggregate principal amount of Notes issued and outstanding.
At December 30, 2017, the Company’s debt consisted of both fixed and variable-rate instruments. At
December 31, 2016, the Company’s debt consisted entirely of variable-rate instruments. An interest rate swap was
entered into to hedge a portion of the cash flow exposure associated with the Company’s variable-rate borrowings.
See Note 18 for information on the Company’s interest rate swap. The weighted average interest rate (which
includes amortization of deferred financing costs and debt discount) on the Company’s outstanding debt, exclusive
of the impact of the swap, was approximately 7.12% and 4.41% per annum based on interest rates at December 30,
2017 and December 31, 2016, respectively. The weighted average interest rate (which includes amortization of
deferred financing costs and debt discount) on the Company’s outstanding debt, including the impact of the swap,
was approximately 7.34% and 5.32% per annum based on interest rates at December 30, 2017 and December 30,
2016, respectively.
Maturities
At December 30, 2017, the aggregate amounts of the Company’s existing long-term debt maturing in each of
the next five fiscal years and thereafter were as follows:
2018
2019
2020
2021
2022
2023 and thereafter
$
82,750
77,000
96,250
77,000
77,000
1,455,000
$ 1,865,000
F-22
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
9.
Treasury Stock
On October 9, 2003, the Company’s Board of Directors authorized and the Company announced a program to
repurchase up to $250,000 of the Company’s outstanding common stock. On each of June 13, 2005, May 25, 2006
and October 21, 2010, the Company’s Board of Directors authorized and the Company announced adding $250,000
to the 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 Holdings Sp. z o.o., Succursale de
Luxembourg and its parents and subsidiaries under the program. The repurchase program currently has no expiration
date.
During the fiscal years ended December 30, 2017, December 31, 2016 and January 2, 2016, the Company
purchased no shares of its common stock in the open market under the repurchase program. As of the end of fiscal
2017, $208,933 remained available to purchase shares of the Company’s common stock under the repurchase
program.
10. Earnings Per Share
Basic earnings per share (“EPS”) are calculated utilizing the weighted average number of common shares
outstanding during the periods presented. Diluted EPS is calculated utilizing the weighted average number of
common shares outstanding during the periods presented 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:
Numerator:
Net income attributable to
Weight Watchers International, Inc.
Denominator:
Weighted average shares of common stock
outstanding
Effect of dilutive common stock equivalents
Weighted average diluted common shares
outstanding
Earnings per share attributable to Weight
Watchers International, Inc.
December 30, December 31, January 2,
2017
2016
2016
$
163,514
$
67,699 $ 32,945
64,329
3,919
63,742
2,155
58,369
597
68,248
65,897
58,966
Basic
Diluted
$
$
2.54
2.40
$
$
1.06 $
1.03 $
0.56
0.56
The number of anti-dilutive common stock equivalents excluded from the calculation of the weighted average
number of common shares for diluted EPS was 1,427, 1,536 and 1,699 for the fiscal years ended December 30,
2017, December 31, 2016 and January 2, 2016, respectively.
F-23
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
11.
Stock Plans
Incentive Compensation Plans, Inducement Option and Winfrey Option
On May 6, 2008 and May 12, 2004, respectively, the Company’s shareholders approved the 2008 Stock
Incentive Plan (the “2008 Plan”) and the 2004 Stock Incentive Plan (the “2004 Plan”). On May 6, 2014, the
Company’s shareholders approved the 2014 Stock Incentive Plan (as amended and restated, the “2014 Plan”, and
together with the 2004 Plan and the 2008 Plan, the “Stock Plans”), which replaced the 2008 Plan and 2004 Plan for
all equity-based awards granted on or after May 6, 2014. The 2014 Plan is designed to promote the long-term
financial interests and growth of the Company by attracting, motivating and retaining employees with the ability to
contribute to the success of the business and to align compensation for the Company’s employees over a multi-year
period directly with the interests of the shareholders of the Company. The Company’s Board of Directors or a
committee thereof administers the 2014 Plan.
Under the 2014 Plan, grants may take the following forms at the Company’s Board of Directors’
Compensation and Benefit Committee’s (the “Compensation Committee”) discretion: non-qualified stock options,
incentive stock options, stock appreciation rights, restricted stock units (“RSUs”), restricted stock and other stock-
based awards. As of May 9, 2017, the maximum number of shares of common stock available for grant under the
2014 Plan was 8,500, subject to increase and adjustment as set forth in the 2014 Plan.
Under the 2014 Plan, the Company also grants fully-vested shares of its common stock to certain members of
its Board of Directors. Additionally, the Company granted such shares to director members of the Interim Office of
the Chief Executive Officer. While these shares are fully vested, the directors are restricted from selling these shares
while they are still serving on the Company’s Board of Directors. During the fiscal years ended December 30, 2017,
December 31, 2016 and January 2, 2016, the Company granted to members of the Company’s Board of Directors an
aggregate of 30, 36 and 50 fully-vested shares, respectively, and recognized compensation expense of $664, $451
and $507, respectively. During the fiscal year ended December 30, 2017, the Company granted to director members
of the Interim Office of the Chief Executive Officer an aggregate of 40 fully vested shares and recognized
compensation expense of $604.
In fiscal 2017, as part of an initial equity award, the Company granted a stock option to purchase 500 shares of
its common stock (the “Inducement Option”) to its new President and Chief Executive Officer upon commencement
of her employment. The Inducement Option vests proportionately over four years on each anniversary of the grant
date and expires on the seven-year anniversary of the grant date. While the Inducement Option was granted in
reliance on an employment inducement exemption and not awarded pursuant to the 2014 Plan, it is subject to the
same terms and conditions of the 2014 Plan.
The Company’s long-term equity incentive compensation program has historically included time-vesting non-
qualified stock option and/or restricted stock unit (including performance-based stock unit with both time- and
performance-vesting criteria (“PSUs”)) awards.
From time to time, the Company has granted fully-vested shares of its common stock to individuals in
connection with special circumstances. In fiscal 2015, the Company granted an aggregate of 105 fully-vested shares
of its common stock to individuals under such special circumstances. In fiscal 2015, the Company also granted
special performance-based stock option awards.
Under the Winfrey Option Agreement, in fiscal 2015, the Company granted Ms. Winfrey a fully-vested non-
qualified stock option to purchase 3,513 shares of its common stock as more fully described in Note 4.
F-24
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
The Company issues common stock for share-based compensation awards from treasury stock. The total
compensation cost that has been charged against income for share-based compensation awards was $14,949, $6,527,
and $24,771 for the fiscal years ended December 30, 2017, December 31, 2016 and January 2, 2016, respectively.
Such amounts have been included as a component of selling, general and administrative expenses. The total income
tax benefit recognized in the income statement for all share-based compensation awards was $3,580, $1,849 and
$8,170 for the fiscal years ended December 30, 2017, December 31, 2016, and January 2, 2016, respectively. The
tax benefits realized from options exercised and RSUs and PSUs vested totaled $7,210, $2,114 and $274 for the
fiscal years ended December 30, 2017, December 31, 2016 and January 2, 2016, respectively. No compensation
costs were capitalized. As of December 30, 2017, there was $46,735 of total unrecognized compensation cost related
to the Inducement Option and stock options, RSUs and PSUs granted under the Stock Plans. That cost is expected to
be recognized over a weighted-average period of approximately 1.9 years.
Stock Option Awards Under Stock Plans and Inducement Option
Stock Option Awards with Time-Vesting Criteria
Stock options with time-vesting criteria (“Time-Vesting Options”) are exercisable based on the terms and
conditions outlined in the applicable agreement for each award. Time-Vesting Options outstanding at December 30,
2017 and December 31, 2016 vest over a period of three to five years and the expiration term is seven to ten years.
Time-Vesting Options outstanding at December 30, 2017 and December 31, 2016 have an exercise price between
$3.97 and $63.59 per share.
The fair value of each of these option awards is estimated on the date of grant using the Black-Scholes option
pricing model with the weighted average assumptions noted in the following table. Expected volatility is based on
the historical volatility of the Company’s common stock. Since the Company’s option exercise history is limited, it
has estimated the expected term of these options (other than the options with a seven-year term) to be the midpoint
between the vesting period and the contractual term of each option. For options with a seven-year contractual term,
the expected term is equal to 7 years. The risk-free interest rate is based on the U.S. Treasury yield curve in effect on
the date of grant which most closely corresponds to the expected term of the Time-Vesting Options. The dividend
yield is based on the Company’s historic average dividend yield.
Dividend yield
Volatility
Risk-free interest rate
Expected term (years)
December 30,
December 31,
2017
0.0%
51.3%-51.7%
2.17%
6.0-7.0
2016
0.0%
49.6%-51.4%
1.24%-2.26%
6.0
January 2,
2016
0.0%
41.0%
1.84%-1.89%
6.0
Stock Option Awards with Time- and Performance-Vesting Criteria
The Company had awarded stock options with both time- and performance-vesting criteria (“T&P Options”).
As of the end of fiscal 2017 and fiscal 2016, there were no outstanding T&P Options. The T&P Options were
exercisable based on the terms outlined in the applicable agreements for each award. During fiscal 2015, the
Company granted 37 T&P Options to certain employees that would have vested based on the achievement of both
time- and performance-vesting criteria. The time-vesting criteria would have been 100% satisfied on the third
anniversary of the date of the grant and the performance-vesting criteria was contingent upon meeting or exceeding
certain stock price hurdles. With respect to the performance-vesting criteria, the stock options would have fully
vested in 20% increments upon the first date that the average closing stock price for the 20 consecutive preceding
trading days was equal to or greater than specified stock price hurdles. The fair value of the T&P Options was
estimated on the date of grant and was based on the likelihood of the Company achieving the performance
conditions. The Company estimated the fair value using a Monte Carlo simulation that used various assumptions
that included expected volatility, a risk-free rate and an expected term.
F-25
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Expected volatility was based on the historical volatility of the Company’s common stock. The risk-free
interest rate was based on the U.S. Treasury yield curve in effect on the date of grant which most closely
corresponds to the performance measurement period. The expected term represented the period from the grant date
to the end of the five year performance period. Compensation expense on T&P Options was recognized ratably over
the three year required service period as this period was longer than the derived service period calculated by the
Monte Carlo simulation.
Dividend yield
Volatility
Risk-free interest rate
Expected term (years)
December 30,
2017
0%
0%
0.00%
0.0
December 31,
January 2,
2016
0%
0%
0.00%
0.0
2016
0%
40.5%
1.60%
5.0
On May 7, 2015, the Company’s shareholders approved an amendment to the 2014 Plan to permit a one-time
stock option exchange program under which the Company would offer eligible employees the opportunity to
exchange certain eligible T&P Options on a (a) two-for-one basis for new stock options for all eligible employees,
other than the Company’s then-Chief Executive Officer (i.e., so that the new stock options would cover half as many
shares as the corresponding surrendered options) and (b) 3.5- for-one basis for new stock options for the Company’s
then-Chief Executive Officer (i.e., so that the new stock options would cover a number of shares equal to the
quotient of the number of shares covered by the corresponding surrendered options divided by 3.5). The option
exchange program was designed to create better incentives for employees to remain with the Company and
contribute to the attainment of its business and financial objectives.
On May 22, 2015, the Company launched a tender offer in connection with the option exchange program
which expired on June 22, 2015. Pursuant to the offer, employees tendered options to purchase 1,700 shares of
common stock (representing 99.6% of the total shares of common stock underlying the options eligible for
exchange) with a weighted-average exercise price of $24.68 per share. The Company cancelled and replaced those
options on June 22, 2015 with options to purchase 734 shares of common stock with an exercise price of $5.25 per
share, which was the closing price per share of the Company’s common stock on the New York Stock Exchange on
June 22, 2015. The replacement options vest over three years, with 25% vesting on each of the first and second
anniversaries of the date of grant and 50% vesting on the third anniversary of the date of grant. The option exchange
resulted in an incremental stock option expense of $1,599, which was determined by comparing the fair value of the
T&P Option as calculated based on a Monte Carlo simulation, to the fair value of the replacement options, as
calculated using the Black-Scholes option pricing model, for the eligible options at the time of exchange. This
incremental expense, along with the unamortized expense associated with the cancelled options, is being recognized
ratably over the new vesting period of the replacement options, which is three years.
F-26
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Option Activity
A summary of all option activity under the Stock Plans and with respect to the Inducement Option and the
Winfrey Option (see Note 4 for additional disclosure regarding the Winfrey Option) for the fiscal year ended
December 30, 2017 is presented below:
Outstanding at December 31, 2016
Granted
Exercised
Cancelled
Outstanding at December 30, 2017
Exercisable at December 30, 2017
Weighted-
Average
Exercise
Shares
Price
5,113 $
1,302 $
(275) $
(256) $
5,884 $
4,214 $
11.76
45.95
13.94
35.86
18.17
10.60
Weighted-
Average
Remaining
Contractual
Life (Yrs.)
Aggregate
Intrinsic
Value
7.3 $ 163,681
7.4 $ 144,138
The weighted-average grant-date fair value of all options granted was $15.21, $5.79 and $4.86, for the fiscal
years ended December 30, 2017, December 31, 2016 and January 2, 2016, respectively. The total intrinsic value of
Time-Vesting Options exercised was $5,930, $117 and $17 for the fiscal years ended December 30, 2017,
December 31, 2016 and January 2, 2016, respectively.
Cash received from Time-Vesting Options exercised during the fiscal years ended December 30, 2017,
December 31, 2016 and January 2, 2016 was $5,475, $139 and $95, respectively.
Restricted Stock Unit Awards with Time-Vesting Criteria
RSUs are exercisable based on the terms outlined in the applicable award agreements. The RSUs generally
vest over a period of two to four years. The fair value of RSUs is determined using the closing market price of the
Company’s common stock on the date of grant. A summary of RSU activity under the Stock Plans for the fiscal year
ended December 30, 2017 is presented below:
Outstanding at December 31, 2016
Granted
Vested
Forfeited
Outstanding at December 30, 2017
Weighted-
Average
Grant-Date Fair
Value
14.15
31.58
15.21
15.74
24.22
Shares
1,138 $
682 $
(671) $
(72) $
1,077 $
The weighted-average grant-date fair value of RSUs granted was $31.58, $12.68 and $5.55 for the fiscal years
ended December 30, 2017, December 31, 2016 and January 2, 2016, respectively. The total fair value of RSUs
vested during the fiscal years ended December 30, 2017, December 31, 2016 and January 2, 2016 was $10,211,
$5,145 and $1,804, respectively.
F-27
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Performance-Based Stock Unit Awards with Time- and Performance-Vesting Criteria
In fiscal 2017, the Company granted 98.5 PSUs in May 2017 and 47.9 PSUs in July 2017, all having both
time- and performance-vesting criteria. The time-vesting criteria for these PSUs will be satisfied on May 15, 2020.
The performance-vesting criteria for these PSUs will be satisfied if the Company has achieved, in the case of the
May 2017 awards, certain annual operating income objectives and, in the case of the July 2017 award, certain net
income or operating income objectives, as applicable for each performance year, in each fiscal year over a three-year
period (i.e., fiscal 2017 through fiscal 2019) (each, a “2017 Award Performance Year”). When the performance
measure has been met for a particular 2017 Award Performance Year, that portion of units is “banked” for potential
issuance following the satisfaction of the time-vesting criteria. Such portion of units to be “banked” shall be equal to
(x) the target number of PSUs granted for the applicable 2017 Award Performance Year multiplied by (y) the
applicable achievement percentage, rounded down to avoid the issuance of fractional shares. If all of these awards
fully meet the time-vesting criteria and the minimum performance condition is attained in each 2017 Award
Performance Year, depending on the Company’s performance achievement, the number of shares of the Company’s
common stock issuable under these PSUs range from 113.9 to 244.0. The Company is currently accruing
compensation expense to what it believes is the probable outcome upon vesting.
Additionally, in fiscal 2016, the Company granted 289.9 PSUs having both time- and performance-vesting
criteria. The time-vesting criteria for these PSUs will be satisfied on the third anniversary of the grant date (i.e.,
May 16, 2019). The performance-vesting criteria for these PSUs will be satisfied if the Company has achieved a
Debt Ratio (as defined in the applicable term sheet for these PSU awards and based on a Debt to EBITDAS ratio
(each, as defined therein)) at levels at or above a “threshold” level performance of 4.5x over the performance period
from December 31, 2017 to December 29, 2018. Pursuant to these awards, the number of PSUs that become vested,
if any, upon the satisfaction of both vesting criteria, shall be equal to (x) the target number of PSUs granted
multiplied by (y) the applicable Debt Ratio achievement percentage, rounded down to avoid the issuance of
fractional shares. If all of these awards fully meet the time-vesting criteria and the minimum performance condition
is attained, depending on the Company’s Debt Ratio achievement, the number of shares of the Company’s common
stock issuable under these PSUs range from 61.1 to 305.4. The Company is currently accruing compensation
expense to what it believes is the probable outcome upon vesting.
The fair value of PSUs is determined using the closing market price of the Company’s common stock on the
date of grant. A summary of PSU activity under the 2014 Plan for the fiscal year ended December 30, 2017 is
presented below:
Outstanding at December 31, 2016
Granted
Vested
Forfeited
Outstanding at December 30, 2017
Weighted-
Average
Grant-Date Fair
Value
Shares
198 $
146 $
0 $
(14) $
330 $
13.19
27.22
0
13.20
19.42
The weighted-average grant-date fair value of PSUs granted was $27.22 and $13.19 during the fiscal years
ended December 30, 2017 and December 31, 2016, respectively. The total fair value of PSUs vested during the
fiscal years ended December 30, 2017 and December 31, 2016 was $0 and $8, respectively.
12.
Income Taxes
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) was enacted. The 2017 Tax
Act includes a number of changes to existing U.S. tax laws that impact the Company, most notably a reduction of
the U.S. corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017, the transition
of U.S. international taxation from a worldwide tax system to a territorial tax system, a one-time transition tax on the
F-28
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
mandatory deemed repatriation of cumulative foreign earnings as of December 30, 2017 and the acceleration of
depreciation for certain assets placed into service after September 27, 2017.
The Company recognized the income tax effects of the 2017 Tax Act in its fiscal 2017 financial statements in
accordance with the guidance issued by the staff of the U.S. Securities and Exchange Commission, which provides
for the application of income taxes in the reporting period in which the 2017 Tax Act was signed into law. As such,
the Company’s financial results reflect the income tax effects of the 2017 Tax Act for which the accounting under
the guidance is complete and the provisional amounts for those specific income tax effects of the 2017 Tax Act for
which the accounting under the guidance is not final but a reasonable estimate could be determined. The Company
did not identify items for which the income tax effects of the 2017 Tax Act have not been completed and a
reasonable estimate could not be determined as of December 30, 2017.
The Company recorded a $56,560 tax benefit in the fourth quarter of fiscal 2017, its best estimate based on the
Company’s understanding of the 2017 Tax Act and the guidance available as of the date of this filing. The tax
benefit of $56,560 was comprised of the following items:
Reduction of the U.S. Corporate Income Tax Rate
The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in
which the temporary differences are expected to be recovered or paid. Accordingly, the Company’s deferred tax
liabilities were remeasured to reflect the reduction in the U.S. corporate income tax rate from 35% to 21%, resulting
in a $68,654 provisional income tax benefit for the fiscal year ended December 30, 2017 and a corresponding
$68,654 provisional decrease in net deferred tax liabilities as of December 30, 2017. The Company’s estimate is
based upon its best interpretation of the 2017 Tax Act and may change as additional guidance becomes available and
further analysis is performed.
Valuation Allowance on Foreign Tax Credit Carryforwards
As of December 30, 2017, the Company's federal foreign tax credit carryforwards for tax return purposes were
$8,964. The federal foreign tax credit carryovers expire through 2026. However, as a result of the new tax law
changing the U.S. from a worldwide system of taxation to a territorial system, the Company has determined there is
not sufficient future foreign source income projected to utilize these credits. Accordingly, in the fourth quarter of
fiscal 2017, the Company recorded a full valuation allowance against its foreign tax credit carryforward. The
estimate of future foreign source income incorporates assumptions made based upon the best available interpretation
of the 2017 Tax Act and may change as the Company receives additional clarification and implementation guidance.
Other items
In the fourth quarter of fiscal 2017 the Company also recorded a net charge of $3,130 from other items,
including $742 related to the transition tax on foreign earnings. The provisional estimate of the transition tax
requires further analysis regarding the amount and composition of the Company’s historical foreign earnings.
F-29
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
The following tables summarize the Company’s consolidated provision for U.S. federal, state and foreign
taxes on income:
December 30, December 31, January 2,
2016
2017
2016
Current:
U.S.federal
State
Foreign
Deferred:
U.S. federal
State
Foreign
Total tax provision
$
$
$
$
$
9,224 $
1,993
18,762
29,979 $
(15,254) $
604
20,191
5,541 $
(51,788) $
481
3,091
(48,216) $
(18,237) $
10,980 $
1,877
(1,764)
11,093 $
16,634 $
(6,862)
1,859
15,740
10,737
10,756
1,890
(548)
12,098
22,835
The components of the Company’s consolidated income before income taxes consist of the following:
Domestic
Foreign
December 30, December 31, January 2,
2017
53,045 $
92,035
145,080 $
2016
26,367 $
57,760
84,127 $
2016
6,299
49,315
55,614
$
$
The effective tax rates for the fiscal years ended December 30, 2017, December 31, 2016 and January 2, 2016
were (12.6%), 19.8% and 41.1%, respectively. The difference between the U.S. federal statutory tax rate and the
Company’s consolidated effective tax rate is as follows:
The Company’s effective tax rate for the fiscal year ended December 30, 2017 was impacted by The 2017 Tax
Act which benefited its tax expense by $56,560 and was comprised of the following items: (i) a $68,654 tax benefit
related to the revaluation of deferred tax liabilities to reflect the decrease in the corporate tax rate from 35% to 21%
(ii) a $8,964 charge to record a valuation allowance against foreign tax credit carryforwards that as a result of the
2017 Tax Act are no longer expected to be realized, and (iii) a net charge of $3,130 related to other 2017 Tax Act
items, which includes the transition tax on foreign earnings. In addition, the effective tax rate for fiscal 2017 was
impacted by the following one-time discrete items (i) an $11,633 tax benefit related to the cessation of operations of
the Company’s Spanish subsidiary; (ii) a $3,735 tax benefit due to a change in estimate related to the availability of
certain foreign tax credits and (iii) a $2,255 tax benefit related to the reversal of tax reserves resulting from an
updated transfer pricing study.
F-30
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
The Company’s effective tax rate for fiscal year ended December 31, 2016 was affected by a net tax benefit
arising from a research and development tax credit and a Section 199 deduction for the tax years 2012 through 2016
and the reversal of a valuation allowance related to tax benefits for foreign losses that are now expected to be
realized. These benefits were partially offset by income tax expenses recorded for out-of-period adjustments.
December 30,
2017
December 31,
2016
January 2,
2016
U.S. federal statutory tax rate
State income taxes (net of federal benefit)
Cessation of Spanish operations
Research and development credit
Tax (windfall) shortfall on share-based awards
Reserves for uncertain tax positions
Tax Rate Changes
Valuation adjustment related to foreign tax credits
Increase in valuation allowance due to net
operating loss
Impairment
Impact of Foreign Ops
Out-of-period adjustments
Other
Effective Tax Rate
35.0%
2.5%
(8.0%)
(1.3%)
(1.1%)
(0.2%)
(49.6%)
3.5%
3.0%
3.2%
(0.7%)
0.0%
1.1%
(12.6%)
35.0%
2.0%
0.0%
(19.5%)
0.0%
2.9%
0.0%
(2.3%)
0.0%
0.0%
0.0%
2.6%
(0.9%)
19.8%
35.0%
3.8%
0.0%
0.0%
0.0%
3.5%
0.0%
(2.2%)
0.0%
0.0%
0.0%
4.5%
(3.5%)
41.1%
The deferred tax assets and liabilities recorded on the Company’s consolidated balance sheets are as follows:
December 30, December 31,
2017
2016
Provision for estimated expenses
Depreciation
Operating loss carryforwards
Salaries and wages
Share-based compensation
Foreign tax credit carryforwards
Other
Other comprehensive income
Less: valuation allowance
Total deferred tax assets
Other
Amortization
Total deferred tax liabilities
Net deferred tax liabilities
$
2,307 $
1,005
17,424
1,579
8,016
8,964
8,991
4,797
(22,760)
30,323 $
(1,025) $
(166,257)
4,269
2,230
24,560
2,832
13,374
4,075
12,154
18,001
(18,270)
63,225
(1,209)
(229,559)
$ (167,282) $ (230,768)
$ (136,959) $ (167,543)
$
$
Certain foreign operations of the Company have generated net operating loss carryforwards. If 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, a valuation allowance has been recorded. As of December 30, 2017 and
December 31, 2016, various foreign subsidiaries had net operating loss carryforwards of approximately $69,359 and
$98,546, respectively, most of which can be carried forward indefinitely.
As a result of the 2017 Tax Act changing the U.S. to a territorial tax system, the Company will no longer
assert that any of its undistributed foreign earnings are permanently reinvested. We have considered whether there
would be any potential future costs of not asserting indefinite reinvestment and found none.
F-31
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Balance at beginning of year
Additions based on tax positions related to the
current year
Reductions for tax positions of prior years
Balance at end of year
December 30, December 31, January 2,
2017
2016
2016
$
8,979 $
7,698 $
6,268
2,539
(2,877)
8,641 $
4,580
(3,299)
8,979 $
2,106
(676)
7,698
$
At December 30, 2017, the total amount of unrecognized tax benefits that, if recognized, would affect the
Company’s effective tax rate is $8,675. As of December 30, 2017, given the nature of the Company’s uncertain tax
positions, it is reasonably possible that there will not be a significant change in the Company’s uncertain tax benefits
within the next twelve months.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense.
The Company had $515 and $452 of accrued interest and penalties at December 30, 2017 and December 31, 2016,
respectively. The Company recognized $63, $(777), and $(266) in interest and penalties during the fiscal years
ended December 30, 2017, December 31, 2016 and January 2, 2016, respectively.
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various
state and foreign jurisdictions. At December 30, 2017, with few exceptions, the Company was no longer subject to
U.S. federal, state or local income tax examinations by tax authorities for years prior to 2014, or non-U.S. income
tax examinations by tax authorities for years prior to 2012.
13. Employee Benefit Plans
The Company sponsors the Third Amended and Restated Weight Watchers Savings Plan (the “Savings Plan”)
for salaried and certain hourly US employees of the Company. The Savings Plan is a defined contribution plan that
provides for employer matching contributions of 50% of the employee’s tax deferred contributions up to 6% of an
employee’s eligible compensation for the fiscal years ended December 30, 2017 and December 31, 2016 and 100%
of the employee’s tax deferred contributions up to 3% of an employee’s eligible compensation for the fiscal year
ended January 2, 2016. Expense related to these contributions for the fiscal years ended December 30, 2017,
December 31, 2016 and January 2, 2016 was $2,676, $1,945 and $2,454, respectively.
During fiscal 2014, the Company received a favorable determination letter from the IRS that qualifies the
Savings Plan under Section 401(a) of the Internal Revenue Code.
Pursuant to the Savings Plan, the Company also makes profit sharing contributions for all full-time salaried
US employees who are eligible to participate in the Savings Plan (except for certain personnel above a determined
compensation level). The profit sharing contribution is 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
Savings Plan also has a discretionary supplemental profit sharing employer contribution component that is
determined annually by the Compensation and Benefits Committee of the Company’s Board of Directors. Expense
related to these contributions for the fiscal years ended December 30, 2017, December 31, 2016 and January 2, 2016
was $1,195, $1,027 and $733, respectively.
F-32
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
For certain US personnel above a determined compensation level, the Company sponsors the Second
Amended and Restated Weight Watchers Executive Profit Sharing Plan (“EPSP”). Under the IRS definition, the
EPSP 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 EPSP provides for a
guaranteed employer contribution on behalf of each participant based on the participant’s age and a percentage of
the participant’s eligible compensation. The EPSP has a discretionary supplemental employer contribution
component that is determined annually by the Compensation and Benefits Committee of the Company’s Board of
Directors.
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 30, 2017,
December 31, 2016 and January 2, 2016 was $2,382, $1,915 and $1,950, respectively.
14. Cash Flow Information
In fiscal 2017, the Company corrected the prior year presentation of the cash paid for interest expense.
Accordingly, the fiscal 2016 disclosure has been revised resulting in an addition of $24,365 to cash paid for interest
expense to reflect the correct amount.
Net cash paid during the year for:
Interest expense
Income taxes
December 30, December 31, January 2,
2017
2016
2016
$
$
115,233 $
27,282 $
112,942 $ 117,602
25,566
25,516 $
Noncash investing and financing activities were as
follows:
Fair value of net assets acquired in connection
with acquisitions
Change in Capital expenditures and Capitalized
software included in accounts payable and
accrued expenses
$
$
0 $
305 $
1,439
(3,450) $
2,098 $
(1,969)
15. Commitments and Contingencies
Raymond Roberts v. Weight Watchers International, Inc.
On January 7, 2016, an OnlinePlus member filed a putative class action complaint against the Company in the
Supreme Court of New York, New York County, asserting class claims for breach of contract and violations of the
New York General Business Law. On February 5, 2016, the Company removed the case to the United States District
Court, Southern District of New York. On March 18, 2016, the plaintiff filed an amended complaint, alleging that,
as a result of the temporary glitches in the Company’s website and app in November and December 2015, the
Company has: (1) breached its Subscription Agreement with its OnlinePlus members; and (2) engaged in deceptive
acts and practices in violation of Section 350 of the New York General Business Law. The plaintiff is seeking
unspecified actual, punitive and statutory damages, as well as his attorneys’ fees and costs incurred in connection
with this action. The Company filed a motion to dismiss on May 6, 2016. The plaintiff filed his opposition papers on
June 9, 2016 and the Company filed its reply papers on June 23, 2016. The Court granted the Company’s motion to
dismiss on November 14, 2016. On November 16, 2016, the plaintiff filed a timely notice of appeal of the Court’s
decision to the Second Circuit Court of Appeals and on January 31, 2017, the plaintiff filed his brief in support of
appeal. The Company filed its opposition brief on April 5, 2017, and the plaintiff filed his reply brief on April 25,
2017. On October 25, 2017, the Second Circuit conducted oral arguments on the plaintiff’s appeal. On November 2,
2017, the Second Circuit issued its decision denying the plaintiff’s appeal and affirming the lower court’s dismissal
of the case. The plaintiff had until November 16, 2017 to file a petition for a rehearing with the Second Circuit, or
until January 31, 2018 to file a petition for appeal with the United States Supreme Court. The plaintiff failed to take
either action, and the matter is now closed.
F-33
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Other Litigation Matters
Due to the nature of the Company’s activities, it is also, at times, subject to pending and threatened legal
actions that arise out of the ordinary course of business. In the opinion of management, the disposition of any such
matters is not expected, individually or in the aggregate, to have a material adverse effect on the Company’s results
of operations, financial condition or cash flows.
Commitments
Minimum commitments under non-cancelable obligations, primarily for office and rental facilities operating
leases at December 30, 2017, consist of the following:
2018
2019
2020
2021
2022
2023 and thereafter
Total
$
$
45,651
33,954
23,930
18,960
12,690
81,829
217,014
Total rent expense charged to operations under these operating leases for the fiscal years ended December 30,
2017, December 31, 2016, and January 2, 2016 was $42,259, $40,927 and $42,133, respectively.
16.
Segment and Geographic Data
The Company has four reportable segments based on an integrated geographical structure as follows: North
America, United Kingdom, Continental Europe (CE) and Other. Other consists of Australia, New Zealand and
emerging markets operations and franchise revenues and related costs, all of which have been grouped together as if
they were a single reportable segment because they do not meet any of the quantitative thresholds and are
immaterial for separate disclosure. To be consistent with the information that is presented to the chief operating
decision maker, the Company does not include intercompany activity in the segment results.
Information about the Company’s reportable segments is as follows:
$
January 2,
2016
December 30,
2017
910,349 $
99,989
239,223
57,350
Total Revenue for the Year Ended
December 31,
2016
798,827 $ 755,396
124,773
100,808
229,147
210,590
55,103
54,677
$ 1,306,911 $ 1,164,902 $ 1,164,419
North America
United Kingdom
Continental Europe
Other
Total revenue
F-34
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Net Income for the Year Ended
December 31,
2016
December 30,
2017
January 2,
2016
Segment operating income:
North America
United Kingdom
Continental Europe
Other
Total segment operating income
General corporate expenses
Interest expense
Other expense, net
Early extinguishment of debt, net
(Benefit from) provision for income taxes
Net income
Net loss attributable to the noncontrolling interest
Net income attributable to Weight Watchers
International, Inc.
$
247,587 $
19,939
73,689
(4,358)
336,857
69,552
112,784
472
8,969
(18,237)
163,317
197
175,290 $ 140,579
24,310
14,199
62,364
51,096
8,007
8,813
235,260
249,398
67,202
48,587
121,843
115,160
2,027
1,524
(11,426)
0
22,835
16,634
32,779
67,493
166
206
$
163,514 $
67,699 $
32,945
North America
United Kingdom
Continental Europe
Other
Total segment depreciation and amortization
General corporate depreciation and amortization
Depreciation and amortization
$
Depreciation and Amortization for the Year
Ended
December 31,
2016
41,718 $
971
1,621
815
45,125
13,624
58,749 $
December 30,
2017
39,501 $
1,205
1,203
626
42,535
14,457
56,992 $
January 2,
2016
47,128
766
1,861
1,473
51,228
8,829
60,057
$
The following tables present 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 US export sales.
January 2,
2016
December 30,
2017
Revenues for the Year Ended
December 31,
2016
605,332 $ 587,801
349,567
343,789
127,291
125,508
99,760
90,273
$ 1,306,911 $ 1,164,902 $ 1,164,419
$ 664,957 $
416,722
137,855
87,377
Meeting Fees
Online Subscription Revenues
In-meeting product sales
Licensing, franchise royalties and other
F-35
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
United States
Canada
United Kingdom
Continental Europe
Other
United States
Canada
United Kingdom
Continental Europe
Other
January 2,
2016
December 30,
2017
Revenues for the Year Ended
December 31,
2016
743,668 $ 700,972
54,277
55,159
124,773
100,808
229,147
210,590
55,250
54,677
$ 1,306,911 $ 1,164,902 $ 1,164,419
$ 846,249 $
64,100
99,989
239,223
57,350
December 30,
2017
Long-Lived Assets
December 31,
2016
43,714 $
2,730
1,899
716
515
49,574 $
42,114 $
2,563
1,920
642
739
47,978 $
January 2,
2016
51,103
2,757
2,938
614
774
58,186
$
$
17. Fair Value Measurements
Accounting guidance on fair value measurements for certain financial assets and liabilities requires that assets
and liabilities carried at fair value be classified and disclosed in one of the following three categories:
•
•
•
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant
to the fair value of the assets or liabilities.
When measuring fair value, the Company is required to maximize the use of observable inputs and minimize
the use of unobservable inputs.
Fair Value of Financial Instruments
The Company’s significant financial instruments include long-term debt and an interest rate swap agreement
as of December 30, 2017 and December 31, 2016. The fair value of the Company’s borrowings under the New
Revolving Credit Facility approximated a carrying value of $25,000 at December 30, 2017 due to the nature of the
debt (Level 2 input).
The fair value of the Company’s New Credit Facilities is determined by utilizing average bid prices on or near
the end of each fiscal quarter (Level 2 input). As of December 30, 2017 and December 31, 2016, the fair value of the
Company’s long-term debt was approximately $1,810,085 and $1,671,920, respectively, as compared to the carrying
value (net of deferring financing costs and debt discount) of $1,798,362 and $2,002,299, respectively.
F-36
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Derivative Financial Instruments
The fair values for the Company’s derivative financial instruments are determined using observable current
market information such as the prevailing LIBOR interest rate and LIBOR yield curve rates and include
consideration of counterparty credit risk. See Note 18 for disclosures related to derivative financial instruments.
The following table presents the aggregate fair value of the Company’s derivative financial instruments:
Fair Value Measurements Using:
Total
Fair
Value
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Interest rate swap liability at December 30,
2017
Interest rate swap liability at December 31,
2016
$12,171 $
$31,974 $
0 $
0 $
12,171 $
31,974 $
0
0
The Company did not have any transfers into or out of Levels 1 and 2, and did not maintain any assets or
liabilities classified as Level 3, during the fiscal years ended December 30, 2017 and December 31, 2016.
18. Derivative Instruments and Hedging
As of December 30, 2017 and December 31, 2016, the Company had in effect an interest rate swap with a
notional amount totaling $1,250,000 and $1,500,000, respectively.
On July 26, 2013, in order to hedge a portion of its variable rate debt, the Company entered into a forward-
starting interest rate swap with an effective date of March 31, 2014 and a termination date of April 2, 2020. The
initial notional amount of this swap was $1,500,000. During the term of this swap, the notional amount decreased
from $1,500,000 effective March 31, 2014 to $1,250,000 on April 3, 2017, and will decrease to $1,000,000 on
April 1, 2019. This interest rate swap effectively fixes the variable interest rate on the notional amount of this swap
at 2.41%. This swap qualifies for hedge accounting and, therefore, changes in the fair value of this swap have been
recorded in accumulated other comprehensive loss.
As of December 30, 2017 and December 31, 2016, cumulative unrealized losses for qualifying hedges were
reported as a component of accumulated other comprehensive loss in the amounts of $5,392 ($8,839 before taxes)
and $16,002 ($26,232 before taxes), respectively.
The Company is hedging forecasted transactions for periods not exceeding the next three years. The Company
expects approximately $4,171 ($5,591 before taxes) of derivative losses included in accumulated other
comprehensive loss at December 30, 2017, based on current market rates, will be reclassified into earnings within
the next 12 months.
F-37
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
19. Accumulated Other Comprehensive Loss
Amounts reclassified out of accumulated other comprehensive loss are as follows:
Changes in Accumulated Other Comprehensive Loss by Component(a)
Beginning Balance at December 31, 2016
Other comprehensive (loss) income before
reclassifications, net of tax
Amounts reclassified from accumulated other
comprehensive loss, net of tax(b)
Net current period other comprehensive income
including noncontrolling interest
Less: net current period other comprehensive
income attributable to the noncontrolling
interest
Ending Balance at December 30, 2017
Fiscal Year Ended December 30, 2017
Loss on
Foreign
Currency
Translation
$ (16,002) $ (11,118) $ (27,120)
Loss on
Qualifying
Hedges
Total
883
5,221
6,104
9,727
787
10,514
10,610
6,008
16,618
0
(5,392) $
35
35
(5,075) $ (10,467)
$
(a) Amounts in parentheses indicate debits
(b)
See separate table below for details about these reclassifications
Beginning Balance at January 2, 2016
Other comprehensive (loss) income before
reclassifications, net of tax
Amounts reclassified from accumulated other
comprehensive loss, net of tax(b)
Net current period other comprehensive income
including noncontrolling interest
Less: net current period other comprehensive
income attributable to the noncontrolling
interest
Ending Balance at December 31, 2016
Fiscal Year Ended December 31, 2016
Loss on
Foreign
Currency
Translation
$ (23,135) $ (14,130) $ (37,265)
Loss on
Qualifying
Hedges
Total
(7,730)
3,467
(4,263)
14,863
0
14,863
7,133
3,467
10,600
(455)
$ (16,002) $ (11,118) $ (27,120)
(455)
0
(a) Amounts in parentheses indicate debits
(b)
See separate table below for details about these reclassifications
F-38
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Beginning Balance at January 3, 2015
Other comprehensive loss before
reclassifications, net of tax
Amounts reclassified from accumulated other
comprehensive loss, net of tax(b)
Net current period other comprehensive loss
including noncontrolling interest
Less: net current period other comprehensive
loss attributable to the noncontrolling
interest
Ending Balance at January 2, 2016
Fiscal Year Ended January 2, 2016
Gain (loss)
on
Foreign
Currency
Translation
Total
Loss on
Qualifying
Hedges
$ (21,856) $
1,906 $ (19,950)
(16,371)
(16,973)
(33,344)
15,092
0
15,092
(1,279)
(16,973)
(18,252)
937
$ (23,135) $ (14,130) $ (37,265)
937
0
(a) Amounts in parentheses indicate debits
(b)
See separate table below for details about these reclassifications
Reclassifications out of Accumulated Other Comprehensive Loss(a)
Fiscal Year Ended
December 30, December 31, January 2,
2016
2017
2016
Details about Other Comprehensive
Loss Components
Loss on Qualifying Hedges
Interest rate contracts
Loss on Foreign Currency Translation
Amounts Reclassified from
Accumulated Other
Comprehensive Loss
Affected Line Item in the
Statement Where Net
Income is Presented
$
$
$
$
(15,946) $
(15,946)
6,219
(9,727) $
(787) $
(787)
0
(787) $
(24,366) $(24,741) Interest expense
(24,366) (24,741) Income before income taxes
(Benefit from) provision for
income taxes
9,649
(14,863) $(15,092) Net income
9,503
0 $
0
0
0 $
0 Other expense, net
0 Income before income taxes
(Benefit from) provision for
income taxes
0
0 Net income
(a) Amounts in parentheses indicate debits to profit / loss
F-39
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
20. Recently Issued Accounting Pronouncements
In February 2016, the FASB issued updated guidance regarding leases, requiring lessees to recognize a right-
of-use asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. For
lessees, leases will continue to be classified as either operating or finance leases in the income statement. Lessor
accounting is similar to the current model but will be updated to align with certain changes to the lessee model.
Lessors will continue to classify leases as operating, direct financing or sales-type leases. The effective date of the
new guidance for public companies is for fiscal years beginning after December 15, 2018 and interim periods within
those fiscal years. Early adoption is permitted. The new guidance must be adopted using a modified retrospective
transition and requires application of the new guidance at the beginning of the earliest comparative period presented.
The updated guidance is effective for the Company beginning in the first quarter of fiscal 2019. The Company is
currently evaluating the impact that the adoption of this guidance will have on the consolidated financial statements
and related disclosures of the Company.
In March 2016, the FASB issued updated guidance on revenue from contracts with customers, which is
intended to clarify the implementation guidance on principal versus agent considerations. The amendments in this
update do not change the core principle of the guidance, but are intended to improve the operability and
understandability of the implementation guidance on principal versus agent considerations by including indicators to
assist an entity in determining whether it controls a specified good or service before it is transferred to the customer.
In April 2016, the FASB issued updated guidance on revenue from contracts with customers, which is intended to
clarify guidance related to identifying performance obligations and licensing implementation guidance contained in
the new revenue recognition standard. In May 2016, the FASB issued updated guidance on revenue from contracts
with customers, which is intended to provide narrow scope guidance and practical expedients contained in the new
revenue standard. In December 2016, the FASB issued updated guidance on revenue from contracts with customers
for technical corrections and improvements on narrow aspects within the original and amended guidance. The
amendments in these updates are effective for annual periods beginning after December 15, 2017 and interim
periods within those fiscal years, with early adoption permitted. The Company plans on adopting this guidance on a
modified retrospective basis and the new standard will not have a material impact on its revenue recognition
accounting policy or its consolidated financial statements.
21. Related Party
As more fully described in Note 4, on October 18, 2015, the Company entered into the Strategic Collaboration
Agreement with Ms. Winfrey, under which she will consult with the Company and participate in developing,
planning, executing and enhancing the Weight Watchers program and related initiatives, and provide it with services
in her discretion to promote the Company and its programs, products and services.
In addition to the Strategic Collaboration Agreement, Ms. Winfrey and her related entities provided services to
the Company totaling $4,266, $3,453 and $647 for the fiscal years ended December 30, 2017, December 31, 2016
and January 2, 2016, respectively, which services included advertising, production and related fees. During fiscal
2017 and fiscal 2016, the Company also purchased $84 and $627 of books, respectively, authored by Ms. Winfrey,
for resale.
The Company’s accounts payable to parties related to Ms. Winfrey at December 30, 2017 and December 31,
2016 was $828 and $1,123, respectively.
F-40
WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
22. Quarterly Financial Information (Unaudited)
The following is a summary of the unaudited quarterly consolidated results of operations for the fiscal years
ended December 30, 2017 and December 31, 2016.
Fiscal year ended December 30, 2017
Revenues, net
Gross profit
Operating income
Net income attributable to the Company
Basic earnings per share
Diluted earnings per share
Fiscal year ended December 31, 2016
Revenues, net
Gross profit
Operating income
Net (loss) income attributable to the Company
Basic (loss) earnings per share
Diluted (loss) earnings per share
For the Fiscal Quarters Ended
April 1,
2017
July 1,
2017
September 30, December 30,
2017
2017
$ 329,063 $ 341,673 $
$ 164,097 $ 189,013 $
96,206 $
$
45,173 $
$
0.70 $
$
0.67 $
$
30,233 $
10,653 $
0.17 $
0.16 $
323,687 $ 312,488
177,088 $ 162,451
49,488
91,378 $
62,969
44,719 $
0.97
0.69 $
0.91
0.65 $
For the Fiscal Quarters Ended
April 2,
2016
July 2,
2016
October 1,
2016
December 31,
2016
$ 306,910 $ 309,761 $ 280,819 $
$ 149,673 $ 161,048 $ 144,303 $
66,792 $
$
13,557 $
34,658 $
$ (10,753) $
0.54 $
(0.17) $
$
0.53 $
(0.17) $
$
73,731 $
30,494 $
0.48 $
0.46 $
267,412
130,477
46,730
13,300
0.21
0.20
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.
As discussed in Note 2, the Company recorded an impairment charge for goodwill related to its Brazil
reporting unit of $13,323, or $0.19 per fully diluted share, in the fourth quarter of fiscal 2017.
As discussed in Note 8, the Company recorded a write-off of deferred financing costs in connection with the
November 2017 debt refinancing of $10,524 ($0.09 per fully diluted share) in the fourth quarter of fiscal 2017.
As discussed in further detail in Note 12, the Company recorded a net tax benefit of $56,560 ($0.82 per fully
diluted share) related to the 2017 Tax Act in the fourth quarter of fiscal 2017. The Company also recorded a net tax
benefit of $11,633 ($0.17 per fully diluted share) related to the cessation of operations of our Spanish subsidiary in
the first quarter of fiscal 2017, a $2,255 ($0.03 per fully diluted share) tax benefit related to the reversal of tax
reserves resulting from an updated transfer pricing study in the third quarter of fiscal 2017 and a $3,735 ($0.05 per
fully diluted share) tax benefit due to a change in estimate related to the availability of certain foreign tax credits.
As discussed in Note 1, in fiscal 2016, the Company identified and recorded out-of-period adjustments related
to (i) income tax errors primarily related to reversing a foreign tax receivable originally recorded in fiscal 2008 that
should have been reversed in fiscal 2009; (ii) errors in the prior period tax provision identified upon filing of the tax
return and (iii) technology expenses that should have been capitalized in fiscal 2015. The impact of correcting these
errors, to the extent applicable to the period, increased the provision for income taxes and decreased net income
attributable to the Company by $2,684 ($0.04 per fully diluted share) in the third quarter of fiscal 2016 and
increased operating income, decreased the provision for income taxes and increased net income attributable to the
Company by $1,466, $110, and $1,576 ($0.02 per fully diluted share) in the fourth quarter of fiscal 2016.
As discussed in further detail in Note 12, the Company recorded a net tax benefit arising from a research and
development tax credit and a Section 199 deduction for the tax years 2012 through 2015 in the third quarter of fiscal
2016 of $11,438 ($0.17 per fully diluted share).
F-41
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
Additions
Balance at
Beginning
Charged to
Costs and
Charged
to Other
Balance at
End
of Period
Expenses
Accounts
Deductions
(1)
of Period
FISCAL YEAR ENDED DECEMBER 30, 2017
(587) $
$
$
7,823 $
$ 18,277 $ 11,515 $
Allowance for doubtful accounts
Inventory and other reserves
Tax valuation allowance
2,973 $
3,703 $
0 $
0 $
1,079 $
2,001
(385) $
(7,542) $
3,984
(8,111) $ 22,760
FISCAL YEAR ENDED DECEMBER 31, 2016
2,226 $
$
$
4,065 $
$ 28,280 $
Allowance for doubtful accounts
Inventory and other reserves
Tax valuation allowance
363 $
5,109 $
2,258 $
384 $
0 $
2,973
0 $
3,703
(5,471) $
(483) $ (11,778) $ 18,277
FISCAL YEAR ENDED JANUARY 2, 2016
Allowance for doubtful accounts
Inventory and other reserves
Tax valuation allowance
3,287 $
$
$
7,107 $
$ 34,640 $
(446) $
7,593 $
1,056 $
0 $
(615) $
0 $ (10,635) $
2,226
4,065
(4,785) $ 28,280
(2,631) $
(1)
Primarily represents the utilization of established reserves, net of recoveries, where applicable.
S-1
Exhibit
Number
Description
EXHIBIT INDEX
**3.1
**3.2
**3.3
**4.1
**4.2
**4.3
**10.1
**10.2
**10.3
†**10.4
†**10.5
†**10.6
Amended and Restated Articles of Incorporation of Weight Watchers International, Inc. (filed as
Exhibit 3.1 to Amendment No. 1 to the Company’s Registration Statement on Form 8-A as filed
on January 6, 2012 (File No. 001-16769), and incorporated herein by reference).
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 (filed as Exhibit 3.2 to
Amendment No. 1 to the Company’s Registration Statement on Form 8-A, as filed on January 6,
2012 (File No. 001-16769), and incorporated herein by reference).
Amended and Restated Bylaws of Weight Watchers International, Inc., as of November 14, 2013
(filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed on November 18,
2013 (File No. 001-16769), and incorporated herein by reference).
Specimen of stock certificate representing Weight Watchers International, Inc.’s common stock,
no par value (filed as Exhibit 4.1 to Amendment No. 1 to the Company’s Registration Statement
on Form 8-A, as filed on January 6, 2012 (File No. 001-16769), and incorporated herein by
reference).
Indenture, dated as of November 29, 2017, among Weight Watchers International, Inc., the
guarantors party thereto and The Bank of New York Mellon, as trustee, relating to $300.0 million
in aggregate principal amount of 8.625% Senior Notes due 2025 (“Note”) (filed as Exhibit 4.1 to
the Company’s Current Report on Form 8-K, as filed on November 30, 2017 (File No. 001-
16769), and incorporated herein by reference).
Form of Note (included in Exhibit 4.2 above)
License Agreement, dated as of September 29, 1999, between WW Foods, LLC and Weight
Watchers International, Inc. (filed as Exhibit 10.4 to the Company’s Registration Statement on
Form S-4, as filed on December 2, 1999 (File No. 333-92005), and incorporated herein by
reference).
LLC Agreement, dated as of September 29, 1999, between H.J. Heinz Company and Weight
Watchers International, Inc. (filed as Exhibit 10.7 to the Company’s Registration Statement on
Form S-4, as filed on December 2, 1999 (File No. 333-92005), and incorporated herein by
reference).
Operating Agreement, dated as of September 29, 1999, between Weight Watchers International,
Inc. and H.J. Heinz Company (filed as Exhibit 10.8 to the Company’s Registration Statement on
Form S-4, as filed on December 2, 1999 (File No. 333-92005), and incorporated herein by
reference).
Weight Watchers International, Inc. 2004 Stock Incentive Plan (filed as Appendix A of the
Company’s Definitive Proxy Statement on Schedule 14A filed on April 8, 2004 (File No. 001-
16769), and incorporated herein by reference).
Amendment to Weight Watchers International, Inc. 2004 Stock Incentive Plan (filed as
Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
July 2, 2005, as filed on August 11, 2005 (File No. 001-16769), and incorporated herein by
reference).
Weight Watchers International, Inc. 2008 Stock Incentive Plan (filed as Appendix A of the
Company’s Definitive Proxy Statement on Schedule 14A filed on March 31, 2008 (File No. 001-
16769), and incorporated herein by reference).
67
Exhibit
Number
**10.7
**10.8
**10.9
†**10.10
†**10.11
†**10.12
†**10.13
†**10.14
†**10.15
†**10.16
†**10.17
Description
Corporate Agreement, dated as of November 5, 2001, between Weight Watchers International,
Inc. and Artal Luxembourg S.A. (filed as Exhibit 10.36 to Amendment No. 2 to the Company’s
Registration Statement on Form S-1, as filed on November 9, 2001 (File No. 333-69362), and
incorporated herein by reference).
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. (filed as
Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
July 2, 2005, as filed on August 11, 2005 (File No. 001-16769), and incorporated herein by
reference).
Registration Rights Agreement, dated as of September 29, 1999, among Weight Watchers
International, Inc., H.J. Heinz Company and Artal Luxembourg S.A. (filed as Exhibit 10.38 to
Amendment No. 1 to the Company’s Registration Statement on Form S-1, as filed on
October 29, 2001 (File No. 333-69362), and incorporated herein by reference).
Form of Amended and Restated Continuity Agreement, between Weight Watchers International,
Inc. and certain key executives (Chief Financial Officer and General Counsel & Secretary) (filed
as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
July 2, 2011, as filed on August 11, 2011 (File No. 001-16769), and incorporated herein by
reference).
Form of Amended and Restated Continuity Agreement, between Weight Watchers International,
Inc. and certain key executives (certain executive officers) (filed as Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 2, 2011, as filed on
August 11, 2011 (File No. 001-16769), and incorporated herein by reference).
Continuity Agreement, dated as of April 21, 2017, by and between Weight Watchers
International, Inc. and Mindy Grossman (filed as Exhibit 10.2 to the Company’s Current Report
on Form 8-K, as filed on April 26, 2017 (File No. 001-16769), and incorporated herein by
reference).
Form of Term Sheet for Employee Stock Awards and Form of Terms and Conditions for
Employee Stock Awards (filed as Exhibit 10.34 to the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2005, as filed on February 27, 2006 (File No. 001-16769),
and incorporated herein by reference).
Form of Term Sheet for Employee Restricted Stock Unit Awards and Form of Terms and
Conditions for Employee Restricted Stock Unit Awards (filed as Exhibit 10.35 to the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2005, as filed on
February 27, 2006 (File No. 001-16769), and incorporated herein by reference).
Form of Amended and Restated Restricted Stock Agreement for Weight Watchers International,
Inc. non-employee directors and certain members of the former Interim Office of the Chief
Executive Officer (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for
the fiscal quarter ended June 28, 2014, as filed on August 7, 2014 (File No. 001-16769), and
incorporated herein by reference).
Second Amended and Restated Weight Watchers International, Inc. 2014 Stock Incentive Plan
(filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed on May 9, 2017
(File No. 001-16769), and incorporated herein by reference).
Statement of Amendments to the Weight Watchers International, Inc. 2004 Stock Incentive Plan
(filed as Exhibit 99.4 to the Company’s Current Report on Form 8-K, as filed on December 15,
2006 (File No. 001-16769), and incorporated herein by reference).
68
Exhibit
Number
**10.18
**10.19
†**10.20
†**10.21
**10.22
†**10.23
†**10.24
†**10.25
†**10.26
†**10.27
**10.28
Description
Amendment to Agreements, dated as of October 1, 2002, by and between Weight Watchers
International, Inc., WW Foods, LLC and H.J. Heinz Company (filed as Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 2009, as filed
on November 12, 2009 (File No. 001-16769), and incorporated herein by reference).
Amendment to Operating Agreement, dated August 4, 2009, by and between Weight Watchers
International, Inc. and H.J. Heinz Company (filed as Exhibit 10.2 to the Company’s Quarterly
Report on Form 10-Q for the fiscal quarter ended October 3, 2009, as filed on November 12,
2009 (File No. 001-16769), and incorporated herein by reference).
Second Amended and Restated Weight Watchers Executive Profit Sharing Plan, August 1, 2012
(filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter
ended September 29, 2012, as filed on November 8, 2012 (File No. 001-16769), and incorporated
herein by reference).
Offer Letter, dated as of July 2, 2012, by and between Weight Watchers International, Inc. and
Nicholas P. Hotchkin (filed as Exhibit 10.31 to the Company’s Annual Report on Form 10-K for
the fiscal year ended December 29, 2012, as filed on February 27, 2013 (File No. 001-16769),
and incorporated herein by reference).
Credit Agreement, dated as of November 29, 2017, among Weight Watchers International, Inc.,
as borrower, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent and
an issuing bank, Bank of America, N.A., as an issuing bank, and Citibank, N.A., as an issuing
bank (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed on November
30, 2017 (File No. 001-16769), and incorporated herein by reference).
Letter Agreement, dated as of May 8, 2013, by and between Weight Watchers International, Inc.
and Nicholas Hotchkin (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q
for the fiscal quarter ended June 29, 2013, as filed on August 8, 2013 (File No. 001-16769), and
incorporated herein by reference).
Offer Letter, dated as of March 3, 2014, by and between Weight Watchers International, Inc. and
Michael F. Colosi (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for
the fiscal quarter ended April 4, 2015, as filed on May 14, 2015 (File No. 001-16769), and
incorporated herein by reference).
Employment Agreement, dated October 6, 2003, by and between Weight Watchers France
S.A.R.L. and Corinne Pollier(-Bousquet) (the “Pollier Employment Agreement”) (filed as
Exhibit 10.34 to the Company’s Annual Report on Form 10-K for the fiscal year ended January
2, 2016, as filed on March 2, 2016 (File No. 001-16769), and incorporated herein by reference).
Addendum to the Pollier Employment Agreement, dated May 1, 2013, by and between Weight
Watchers France S.A.R.L. and Corinne Pollier(-Bousquet) (filed as Exhibit 10.35 to the
Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2016, as filed on
March 2, 2016 (File No. 001-16769), and incorporated herein by reference).
Letter Agreement, dated as of September 15, 2015, by and between Weight Watchers
International, Inc. and Corinne Pollier(-Bousquet) (filed as Exhibit 10.36 to the Company’s
Annual Report on Form 10-K for the fiscal year ended January 2, 2016, as filed on March 2,
2016 (File No. 001-16769), and incorporated herein by reference).
Share Purchase Agreement, dated October 18, 2015, between Weight Watchers International,
Inc. and Oprah Winfrey (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, as
filed on October 19, 2015 (File No. 001-16769), and incorporated herein by reference).
69
Exhibit
Number
†**10.29
**10.30
†**10.31
†**10.32
†**10.33
†**10.34
†**10.35
†**10.36
†**10.37
†**10.38
†**10.39
†**10.40
Description
Option Agreement, dated October 18, 2015, between Weight Watchers International, Inc. and
Oprah Winfrey (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, as filed on
October 19, 2015 (File No. 001-16769), and incorporated herein by reference).
Strategic Collaboration Agreement, dated October 18, 2015, between Weight Watchers
International, Inc. and Oprah Winfrey (filed as Exhibit 10.39 to the Company’s Annual Report
on Form 10-K for the fiscal year ended January 2, 2016, as filed on March 2, 2016 (File No. 001-
16769), and incorporated herein by reference).
Second Addendum to the Pollier Employment Agreement, effective March 2, 2016, by and
between Weight Watchers France S.A.R.L. and Corinne Pollier(-Bousquet) (filed as Exhibit 10.1
to the Company’s Quarterly Report on Form 10-Q, as filed on May 10, 2016 (File No. 001-
16769), and incorporated herein by reference).
Form of Term Sheet for Employee Performance Stock Unit Awards and Form of Terms and
Conditions for Employee Performance Stock Unit Awards (filed as Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q, as filed on November 8, 2016 (File No. 001-16769),
and incorporated herein by reference).
Second Letter Agreement, dated as of September 14, 2016, by and between Nicholas Hotchkin
and Weight Watchers International, Inc. (filed as Exhibit 10.2 to the Company’s Quarterly
Report on Form 10-Q, as filed on November 8, 2016 (File No. 001-16769), and incorporated
herein by reference).
Letter Agreement, dated as of May 8, 2017, by and between Stacey Mowbray and Weight
Watchers International, Inc. (the “Mowbray Letter Agreement”) (filed as Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q, as filed on May 10, 2017 (File No. 001-16769), and
incorporated herein by reference).
Employment Agreement, dated as of April 21, 2017, by and between Weight Watchers
International, Inc. and Mindy Grossman (filed as Exhibit 10.1 to the Company’s Current Report
on Form 8-K, as filed on April 26, 2017 (File No. 001-16769), and incorporated herein by
reference).
Form of Term Sheet for Employee Stock Option Awards and Form of Terms and Conditions for
Employee Stock Option Awards (Chief Executive Officer Initial Equity Award—Stock Incentive
Plan Award) (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K, as filed on
April 26, 2017 (File No. 001-16769), and incorporated herein by reference).
Form of Term Sheet for Employee Stock Option Awards and Form of Terms and Conditions for
Employee Stock Option Awards (Chief Executive Officer Initial Equity Award—Inducement
Grant Award) (filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K, as filed on
April 26, 2017 (File No. 001-16769), and incorporated herein by reference).
Form of Term Sheet for Employee Restricted Stock Unit Awards and Form of Terms and
Conditions for Employee Restricted Stock Unit Awards (Chief Executive Officer Initial Equity
Award) (filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K, as filed on April
26, 2017 (File No. 001-16769), and incorporated herein by reference).
2017 Form of Term Sheet for Employee Performance Stock Unit Awards and 2017 Form of
Terms and Conditions for Employee Performance Stock Unit Awards (filed as Exhibit 10.8 to the
Company’s Quarterly Report on Form 10-Q, as filed on August 8, 2017 (File No. 001-16769),
and incorporated herein by reference).
2017 Form of Term Sheet for Employee Restricted Stock Unit Awards and 2017 Form of Terms
and Conditions for Employee Restricted Stock Unit Awards (filed as Exhibit 10.9 to the
Company’s Quarterly Report on Form 10-Q, as filed on August 8, 2017 (File No. 001-16769),
and incorporated herein by reference).
70
Exhibit
Number
†**10.41
†**10.42
†*10.43
*21.1
*23.1
*31.1
*31.2
*32.1
*Exhibit 101
Description
2017 Form of Term Sheet for Employee Performance Stock Unit Awards and 2017 Form of
Terms and Conditions for Employee Performance Stock Unit Awards (Chief Executive Officer
Annual Equity Award) (filed as Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q,
as filed on August 8, 2017 (File No. 001-16769), and incorporated herein by reference).
2017 Form of Term Sheet for Employee Restricted Stock Unit Awards and 2017 Form of Terms
and Conditions for Employee Restricted Stock Unit Awards (Chief Executive Officer Annual
Equity Award) (filed as Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q, as filed
on August 8, 2017 (File No. 001-16769), and incorporated herein by reference).
First Addendum to the Mowbray Letter Agreement, dated February 8, 2018, by and between
Stacey Mowbray and Weight Watchers International, Inc.
Subsidiaries of Weight Watchers International, Inc.
Consent of Independent Registered Public Accounting Firm.
Rule 13a-14(a) Certification by Mindy Grossman, Chief Executive Officer.
Rule 13a-14(a) Certification by Nicholas P. Hotchkin, Chief Financial Officer.
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*EX-101.INS
XBRL Instance Document
*EX-101.SCH XBRL Taxonomy Extension Schema
*EX-101.CAL XBRL Taxonomy Extension Calculation Linkbase
*EX-101.DEF XBRL Taxonomy Extension Definition Linkbase
*EX-101.LAB XBRL Taxonomy Extension Label Linkbase
*EX-101.PRE XBRL Taxonomy Extension Presentation Linkbase
*
**
†
Filed herewith.
Previously filed.
Represents a management arrangement or compensatory plan.
Item 16.
Form 10-K Summary
None.
71
SIGNATURE
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 its behalf by the undersigned, thereunto duly authorized.
Date: February 28, 2018
By:
/S/ MINDY GROSSMAN
Mindy Grossman
President, Chief Executive Officer and Director
(Principal Executive Officer)
WEIGHT WATCHERS INTERNATIONAL, INC.
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 28, 2018
Date: February 28, 2018
Date: February 28, 2018
Date: February 28, 2018
Date: February 28, 2018
Date: February 28, 2018
Date: February 28, 2018
Date: February 28, 2018
Date: February 28, 2018
Date: February 28, 2018
Date: February 28, 2018
Date: February 28, 2018
By:
By:
By:
By:
By:
By:
By:
By:
By:
By:
By:
By:
/S/ MINDY GROSSMAN
Mindy Grossman
President, Chief Executive Officer and Director
(Principal Executive Officer)
/S/ NICHOLAS P. HOTCHKIN
Nicholas P. Hotchkin
Chief Financial Officer
(Principal Financial and Accounting Officer)
/S/ RAYMOND DEBBANE
Raymond Debbane
Director
/S/ STEVEN M. ALTSCHULER
Steven M. Altschuler
Director
/S/ PHILIPPE J. AMOUYAL
Philippe J. Amouyal
Director
/S/ CYNTHIA ELKINS
Cynthia Elkins
Director
/S/ JONAS M. FAJGENBAUM
Jonas M. Fajgenbaum
Director
/S/ DENIS F. KELLY
Denis F. Kelly
Director
/S/ SACHA LAINOVIC
Sacha Lainovic
Director
/S/ THILO SEMMELBAUER
Thilo Semmelbauer
Director
/S/ CHRISTOPHER J. SOBECKI
Christopher J. Sobecki
Director
/S/ OPRAH WINFREY
Oprah Winfrey
Director
EXHIBIT 10.43
February 8, 2018
Stacey Mowbray
[REDACTED]
[REDACTED]
Dear Stacey,
This letter shall serve as the first addendum (“First Addendum”) to your employment agreement, dated
May 8, 2017 (“Employment Agreement”). All defined terms in the Employment Agreement shall have
the same meaning, force and effect as used in this First Addendum.
Your Employment Agreement is hereby supplemented and/or modified as follows:
1. Commencing on the first pay date following your execution of this First Addendum (February
15, 2018) and continuing through all payroll periods in 2018 with pay dates in the current
calendar year (the “2018 Conversion Period”), a portion of your Base Salary will be paid in US
dollars (“USD”) such that you will receive a net total payment of USD $5,500 in each such pay
period during the 2018 Conversion Period. These payments shall be converted from Canadian
dollars (“CAD”) to USD based on the exchange rates in effect as of December 29, 2017.
Accordingly, based on such exchange rates in effect as of December 29, 2017, the Company will
set aside a net amount of CAD $6,914.76 of your Base Salary in each pay period during the 2018
Conversion Period to be converted into, and paid to you in, USD during each such pay period.
The remainder of your Base Salary payments during the 2018 Conversion Period shall be paid in
CAD. It is agreed and understood that the payments being provided to you in USD during the
2018 Conversion Period are to be taken as a deduction from, and not an addition to, your Base
Salary. WWCL shall pay, and make the appropriate withholdings and deductions from, all of
your Base Salary payments, including the ones being paid in USD, during the 2018 Conversion
Period. Unless the parties agree otherwise, commencing on January 1, 2019, your Base Salary
payments shall be paid entirely in CAD.
2. You shall continue to report to the Company’s Chief Executive Officer, Mindy Grossman.
3. You shall be eligible for life insurance and AD&D coverage in accordance with the terms and
conditions of WWCL’s policies and the official plan documents, as amended from time to time,
at two times your Base Salary, up to a maximum of CAD $1,000,000. You agree to execute any
and all documents required to effectuate this change in coverage as a condition for the
effectiveness of this First Addendum.
4. All other terms and conditions in your Employment Agreement which have not been modified
by this First Addendum shall remain in full force and effect. To the extent there are any
conflicts between anything stated in this First Addendum and your Employment Agreement, the
terms of this First Addendum shall control.
We thank you for all of your contributions, and look forward to continuing to work with you.
Yours Sincerely,
/s/ Kimberly Samon
Kimberly Samon
Chief Human Resources Officer
Agreed to by:
/s/ Stacey Mowbray
Stacey Mowbray
February 26, 2018
Date
EXHIBIT 21.1
List of Subsidiaries of Weight Watchers International, Inc.
BLTC Pty Limited, incorporated in Australia
Fortuity Pty. Ltd., incorporated in Australia
Gutbusters Pty Ltd, incorporated in Australia
LLTC Pty Limited, incorporated in Australia
Milhill Enterprises Pty Ltd, incorporated in Australia
Weight Watchers Asia Pacific Finance General Partnership, incorporated in Australia
Weight Watchers International Pty Limited, incorporated in Australia
Weight Watchers Services Pty Ltd, incorporated in Australia
Weight Watchers Belgium NV, incorporated in Belgium
Weight Watchers Botswana Pty Ltd, incorporated in Botswana
Vigilantes do Peso Marketing S.A., incorporated in Brazil
Weight Watchers do Brasil Programas Alimentares Limitada, incorporated in Brazil
Weight Watchers Canada, Ltd., incorporated in Canada
Weight Watchers Asia Holdings Ltd., incorporated in Cayman Islands
Weight Watchers (China) Weight Loss Consultation Co., Ltd., incorporated in the People’s Republic of China
Weight Watchers de Colombia Ltda., incorporated in Colombia
QHC, LLC, incorporated in Delaware
Waist Watchers, Inc., incorporated in Delaware
Weight Watchers Direct, Inc., incorporated in Delaware
Weight Watchers North America, Inc., incorporated in Delaware
W. W. Camps and Spas, Inc., incorporated in Delaware
WW Fitness, Inc., incorporated in Delaware
WW Foods, LLC, incorporated in Delaware
WW Funding Corp., incorporated in Delaware
W. W. Inventory Service Corp., incorporated in Delaware
W. W. I. Subsidiary, Inc., incorporated in Delaware
WeightWatchers.com, Inc., incorporated in Delaware
WeightWatchers.fr SARL, incorporated in France
Weight Watchers France SAS, incorporated in France
Weight Watchers Operations France SAS, incorporated in France
Weight Watchers At Work GmbH, incorporated in Germany
Weight Watchers (Deutschland) GmbH, incorporated in Germany
Great Day Holdings Limited, incorporated in Hong Kong
Weight Watchers China Limited, incorporated in Hong Kong
Il Salvalinea, S.R.L., incorporated in Italy
Centro de Cuidado Del Peso, S. de R.L. de C.V., incorporated in Mexico
Servicios Operativos CP, S. de R.L. de C.V., incorporated in Mexico
Stichting Gezond Gewicht, Gezond Leven, incorporated in Netherlands
Weight Watchers Netherlands B.V., incorporated in Netherlands
WeightWatchers.nl B.V., incorporated in Netherlands
58 WW Food Corp., incorporated in New York
Weight Watchers Camps, Inc., incorporated in New York
The Weight Watchers Foundation, Inc., incorporated in New York
W.W.I. European Services, Ltd., incorporated in New York
W.W. Weight Reduction Services, Inc., incorporated in New York
W/W TwentyFirst Corporation, incorporated in New York
Weight Watchers Limited., incorporated in New Zealand
Weight Watchers New Zealand Limited, incorporated in New Zealand
Weight Watchers New Zealand Unit Trust, incorporated in New Zealand
Weight Watchers Polska Spz.o.o., incorporated in Poland
Weight Watchers Operations Spain S.L.U., incorporated in Spain
Weight Watchers Spain, S.L., incorporated in Spain
Weight Watchers European Holding AB, incorporated in Sweden
Weight Watchers Sweden Vikt-Vaktarna Aktiebolag, incorporated in Sweden
Weight Watchers (Switzerland) SA, incorporated in Switzerland
Weight Watchers International Holdings Ltd, incorporated in United Kingdom
Weight Watchers UK Holdings Ltd, incorporated in United Kingdom
Weight Watchers (U.K.) Limited, incorporated in United Kingdom
WeightWatchers.co.uk Limited, incorporated in United Kingdom
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-219779,
333-217835, 333-165637, 333-123642, 333-156185, 333-195800, and 333-208067) of Weight Watchers
International, Inc. of our report dated February 28, 2018 relating to the financial statements, financial statement
schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
EXHIBIT 23.1
/s/ PricewaterhouseCoopers LLP
New York, New York
February 28, 2018
CERTIFICATION
EXHIBIT 31.1
I, Mindy Grossman, 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 most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of
an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
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 28, 2018
Signature:
/S/ MINDY GROSSMAN
Mindy Grossman
President, Chief Executive Officer and Director
(Principal Executive Officer)
CERTIFICATION
EXHIBIT 31.2
I, Nicholas P. Hotchkin, 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 most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of
an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
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 28, 2018
Signature:
/S/ NICHOLAS P. HOTCHKIN
Nicholas P. Hotchkin
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 ended December 30, 2017, as filed with the Securities and Exchange Commission on the date
hereof (the “Report”), we, the undersigned officers 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 results of operations of the Company.
Date: February 28, 2018
Signature:
Signature:
/S/ MINDY GROSSMAN
Mindy Grossman
President, Chief Executive Officer and Director
(Principal Executive Officer)
/S/ NICHOLAS P. HOTCHKIN
Nicholas P. Hotchkin
Chief Financial Officer
(Principal Financial and Accounting Officer)