2019 ANNUAL REPORT
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 28, 2019
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
WW 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
Trading Symbol(s)
WW
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Name of each exchange on which registered
The Nasdaq Stock Market LLC
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 every Interactive Data File required to be submitted 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 such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an 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.
Large accelerated filer ☒
Non-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 28, 2019 (based upon the closing price of
$19.10 per share of common stock as of June 28, 2019, the last business day of the registrant’s second fiscal quarter of 2019, as quoted on The
Nasdaq Stock Market LLC) was $889,175,384. For purposes of this computation, it is assumed that shares of common stock held by our
directors, executive officers and certain shareholders as of June 28, 2019 would be deemed stock held by affiliates.
The number of shares of common stock outstanding as of February 1, 2020 was 67,427,547.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for its 2020 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 28,
2019.
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WW International, Inc.
Annual Report on Form 10-K
Table of Contents
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......................................................................................................................
Information about our Executive Officers and Directors....................................................................
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................................................................................................................................
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
Matters ............................................................................................................................................
Item 13. Certain Relationships and Related Transactions, and Director Independence....................................
Item 14. Principal Accountant Fees and Services .............................................................................................
Part IV
Item 15. Exhibits and Financial Statement Schedules.......................................................................................
Item 16. Form 10-K Summary...........................................................................................................................
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i
BASIS OF PRESENTATION
WW International, Inc., formerly known as 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 “WW” refer to WW International, Inc. and all of its
operations consolidated for purposes of its financial statements; “North America” refers to our North American
Company-owned operations; “Continental Europe” refers to our Continental Europe Company-owned operations;
“United Kingdom” refers to our United Kingdom Company-owned operations; and “Other” refers to Australia, New
Zealand and emerging markets operations and franchise revenues and related costs. Each of North America,
Continental Europe, United Kingdom 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 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®,
myWWTM, SmartPoints®, Points®, WW Freestyle®, FitPoints®, WellnessWinsTM, ZeroPointTM and the WW logo.
ii
Item 1.
Business
Overview
PART I
We are a global wellness company powered by the world’s leading commercial weight management program.
We are focused on inspiring people to adopt healthy habits for real life and aim to democratize wellness and to
deliver wellness for all. With over five decades of weight management experience, expertise and know-how, we are
one of the most recognized and trusted brand names among weight-conscious consumers. In 2018, we announced
new articulations of our brands, including our evolving focus on WW, to further reinforce our mission to focus on
overall health and wellness. We educate our members and provide them with guidance and an inspiring community
to enable them to develop healthy habits. WW-branded services and products include digital offerings provided
through our websites, mobile sites and apps, workshops conducted by us and our franchisees, consumer products
(including licensed and endorsed products), and publications. Our primary sources of revenue are subscriptions for
our digital products and for our workshops. Our “Digital” business refers to providing subscriptions to our digital
product offerings, including the Personal Coaching + Digital product. Our “Studio + Digital” business refers to
providing access to our weekly in-person workshops combined with our digital subscription product offerings to
commitment plan subscribers. Our “Studio + Digital” business also includes the provision of access to workshops
for members who do not subscribe to commitment plans, including our “pay-as-you-go” members.
We believe that the power of our communities, both digitally via our Connect platform and in workshops,
increases accountability and provides our members with inspiration, human connection, and support, which inspires
them and enables them to build 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, and thereby provide us a unique platform to impact the wellness market.
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 and mindset. We believe we are the leading global provider of paid
digital subscription weight management products. As of the end of fiscal 2019, we had a total of approximately 4.2
million subscribers, of which approximately 3.0 million were Digital subscribers. At that time, we also had
approximately 1.3 million Studio + Digital subscribers, who could attend approximately 29,000 workshops each
week around the world, which were run by approximately 8,200 coaches. Our strong brands, together with the
effectiveness of our program, loyal customer base, strong digital offerings and unparalleled network of workshops
and coaches, 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,
Continental Europe (CE), United Kingdom and Other. Each reportable segment provides similar services and
products. We operate in numerous countries around the world. Our “North America” reportable segment consists of
our United States and Canada Company-owned operations; our “Continental Europe” reportable segment consists of
our Germany, Switzerland, France, Belgium, Netherlands and Sweden Company-owned operations; our “United
Kingdom” reportable segment consists of our United Kingdom Company-owned operations; and our “Other”
reportable segment consists of our Australia, New Zealand, and Brazil Company-owned operations, as well as
revenues and costs from our franchises in the United States and certain other countries.
1
Our Services and Products
Our Program and Food Plans
In each of our major markets, we offer services and products that are based on our new, customized, healthy
weight management program, known as myWW in the majority of our markets. The program is founded on a holistic
approach for the body and mind to help each of 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, based on the
understanding that everyone’s needs and eating patterns are different. Our program also gives members science-
based techniques that guide them to a helpful mindset. There are three comprehensive ways to follow myWW – the
Green, Purple, or Blue food plan – each of which is grounded in our SmartPoints system. New members are assisted
in the selection of the plan that will work best for them based on a personalized assessment. SmartPoints was
developed from a combination of advancements in scientific research and consumer insights, including from
customers who experienced prior WW food plans. With the SmartPoints system, each food has a SmartPoints value
determined by the food’s calorie, 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 daily and weekly SmartPoints “budget,” which is based on age, weight, height and sex. Each of
myWW’s Green, Purple and Blue food plans has a unique balance of allotted SmartPoints and ZeroPoint foods.
ZeroPoint foods do not need to be weighed, measured, or tracked and form the foundation of a healthy eating
pattern. Prior to the launch of myWW in November 2019, we offered a weight management program known as WW
Freestyle in the majority of our markets, which launched in December 2017.
In addition to focusing on healthy eating habits, and in furtherance of our mission to focus on overall health
and wellness, our program also addresses other aspects of a healthy and fulfilled life, such as mindset, activity and
community. We carefully select partners in the wellness space who offer services that can aid our members. For
example, in both our workshops and our digital experiences, members can typically access meditation and/or
mindfulness content to assist them in developing and maintaining a helpful mindset on their wellness journeys. Our
customized FitPoints system accounts for height, weight, age and sex, as well as the type of activity being done and
the duration. This personalization allows members to know exactly what each activity is worth to them and then
track their activities and routines within the WW app. WW’s Connect Groups, a part of our digital community,
foster meaningful relationships that inspire healthy habits by helping people find communities based on food,
identity, wellness journey, activity, mindset, hobbies, locations and events. Finally, to further inspire and reinforce
healthy habits, WellnessWins, our rewards program, inspires members to build, and recognizes members for
building, healthy habits. Members can earn “Wins” and redeem them for exclusive products and experiences.
Our Businesses
Our customers mainly participate in our program either by solely using our digital products or by using our
digital products supplemented by in-person group workshops. Within these two channels, we offer a variety of
services and products to meet each customer’s preferences. Additionally, our wellness coaches educate members on
our program and provide inspiration and support to members in developing healthy habits.
Digital Business
In our Digital business, we offer digital subscription products based on the WW approach to wellness and
weight management. These products provide interactive and personalized resources that allow users to follow our
weight management program via our web-based and mobile app products. They help subscribers adopt a healthier
and more active lifestyle, a helpful mindset, and healthy habits, with a view toward long-term behavior modification
— a key aspect of the WW approach toward healthy and sustainable weight loss. These products provide subscribers
with content, functionality and resources and interactive weight management plans and wellness tools. We believe
our personalized and interactive Digital subscription products give subscribers an engaging 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 inspire each other. We continue to upgrade the design, usability,
features and capabilities of our digital products. As of the end of fiscal 2019, we had approximately 3.0 million
Digital subscribers.
2
Studio + Digital Business
In our Studio + Digital business, we present our program in regular weekly workshops of 30 to 45 minutes in
duration, conveniently scheduled throughout the day. Our interactive, in-person community remains the cornerstone
of our workshops. Wellness coaches facilitate interactive workshops that encourage learning and inspire members to
make positive changes towards their individual goals. Members provide each other inspiration and support by
sharing their experiences with, and by providing encouragement and empathy to, other people on weight
management and wellness journeys. In addition, our members can choose to access our digital tools to assist them
on their journeys. The primary payment structure for our Studio + Digital business globally is through commitment
plans. Under these plans, members generally receive unlimited access to workshops at a monthly price plus access to
our Digital products. Pursuant to these plans, a member is automatically charged on a monthly basis until the
member elects to cancel. As of the end of fiscal 2019, we had approximately 1.3 million subscribers to these
commitment plans.
We have franchisees in certain territories. Pursuant to long-standing agreements, we typically pay each other
royalties and other fees. In fiscal 2019, revenues from our franchisees represented less than 1% of our total revenues.
We have enjoyed a mutually beneficial relationship with our franchisees over many years. Most franchise
agreements are perpetual and can be terminated only upon a material breach or bankruptcy of the franchisee.
Our Consumer Product Sales
We sell a range of consumer products, including bars, snacks, cookbooks, kitchen tools and other products
from time to time. These products complement our weight management program and help our customers in their
weight management and wellness efforts. Our products are designed to be high quality and offer benefits related to
the WW program.
We sell our products primarily at our workshops, online through our ecommerce platforms and to our
franchisees, as well as through several trusted retail partners. Excluding sales to or by our franchisees, in fiscal 2019,
sales of products to consumers represented approximately 11.1% of our revenues. We seek to optimize our product
offerings by updating existing products, selectively introducing new products and sharing best practices across
geographies.
Licensing and Endorsements
We license our trademarks and other intellectual property in certain categories of food, beverages and other
relevant consumer products and services. We also endorse or co-brand with 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 Kraft Heinz Company
(successor to 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 WW brands will create new
long-term licensing and partnership opportunities for us.
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 with offerings that include
workplace workshops, local community workshops and access to our Digital products.
We believe the healthcare market represents an important channel to reach new consumers. We continue to
explore different approaches to this market.
3
Our Clinical Efficacy and Reputation in the Marketplace
WW 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 WW 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 WW program. In addition, compared to adults
receiving brief advice and self-help, adults who followed either the 12- or 52-week WW program achieved greater
reductions in body fat; those who followed 52 weeks of WW also achieved greater blood sugar control. Research
has shown that WW has impact that reaches beyond our members. In 2018, a 6-month randomized controlled trial
conducted by researchers at the University of Connecticut funded by us and published in Obesity showed a “ripple
effect” of WW – significant weight loss among untreated spouses of WW members.
WW also has demonstrated efficacy among individuals with diabetes and prediabetes. 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 our Diabetes Prevention
Program, or DPP, lost significantly more weight and experienced better blood sugar control than those following a
self-initiated diabetes prevention program using supplemental counseling materials. A continuation study published
in 2018 showed that these outcomes were maintained at 18 and 24 months and that our DPP was highly cost-
effective. Another randomized controlled trial conducted by the Medical University of South Carolina, funded by us
and published in Obesity in 2016, found that adults with Type 2 diabetes who followed our diabetes program lost
significantly more weight and experienced better blood sugar control than those in a standard diabetes care program.
In 2019, a six-month clinical trial of the myWW program conducted by the Medical University of South
Carolina’s Weight Management Center and funded by us found that participants on the program experienced
clinically significant benefits, including, on average, weight loss of 8%. Among study participants who reported
trying to lose weight in the past, 90% agreed myWW is easier to stick with compared to when they have tried to lose
weight on their own and 88% agreed that myWW is an easier way to lose weight than when they have tried to lose
weight on their own. Our efficacy and the value of our offerings are also well-acknowledged in the marketplace. For
instance, in 2020, we again were recognized by U.S. News & World Report in the “Best Diets” rankings, including
ranking #1 for “Best Weight-Loss Diets” for the tenth year in a row and #1 for “Best Commercial Diet Plans.”
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 WW. 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 2020, as part
of our collaboration with Ms. Winfrey, she embarked on a wellness-focused, national arena tour called WW
Presents: Oprah’s 2020 Vision: Your Life in Focus, and is appearing in our advertising campaign in the United
States and other select markets. Further information on this agreement and our partnership with Ms. Winfrey can be
found below under “—History—Winfrey Transaction.”
Our advertising campaigns are supported across multiple platforms (e.g. broadcast, digital, electronic
customer relationship marketing (eCRM), direct mail, social media and public relations). We develop and maintain a
high level of engagement with current and potential customers on various social media platforms including
Facebook, Instagram and Twitter. Also, we utilize brand ambassadors, spokespersons and social media influencers,
including 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 WW coaches and members. The word of mouth generated by our
current and former members, combined with our strong brand and known effectiveness, enable us to attract new and
returning members. We also carry out many of our key public relations initiatives through the efforts of current and
former WW coaches and members, and celebrity brand ambassadors.
4
Seasonality
Our business is seasonal due to the importance of the winter season to our overall member recruitment
environment. Historically, we experience our highest level of recruitment during the first quarter of the year, which
is supported with the highest concentration of advertising spending. Therefore, our number of End of Period
Subscribers (as defined below) in the first quarter of the year is typically higher than the number in other quarters of
the year, historically reflecting a decline over the course of the year.
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; the genetics
and biotechnology 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, we believe that the power of our communities, both digitally via our Connect platform and in
workshops, increases accountability and provides our members with inspiration, human connection, and support,
which inspires them and enables them to build healthier and more fulfilling food, activity and lifestyle habits. There
are no significant group education-based competitors in any of our major markets, except in the United Kingdom.
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, domain names 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.
5
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. WW
International, Inc. (formerly known as 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. As a result of Artal selling a portion of its shares of our common stock in
fiscal 2018, we are no longer a “controlled company” under the rules of The Nasdaq Global Select Market, or
Nasdaq.
Winfrey Transaction
On October 18, 2015, we entered into a Strategic Collaboration Agreement with Ms. Winfrey, or, as amended,
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 trademarks and service 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, or the Initial Term,
with additional successive one year renewal terms. On December 15, 2019, we entered into an amendment of the
Strategic Collaboration Agreement, or the Strategic Collaboration Amendment, with Ms. Winfrey, pursuant to
which, among other things, the Initial Term was extended until April 17, 2023 (with no additional successive
renewal terms) after which a second term will commence and continue through the earlier of the date of the
Company’s 2025 annual meeting of shareholders or May 31, 2025, or the Second Term and together with the Initial
Term, the Strategic Term. During the remainder of the Initial Term, Ms. Winfrey will consult with us and participate
in developing, planning, executing and enhancing the WW 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. Subsequently, during the Second
Term, Ms. Winfrey and the Company will collaborate with each other towards the mutual objective of advancing
and promoting the WW programs and the Company, and in connection therewith, Ms. Winfrey will consult with the
Company and participate in developing, planning, executing and enhancing the WW programs and related
initiatives. In connection therewith, Ms. Winfrey will make available to the Company her knowledge, expertise, and
abilities in the areas of corporate management, consumer insights, advertising and marketing, consumer motivation,
and community activation and consult and participate in the design and planning of creative strategy and the related
execution of the consumer experience in connection with the WW programs. In addition, throughout the Second
Term, except as otherwise prohibited by applicable law, the Company will cause Ms. Winfrey to be nominated as a
director of the Company. 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
Strategic Term, and she will not engage in any other weight loss or weight management business, program,
products, or services during the Strategic Term and for one year thereafter. The Strategic Collaboration Amendment
will not become operative unless and until the Option Approval Date (as defined below) occurs on or before
June 30, 2020.
6
On October 18, 2015, we also entered into a Share Purchase Agreement with Ms. Winfrey, or, as amended,
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. On December 15, 2019, the Company entered into an amendment to the Winfrey
Purchase Agreement with Ms. Winfrey. Initially, the Winfrey Purchase Agreement provided 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. The amendment to the Winfrey Purchase Agreement provides Ms.
Winfrey with the right to be nominated as director of the Company through and until January 1, 2023. Ms. Winfrey
will not be required to resign as a director at such time. The amendment to the Winfrey Purchase Agreement will not
become operative unless and until the Option Approval Date (as defined below) occurs on or before June 30, 2020.
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. 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 March 2018, as permitted under the Winfrey Purchase Agreement and the Winfrey Option Agreement
transfer provisions, Ms. Winfrey sold 954,315 of the purchased shares discussed above and exercised a portion of
the Winfrey Option resulting in the sale of 1,405,387 shares issuable under such option, respectively.
In consideration of Ms. Winfrey entering into the Strategic Collaboration Amendment and the performance of
her obligations thereunder, on December 15, 2019, the Company and Ms. Winfrey entered into a term sheet relating
to the grant of a fully vested option to purchase 3,276,484 shares of our common stock, or the Winfrey Amendment
Option. The term sheet for the Winfrey Amendment Option, which includes the terms and conditions appended
thereto, is referred to herein as the Winfrey Amendment Option Agreement. The Winfrey Amendment Option is
exercisable at a price of $38.84 per share. The Winfrey Amendment Option is exercisable, in whole or in part, at any
time after the date upon which shareholder approval of the Winfrey Amendment Option, or the Option Approval
Date, becomes effective and prior to November 30, 2025, subject to earlier termination under certain circumstances,
including if a change in control (as defined in the Winfrey Amendment Option Agreement) of the Company occurs.
The shares issuable upon exercise of the Winfrey Amendment Option are subject to certain transfer restrictions and
a right of first offer and right of first refusal held by the Company. The Company will submit the Winfrey
Amendment Option for shareholder approval at the Company’s 2020 annual meeting of shareholders.
As discussed above, the Strategic Collaboration Amendment will not become operative if our shareholders do
not approve the Winfrey Amendment Option, and Ms. Winfrey could terminate the Strategic Collaboration
Agreement with us as a result. For additional information on risks arising from a potential loss of Ms. Winfrey’s
services or a change in the nature of our partnership with her, please see “Item 1A. Risk Factors—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.” of this
Annual Report on Form 10-K.
The transactions contemplated by the Strategic Collaboration Agreement, Winfrey Purchase Agreement,
Winfrey Option Agreement and Winfrey Amendment Option Agreement are collectively referred to herein as the
Winfrey Transaction.
7
Regulation
A number of laws and regulations govern our advertising and marketing, services, products, operations and
relations with consumers, licensees, franchisees, coaches, guides, employees 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 coaches, guides and employees.
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
As of December 28, 2019, we had approximately 17,000 employees, a majority of whom were part-time
employees. In addition, in certain of our markets, our coaches and guides are self-employed and are not included in
this total. We consider our relations with our employees, coaches and guides 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 corporate website
at corporate.ww.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.
We use our corporate website at corporate.ww.com and certain social media channels such as our corporate
Facebook page (www.facebook.com/WW), Instagram account (Instagram.com/WW) and Twitter account
(@ww_us) 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 corporate website at corporate.ww.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, or the Securities
Act, 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,” “aim” 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, debt service obligations and debt covenants, and our
exposure to variable rate indebtedness;
the ability 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 data security breaches or privacy concerns, including the costs of compliance with
evolving privacy laws and regulations;
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, social, intellectual property, 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;
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the impact of existing and future laws and regulations;
our failure to maintain effective internal control over financial reporting;
the possibility that the interests of Artal, the largest holder of our common stock and a shareholder with
significant influence over us, will conflict with our interests or the interests of other holders of our
common stock;
the impact that the sale of substantial amounts of our common stock by existing large shareholders, or
the perception that such sales could occur, could have on the market price of our common stock; and
other risks and uncertainties, including those detailed from time to time in our periodic reports filed with
the SEC.
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; the genetics and biotechnology 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, methods or technologies are developed and marketed. Furthermore, existing competitors may enter new
markets or expand their offerings or advertising and marketing programs. More effective or more favorably
perceived diet and weight and healthy living 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, social media sentiment, 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. Also, in recent years, 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.
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, such as our evolution from Weight Watchers to WW, 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.
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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. The goal of these efforts is to develop and implement a
comprehensive and competitive business strategy that addresses the continuing changes in the weight management
and healthy living marketplace and our position within that marketplace. Over the past several years, we have
increased our focus on overall health and wellness. 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 and receptivity 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 and subscribers. Our ability to
attract and retain members and subscribers depends significantly on the effectiveness of our advertising and
marketing practices. For example, if our advertising and marketing programs are not effective and fail to attract
sufficient recruitments during the first quarter of the fiscal year, our most important period for recruitments, it
historically has had an outsized negative impact on our performance for the remainder of the year. In addition, 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 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.
Our reputation could be impaired due to actions taken by our franchisees, licensees, suppliers and other
partners.
We believe that our 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. We license our 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 services and products. We also sell through a variety of channels, including in our studios and through
third-party retail partners, food and non-food products manufactured by third-party suppliers. In addition, we
integrate our services and products with those of other third parties, including through bundled offerings. Our third-
party partnerships also extend to event sponsorships, co-promotions, and retail pop-ups. 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, our 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, workshop attendance, Digital product subscriptions and product sales and, as a result, lower
revenues and profits.
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Our substantial amount of debt and our debt service obligations, as well as our exposure to variable rate
indebtedness, could adversely affect our financial condition, and the restrictions of our debt covenants could
impede our operations and flexibility.
As of December 28, 2019, our total debt was $1,605.3 million. In addition, at December 28, 2019, we had
$148.8 million available under our revolving credit facility. $1,305.3 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 2019, we had in effect an interest rate swap with a notional amount
of $1.0 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.
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 (other than when the aggregate
principal amount of our outstanding revolving loans plus letters of credit exceeds 33 1/3% of the amount of the
lenders’ revolving commitments, as further discussed below), 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) as of the end of a
fiscal quarter exceeds 33 1/3% of the amount of the lenders’ revolving commitments.
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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.
Additionally, borrowings under our credit facilities are at variable rates of interest and expose us to interest
rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness may increase even
though the amount borrowed remains the same, if our then-effective swaps, if any, do not reduce our exposure. In
addition, certain of our variable rate indebtedness uses LIBOR as a benchmark for establishing the rate of interest.
LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. On
July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it
intends to phase out LIBOR by the end of 2021. It is unclear if at that time LIBOR will cease to exist or if new
methods of calculating LIBOR will be established such that it continues to exist after 2021. The consequences of
these developments cannot be entirely predicted, but could include an increase in the cost of our variable rate
indebtedness. In the event that LIBOR is phased out, our Credit Agreement (defined hereafter) provides that the
Company and the administrative agent may amend the Credit Agreement to replace the LIBOR definition therein
with a successor rate subject to certain conditions. We may also need to renegotiate our other variable rate
indebtedness that utilizes LIBOR as a factor in determining the interest rate to replace LIBOR with the new standard
that is established.
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
wellness programs and pressure from our competitors. As of the end of fiscal 2019, we have a term loan facility with
an outstanding aggregate principal amount of $1,305.3 million due in November 2024, a revolving credit facility
with availability of $148.8 million 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 our 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, Digital
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. Disruptions in our websites, services and
products or network systems could result from a number of factors, including unknown technical defects,
insufficient capacity, the failure of our third-party providers to provide continuous and uninterrupted service and
unusual volume in traffic for our platforms. Such disruptions would be most impactful if they occurred during peak
activity periods and may impact accessibility to our services and products. While we maintain disaster recovery
capabilities to return to normal operation in a timely manner, and we deploy multiple parallel instances of our
applications across multiple computer resources, we do not have a fully redundant system that includes an
instantaneous recovery capability. In the event we experience significant disruptions, we may be unable to repair our
systems in an efficient and timely manner, which could have an adverse impact on our business.
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 data security breaches or
privacy concerns.
Breaches of data security, website defacements 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 and brands and 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, including by maintaining cybersecurity insurance coverage, and developed
systems and processes designed to protect such proprietary or customer information or data, these measures are
costly, and there can be no assurance that our efforts will prevent service interruptions or security breaches.
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Existing, proposed or new data privacy legislation and regulations, including interpretations thereof, could
also significantly affect our business. For example, the European General Data Protection Regulation (GDPR) took
effect in May 2018 and includes increased privacy and security requirements for companies that receive or process
personal data of residents of Europe. As a result, we have implemented measures to comply with these requirements,
including, among other things, documenting our data processing activities and informing users about how we use
their personal data. We also obtain consent and/or offer new controls to existing and new users in Europe before
processing data for certain aspects of our services and products. In addition, the GDPR requires submission of
personal data breach notifications to our designated European privacy regulator. The GDPR also includes significant
penalties for non-compliance with any of several requirements of the regulation. Data protection and privacy laws
have also been enacted by the U.S. federal and state governments, including the California Consumer Privacy Act
(CCPA), which became effective on January 1, 2020, the Health Insurance Portability and Accountability Act
(HIPAA), and other relevant statutes. These laws also typically include notification obligations and impose
significant penalties for non-compliance. The data privacy and security regulatory regime continues to evolve and is
increasingly demanding. Many states are considering privacy and security legislation and there are ongoing
discussions regarding a national privacy law. Variations in requirements across jurisdictions could present
compliance challenges.
Further, 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, or in certain cases suspect, a security breach and such notice or public disclosure is
required in the future, our reputation, brands and 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.
While no cybersecurity breach or attack to date has had a material impact on our business or results of
operations, there can be no assurance that our efforts to maintain the security and integrity of our information
technology networks and related systems will be effective or that attempted security breaches or disruptions would
not be successful or damaging. 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.
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 common stock, the market value of our debt 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.
16
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 operations, brand image and goodwill. In October 2015, Ms. Winfrey and the Company began a long-term,
strategic partnership pursuant to the terms of the Strategic Collaboration Agreement, which included her making a
substantial equity investment in the Company and joining our Board of Directors. The strategic partnership also
includes the provision of certain consulting services by Ms. Winfrey, and grants us the right to use her name and
marks for a specified period of time. In December 2019, Ms. Winfrey and the Company entered into the Strategic
Collaboration Amendment, which, among other things, extends the term of the Strategic Collaboration Agreement.
For additional details on these consulting services and rights and the applicable term during which we may benefit,
see “Item 1. Business—History—Winfrey Transaction” of this Annual Report on Form 10-K. The Strategic
Collaboration Amendment, however, will not become operative unless our shareholders approve the Winfrey
Amendment Option, as discussed further in “Item 1. Business—History—Winfrey Transaction”. If our shareholders
do not approve the Winfrey Amendment Option, Ms. Winfrey may terminate the Strategic Collaboration Agreement
in her sole discretion. 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 coaches and guides to support our customers in their weight management
efforts. If we fail to appropriately manage and motivate our coaches and guides, 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 coaches and guides could delay or hinder our successfully
executing our strategic initiatives.
17
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 offices, are located in leased office space and many of our workshops 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 studios 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, social and intellectual property
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; weakening or loss of the protection of intellectual property rights in some
countries and limitations on our ability to enforce our intellectual property rights under some local laws; and our
dependence on foreign personnel. For example, during the second quarter of fiscal 2016, the United Kingdom voted
by referendum to exit the European Union, commonly referred to as “Brexit.” On January 31, 2020, the United
Kingdom ceased to be part of the European Union. The impact of the United Kingdom’s departure from, and future
relationship with, the European Union are uncertain. Brexit has and continues to create general economic
uncertainty in the United Kingdom and European Union. The effects of Brexit could have an adverse impact on our
business, results of operations, financial condition, and/or cash flows, particularly with respect to our United
Kingdom reportable segment.
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.
18
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 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 2019 financial
results.
Our business may decline as a result of a downturn in general economic conditions or consumer confidence.
Our business is highly dependent on product subscriptions, workshop fees 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 product subscriptions, attendance at our
workshops 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 of our services and products or the 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.
19
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, whether at a gathering place, work
or otherwise, or accessing resources could adversely affect our business.
Our business is subject to conditions beyond our control, including extreme weather, terrorism, health
epidemics (such as coronavirus), loss of resources such as electricity and internet connections, national disasters and
other extraordinary events, that may prevent or impede workshop attendance or accessing our Digital products.
These conditions could also impact the ability of our suppliers and other third party partners to meet their
obligations to us and negatively impact our ability to provide our products and services to customers. 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.
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 and technology. 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, including reverse engineering of technology, 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.
20
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.
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. For example, the previously
disclosed adverse UK tax ruling relating to our self-employment model in the United Kingdom resulted in an
aggregate adverse charge of approximately $37.0 million in fiscal 2009. 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 coaches and guides 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 coaches and guides are providing medical advice. = We
may also be subject to claims that our coaches and guides 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.
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, coaches, guides, employees and government authorities in the
countries in which we operate.
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 on 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, coaches and guides. 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. Recent examples include the
enactment of the GDPR and the CCPA. 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, coaches, guides, licensees or
franchisees, or our services and products, may have an adverse impact on us.
21
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 has significant influence over us and may have conflicts of interest with us or the holders of our
common stock.
Artal owns approximately 22% of our outstanding common stock and has the ability to exercise significant
influence over the election and removal of our directors and 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 3% or more of our common stock, Artal will have the right pursuant to an agreement with us to
nominate directors to our Board of Directors in proportion to its stock ownership. The interests of Artal may not
coincide with our interests or the interests of other holders of our common stock.
If our existing large shareholders sell a substantial amount of shares of our common stock, the market price
of our common stock could decline.
The sale of substantial amounts of shares of our common stock by existing large shareholders, or the
perception that such sales could occur, including sales by Artal or Ms. Winfrey, could harm the prevailing market
price of shares of our common stock. In fiscal 2018, Artal sold 14,625,000 shares of our common stock and Ms.
Winfrey sold 2,359,702 shares of our common stock (including shares transferred by Ms. Winfrey as a gift to The
Oprah Winfrey Charitable Foundation that were subsequently sold by such foundation). These sales, and the
possibility that additional sales may occur in the future, also might make it more difficult for us to sell equity
securities in the future at a time and at a price that we deem appropriate. As of December 28, 2019, we had a total of
67,419,271 shares of our common stock outstanding. Substantially all of our outstanding shares of common stock
are freely tradable without restriction or further registration under the Securities Act, except that any shares held by
our affiliates, as that term is defined under Rule 144 of the Securities Act and including Artal and Ms. Winfrey, may
be sold only in compliance with certain limitations applicable to affiliates.
22
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.
23
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
We are currently headquartered in New York, New York in a leased office space, with additional corporate,
customer support, technology and certain other operations located in leased and shared office spaces elsewhere in
the United States and Canada. 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.
Item 3.
Legal Proceedings
Securities Class Action and Derivative Matters
In March 2019, two substantially identical class action complaints alleging violations of the federal securities
laws were filed by individual shareholders against the Company, certain of the Company’s current officers and the
Company’s former controlling shareholder, Artal Group, in the United States District Court for the Southern District
of New York. The actions were consolidated and lead plaintiffs were appointed in June 2019. A consolidated
amended complaint was filed on July 29, 2019, naming as defendants the Company, certain of the Company’s
current officers and directors, and Artal Group and certain of its affiliates. A second consolidated amended
complaint was filed on September 27, 2019. The operative complaint asserts claims on behalf of all purchasers of
the Company’s common stock between May 4, 2018 and February 26, 2019, inclusive, or the Class Period,
including purchasers of the Company’s common stock traceable to the May 2018 secondary offering of the
Company’s common stock by certain of its shareholders. The complaint alleges that, during the Class Period, the
defendants disseminated materially false and misleading statements and/or concealed or recklessly disregarded
material adverse facts. The complaint alleges claims under Sections 10(b) and 20(a) of the Exchange Act and Rule
10b-5 thereunder, and with respect to the secondary offering, under Sections 11, 12(a)(2), and 15 of the Securities
Act. The plaintiffs seek to recover unspecified damages on behalf of the class members. The Company believes that
the action is without merit and intends to vigorously defend it. The Company filed a motion to dismiss the complaint
on October 31, 2019.
Between March and July 2019, the Company received shareholder litigation demands alleging breaches of
fiduciary duties by certain current and former Company directors and executive officers, to the alleged injury of the
Company. The allegations in the demands relate to those contained in the ongoing securities class action litigation.
In response to the demands, pursuant to Virginia law, the Board of Directors has created a special committee to
investigate and evaluate the claims made in the demands. In addition, four derivative complaints were filed, each
making allegations against certain of the Company’s officers and directors and/or Artal Group and certain of its
affiliates. First, on June 13, 2019, a shareholder derivative complaint was filed in the Southern District of New York
against certain of the Company’s officers and directors alleging, among other things, that the defendants breached
fiduciary duties to the alleged injury of the Company. The plaintiff voluntarily dismissed the complaint on July 8,
2019 and the Company agreed to treat the complaint as a litigation demand. Second, on July 23, 2019, another
shareholder derivative complaint was filed in the Southern District of New York against certain of the Company’s
officers and directors alleging, among other things, that the defendants breached fiduciary duties to the alleged
injury of the Company. The plaintiff voluntarily dismissed the complaint the same day. Third, on October 25, 2019,
another shareholder derivative complaint was filed in the Southern District of New York against certain of the
Company’s officers and directors alleging, among other things, that the defendants breached fiduciary duties to the
alleged injury of the Company. Finally, on December 16, 2019, a shareholder derivative complaint was filed in New
York Supreme Court against certain of the Company’s officers and directors, and Artal Group and certain of its
affiliates, alleging, among other things, that the defendants breached fiduciary duties to the alleged injury of the
Company. The Company believes that these actions are without merit and intends to vigorously defend them.
24
Other Litigation Matters
Due to the nature of the Company’s activities, it is also, at times, subject to other 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.
25
INFORMATION ABOUT OUR EXECUTIVE OFFICERS AND DIRECTORS
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 and current positions of our executive officers and directors, all as of
December 28, 2019. 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.
Name
Mindy Grossman ..............................................
Nicholas P. Hotchkin ........................................
Age Position
62
54 Chief Financial Officer, Operating Officer, North America
President and Chief Executive Officer, Director
Michael F. Colosi..............................................
Corinne Pollier(-Bousquet)...............................
Raymond Debbane(1) .........................................
Steven M. Altschuler, M.D.(1)(2) .........................
Julie Bornstein ..................................................
Tracey D. Brown(2) ...........................................................
Jonas M. Fajgenbaum .......................................
Denis F. Kelly(2).................................................
Julie Rice(3) ........................................................
Thilo Semmelbauer(3) ........................................
Christopher J. Sobecki(1)(3) .................................
Oprah Winfrey ..................................................
and President, Emerging Markets
54 General Counsel and Secretary
55
President, International
64 Chairman of the Board of Directors
66 Director
49 Director
52 Director
47 Director
70 Director
49 Director
54 Director
61 Director
65 Director
(1)
(2)
(3)
Member of Compensation and Benefits Committee.
Member of Audit Committee.
Member of Nominating and Corporate Governance 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
Fanatics, Inc. and was previously a director of Bloomin’ Brands, 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. In addition
to his role as Chief Financial Officer, he was appointed as our Operating Officer, North America in March 2019 and
our President, Emerging Markets in March 2018. He also served as a member of our former 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.
26
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
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.
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 in September 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. 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 Blue Buffalo Pet Products, Inc.
Steven M. Altschuler, M.D. Dr. Altschuler has been a director since September 2012. Since May 2018, Dr.
Altschuler has served as a Managing Director, Healthcare Ventures, of Ziff Capital Partners, a private investment
firm. 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. Dr. Altschuler is a director of Adtalem Global Education Inc. and
previously served as Chair of the Board of Directors of Spark Therapeutics, Inc.
Julie Bornstein. Ms. Bornstein has been a director since February 2019. Since February 2018, Ms. Bornstein
has served as Chief Executive Officer of The Yes, a new venture-backed online shopping platform she co-founded.
From March 2015 to September 2017, Ms. Bornstein served as Chief Operating Officer at Stitch Fix, Inc., an online
styling services company. Prior to that, Ms. Bornstein served as Chief Digital Officer at Sephora, a cosmetic retail
company and subsidiary of LVMH Moët Hennessy Louis Vuitton SE, from August 2007 to March 2015. Ms.
Bornstein received a B.A. in Government from Harvard College and an M.B.A. from Harvard Business School. Ms.
Bornstein is a director of Redfin Corporation.
27
Tracey D. Brown. Ms. Brown has been a director since February 2019. Since June 2018, Ms. Brown has
served as Chief Executive Officer of the American Diabetes Association, the largest voluntary health organization in
the United States. Previously, Ms. Brown was with Sam’s Club, a membership retail warehouse club and division of
Walmart Inc., where she served as Senior Vice President of Operations and Chief Experience Officer from February
2017 to June 2018, Chief Member and Marketing Officer from January 2015 to February 2017, and Vice President
from October 2014 to January 2015. Prior to joining Sam’s Club, Ms. Brown held various roles at RAPP Dallas (a
part of the Omnicom Group), Direct Impact, Advanced Micro Devices, Peppers & Rogers Group, Dell, American
Express, Exxon and Procter & Gamble. Ms. Brown earned a Bachelor of Chemical Engineering from the University
of Delaware and an M.B.A. from Columbia Business School.
Jonas M. Fajgenbaum. Mr. Fajgenbaum has been a director since our acquisition by Artal Luxembourg in
September 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. In addition, Mr. Kelly is a Hearing Officer for National Arbitration and Mediation (NAM), one of the leading
dispute resolution institutions in the United States. 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.
Julie Rice. Ms. Rice has been a director since August 2018. Since June 2016, she has also served as the Co-
Founder of LifeShop LLC, an advising and investing company. From November 2017 to March 2019, Ms. Rice
served as a Partner at WeWork, a shared workspace company. After co-founding SoulCycle Inc., a fitness company,
in 2006, Ms. Rice served as Co-Chief Executive Officer from 2006 to 2015, Chief Talent and Creative Officer from
2015 to 2016 and a member of the board of directors from 2010 to 2018. Previously, Ms. Rice was a Talent
Manager at Handprint Entertainment from 1997 to 2004. Ms. Rice received a B.A. in English and Theater from the
State University of New York at Binghamton.
Thilo Semmelbauer. Mr. Semmelbauer has been a director since September 2016. He served as a member of
our former Interim Office of the Chief Executive Officer from September 2016 to July 2017. Since May 2019, Mr.
Semmelbauer has served as Managing Director of Insight Partners, a global private equity and venture capital firm,
where he previously served as a Senior Advisor from 2017 to 2019 and a Venture Partner from 2015 to 2017. 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 where 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 in
September 1999. He served as a member of our former 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.
28
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.
29
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 Nasdaq. Our common stock has traded on Nasdaq under the symbol “WW”
since April 22, 2019, prior to which it traded under the symbol “WTW.”
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, the addition of $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, and
its parents and subsidiaries under this program. The repurchase program currently has no expiration date. During the
fourth quarter of fiscal 2019, we repurchased no shares of our common stock under this program or otherwise. As of
the end of fiscal 2019, $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, 2020 was 184. 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.
30
Stock Performance Graph
The following graph sets forth the cumulative return on our common stock from January 2, 2015, the last
trading day of our 2014 fiscal year, through December 27, 2019, the last trading day of our 2019 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 and of which
we are currently a member, 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 January 2, 2015 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, as applicable, were reinvested.
$
250.00
200.00
150.00
100.00
50.00
0.00
1.2.15
12.31.15
12.30.16
12.29.17
12.28.18
12.27.19
WW International, Inc.
S&P 500 Index
S&P MidCap 400 Index
Cumulative Total Return ($)
1.2.15 12.31.15 12.30.16 12.29.17 12.28.18 12.27.19
Company/Index
WW International, Inc................................ 100.00 105.90
53.18 205.66 191.78 174.73
S&P 500 Index ........................................... 100.00 101.40 113.53 138.32 131.12 174.36
97.90 118.20 137.40 120.93 154.09
S&P MidCap 400 Index ............................. 100.00
31
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)
Fiscal 2019
(52 weeks)
Fiscal 2018
(52 weeks)
Fiscal 2017
(52 weeks)
Fiscal 2016
Fiscal 2015
(52 weeks)
(52 weeks)
Revenues, net..................................... $
Net income attributable to WW
International, Inc............................. $
Working capital (deficit) surplus (1) ... $
Total assets(1).......................................... $
Long-term debt(1) ............................... $
Earnings per share:
Basic............................................. $
Diluted.......................................... $
1,413.3 $
1,514.1 $
1,306.9 $
1,164.9 $
1,164.4
119.6 $
(98.7) $
1,498.3 $
1,479.9 $
223.7 $
25.1 $
1,414.5 $
1,669.7 $
163.5 $
(134.0) $
1,246.0 $
1,740.6 $
67.7 $
(57.2) $
1,271.0 $
1,981.3 $
32.9
(151.7)
1,394.3
1,996.4
1.78 $
1.72 $
3.38 $
3.19 $
2.54 $
2.40 $
1.06 $
1.03 $
0.56
0.56
(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 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 us 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.
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.
For additional details on the 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” of this Annual Report on Form 10-K.
32
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” 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 Tax Benefit
In fiscal 2019, we recognized (i) a $5.1 million, or $0.07 per fully diluted share, tax expense related to income
earned in foreign jurisdictions and (ii) a $3.5 million, or $0.05 per fully diluted share, tax expense related to global
intangible low-taxed income, or GILTI. These expenses were partially offset by (i) a $5.7 million, or $0.08 per fully
diluted share, tax benefit related to foreign-derived intangible income, or FDII, (ii) a $1.4 million, or $0.02 per fully
diluted share, tax benefit related to the reversal of tax reserves no longer needed and (iii) a $0.8 million, or $0.01 per
fully diluted share, tax benefit related to the cessation of certain publishing operations.
In fiscal 2018, we recognized (i) a $25.3 million, or $0.36 per fully diluted share, tax benefit related to tax
windfalls from stock compensation, (ii) an $8.5 million, or $0.12 per fully diluted share, tax benefit due to the
reversal of a valuation allowance on foreign tax credits that have been fully utilized, (iii) a $4.3 million, or $0.06 per
fully diluted share, tax benefit related to favorable tax return adjustments, (iv) a $3.4 million, or $0.05 per fully
diluted share, tax benefit primarily related to the reversal of tax reserves resulting from the closure of various tax
audits, (v) a $3.4 million, or $0.05 per fully diluted share, tax benefit due to the reversal of a valuation allowance
related to certain net operating losses that are now expected to be realized, and (vi) a $1.9 million, or $0.03 per fully
diluted share, tax benefit related to the cessation of operations of our Mexican subsidiary.
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.
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.
33
Working Capital
In fiscal 2019, the change in working capital was driven primarily by the decrease in cash on hand, operating
lease liabilities due within one year due to the adoption of the updated lease accounting guidance, a change in fair
value driven by the change in interest rates and an increase in derivative payable due to a new forward-starting
interest rate swap we entered into on June 7, 2019.
In fiscal 2018, the change in working capital was driven primarily by the increase in cash on hand.
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.
Other Comprehensive (Loss) Income
Other comprehensive loss, net of taxes, was $11.6 million in fiscal 2019 as compared to $3.2 million in fiscal
2018 due to the negative mark to market of our interest rate swaps, partially offset by the positive impact of foreign
currency translation adjustments. In fiscal 2019, due to hedge accounting, changes in other comprehensive income
decreased by $19.2 million ($14.4 million after tax) as compared to an increase of $7.2 million ($5.4 million after
tax) in fiscal 2018. In addition, foreign currency translation adjustments favorably impacted results by $3.7 million
($2.7 million after tax) in fiscal 2019 as compared to a negative impact of $11.5 million ($8.6 million after tax) in
fiscal 2018 primarily due to the currency revaluation of intercompany receivables and payables.
Other comprehensive loss, net of taxes, was $3.2 million in fiscal 2018 as compared to other comprehensive
income of $16.6 million in fiscal 2017 primarily due to the negative impact of foreign currency translation
adjustments, offset by the positive mark to market of our interest rate swap. In fiscal 2018, foreign currency
translation adjustments negatively impacted results by $11.5 million ($8.6 million after tax) as compared to a
favorable impact of $9.8 million ($6.0 million after tax) in fiscal 2017 primarily due to the currency revaluation of
intercompany receivables and payables. In addition, due to hedge accounting, changes in other comprehensive
income increased to $7.2 million ($5.4 million after tax) in fiscal 2018 as compared to an increase of $17.4 million
($10.6 million after tax) in fiscal 2017.
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 currency 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 currency revaluation
of intercompany receivables and payables.
34
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.
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, the
purchased shares and the Winfrey Option.
Restructuring Charges
In fiscal 2019, we recorded $6.3 million ($4.7 million after tax or $0.07 per fully diluted share) of charges
associated with our previously disclosed organizational realignment.
In fiscal 2015, we recorded $8.4 million ($5.1 million after tax or $0.09 per fully diluted share) of charges
associated with the previously disclosed restructuring of our organization.
Acquisition of Kurbo
On August 10, 2018, we acquired substantially all of the assets of Kurbo Health, Inc., or Kurbo, a family-
based healthy lifestyle coaching program, for a net purchase price of $3.1 million. Payment was in the form of cash.
The acquisition of Kurbo has been accounted for under the purchase method of accounting. Kurbo became a wholly
owned subsidiary of the Company and we began to consolidate the entity as of the date of acquisition.
Acquisition of Weilos
On March 11, 2015, we 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 we began to consolidate the entity
as of the date of acquisition.
Franchisee Acquisitions
The following are our acquisitions since the beginning of fiscal 2015:
Acquisition of Las Vegas Franchise. On October 21, 2019, we acquired substantially all of the assets of our
franchisee for certain territories in Nevada and Utah, Weight Watchers of Las Vegas, Inc., for a purchase price of
$4.5 million.
Acquisition of South Carolina Franchise. On December 10, 2018, we acquired substantially all of the assets of
our franchisee for certain territories in South Carolina, At Goal, Inc., for a purchase price of $4.0 million.
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.
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.
35
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, strategies, prospects, 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 powered by the world’s leading commercial weight management program.
We are focused on inspiring people to adopt healthy habits for real life and aim to democratize wellness and to
deliver wellness for all. With over five decades of weight management experience, expertise and know-how, we are
one of the most recognized and trusted brand names among weight-conscious consumers. In 2018, we announced
new articulations of our brands, including our evolving focus on WW, to further reinforce our mission to focus on
overall health and wellness. We educate our members and provide them with guidance and an inspiring community
to enable them to develop healthy habits. WW-branded services and products include digital offerings provided
through our websites, mobile sites and apps, workshops conducted by us and our franchisees, consumer products
(including licensed and endorsed products), and publications. Our primary sources of revenue are subscriptions for
our digital products and for our workshops. Our “Digital” business refers to providing subscriptions to our digital
product offerings, including the Personal Coaching + Digital product. Our “Studio + Digital” business refers to
providing access to our weekly in-person workshops combined with our digital subscription product offerings to
commitment plan subscribers. Our “Studio + Digital” business also includes the provision of access to workshops
for members who do not subscribe to commitment plans, including our “pay-as-you-go” members.
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, Continental Europe
(CE), United Kingdom 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.
Components of our Results of Operations
Revenues
We derive our revenues principally from:
(cid:129)
(cid:129)
(cid:129)
Service Revenues. Our “Service Revenues” consist of “Digital Subscription Revenues” and “Studio +
Digital Fees”. “Digital Subscription Revenues” consist of the fees associated with subscriptions for our
Digital offerings, including our Personal Coaching + Digital product. “Studio + Digital Fees” consist of
the fees associated with our subscription plans for combined workshops and digital offerings and other
payment arrangements for access to workshops.
In-workshop product sales. We sell a range of consumer products, including bars, snacks, cookbooks,
kitchen tools and other products from time to time in our workshops.
Licensing, franchise royalties and other. We license our trademarks and other intellectual property in
certain categories of food, beverages and other relevant consumer products and services. We also
endorse or co-brand with carefully selected branded consumer products and services. In addition, our
franchisees typically pay us a royalty fee of 10% of their Studio + Digital fee revenues as well as
purchase products for sale in their workshops.
We also generate other revenues including revenues from sales of products online through our ecommerce
platforms and through several trusted retail partners, magazine subscriptions, publishing and third-party advertising
in publications and on our websites and sales from the By Mail product.
36
The following table sets forth our revenues by category for the past three fiscal years.
Revenue Sources
(in millions)
Fiscal 2019 Fiscal 2018 Fiscal 2017
Service Revenues......................................................... $ 1,207.3 $ 1,273.2 $ 1,081.7
In-workshop product sales...........................................
137.9
87.3
Licensing, franchise royalties and other ......................
Total............................................................................. $ 1,413.3 $ 1,514.1 $ 1,306.9
148.9
92.1
118.5
87.6
Note: Totals may not sum due to rounding.
From fiscal 2017 through fiscal 2019, our revenues increased at a compound annual rate of 4.0% driven
primarily by an increase in Service Revenues. Additional revenue details are as follows:
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(cid:129)
(cid:129)
Service Revenues. Service Revenues increased at a compound annual rate of 5.6% from fiscal 2017
through fiscal 2019 due to an increase in Total Paid Weeks. Total Paid Weeks increased as a result of
year-over-year recruitment growth in both fiscal 2017 and fiscal 2018. End of Period Subscribers grew
in fiscal 2017, fiscal 2018 and fiscal 2019, in each case on a year-over-year basis. In fiscal 2017,
recruitment grew in all of our major markets. In fiscal 2018, recruitment growth continued in all of our
major markets driven by the successful launch of our program known as WW Freestyle in the majority
of our markets. In fiscal 2019, recruitment declined year-over-year due to cycling against the successful
launch of the WW Freestyle program and due to the impact of ineffective marketing at the start of fiscal
2019. In addition, member retention improved in fiscal 2017 and fiscal 2018 across all of our major
markets. Recruitment and retention continue to be a key strategic focus.
In-workshop product sales. In-workshop product sales decreased at a compound annual rate of 7.3%
from fiscal 2017 through fiscal 2019. This decrease was driven primarily by a decrease in the number of
our Studio + Digital subscribers.
Licensing, franchise royalties and other. All other revenues increased 0.1% on a compound annual rate
from fiscal 2017 through fiscal 2019.
Cost of Revenues
Total cost of revenues primarily consists of expenses to operate our studios and workshops, costs to sell
consumer products and costs to develop and operate our websites and digital products. Operating costs primarily
consist of salary expense paid to operations management, commissions and expenses paid to our employees, coaches
and guides, studio 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. Operating costs also include costs associated with our 24/7 Expert Chat and Personal Coaching +
Digital 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.
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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 across multiple platforms (e.g., broadcast, digital, electronic customer
relationship marketing (eCRM), direct mail, social media and public relations), 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, temporary help, audit, legal and litigation expenses as
well as facility costs and depreciation and amortization of systems in support of the business infrastructure and
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:
(in millions except percentages)
Gross Profit ................................................................ $
Gross Margin........................................................
2019
2018
2017
$
786.7
55.7%
866.4
$
57.2%
692.6
53.0%
Note: Totals may not sum due to rounding.
In fiscal 2018, the gross margin increase from fiscal 2017 was driven primarily by the mix shift to the higher
margin Digital business and improved operating leverage across our businesses.
In fiscal 2019, the gross margin decrease from fiscal 2018 was driven primarily by decreased operating
leverage across our businesses, partially offset by a mix shift to the higher margin Digital 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 recorded at December 30, 2017 related to our Brazil reporting unit:
(in millions except percentages)
Operating Income ...................................................... $
Operating Income Margin ...................................
Adjustments to Reported Amounts (1) .......................
Goodwill impairment......................................
Operating Income, as adjusted (1) .............................. $
Operating Income Margin impact
from above adjustment (1) ..................................
Operating Income Margin, as
adjusted (1) .........................................................
2019
2018
2017
288.0
$
20.4%
389.0
$
25.7%
267.3
20.5%
—
288.0
$
—
389.0
$
13.3
280.6
0.0%
0.0%
(1.0%)
20.4%
25.7%
21.5%
(1)
Note: Totals may not sum due to rounding.
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 goodwill impairment charge related to our Brazil reporting unit. See “Non-GAAP Financial Measures” below
for an explanation of our use of non-GAAP financial measures.
In fiscal 2018, the increase in operating income margin from fiscal 2017 was driven primarily by an increase
in gross margin as compared to the prior year.
38
In fiscal 2019, the decrease in operating income margin from fiscal 2018 was driven primarily by an increase
in marketing expenses as a percentage of revenue, by a decrease in gross margin and by an increase in selling,
general and administrative expenses as a percentage of revenue.
Material Trends
Performance Indicators
Our management team regularly reviews and analyzes a number of financial and operating metrics, including
the key performance indicators listed below, in order to manage our business, measure our performance, identify
trends affecting our business, determine the allocation of resources, make decisions regarding corporate strategies
and assess the quality and potential variability of our cash flows and earnings. We also believe that these key
performance indicators are useful to both management and investors for forecasting purposes and to facilitate
comparisons to our historical operating results. These metrics are supplemental to our GAAP results and include
operational measures.
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
Revenues—Our “Service Revenues” consist of “Digital Subscription Revenues” and “Studio + Digital
Fees”. “Digital Subscription Revenues” consist of the fees associated with subscriptions for our Digital
offerings, including our Personal Coaching + Digital product. “Studio + Digital Fees” consist of the fees
associated with our subscription plans for combined workshops and digital offerings and other payment
arrangements for access to workshops. In addition, “product sales and other” consists of sales of
consumer products in workshops, via ecommerce and through several trusted retail partners, revenues
from licensing, magazine subscriptions, publishing and third-party advertising in publications and on
our websites 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
royalties.
Paid Weeks—The “Paid Weeks” metric reports paid weeks by WW customers in Company-owned
operations for a given period as follows: (i) “Digital Paid Weeks” is the total paid subscription weeks
for our digital subscription products (including Personal Coaching + Digital); (ii) “Studio + Digital Paid
Weeks” is the sum of total paid commitment plan weeks which include workshops and digital offerings
and total “pay-as-you-go” weeks; and (iii) “Total Paid Weeks” is the sum of Digital Paid Weeks and
Studio + Digital Paid Weeks.
Incoming Subscribers—“Subscribers” refer to Digital subscribers and Studio + Digital subscribers who
participate in recur bill programs in Company-owned operations. The “Incoming Subscribers” metric
reports WW subscribers in Company-owned operations at a given period start as follows: (i) “Incoming
Digital Subscribers” is the total number of Digital, including Personal Coaching + Digital, subscribers;
(ii) “Incoming Studio + Digital Subscribers” is the total number of commitment plan subscribers that
have access to combined workshops and digital offerings; and (iii) “Incoming Subscribers” is the sum of
Incoming Digital Subscribers and Incoming Studio + Digital Subscribers. Recruitment and retention are
key drivers for this metric.
End of Period Subscribers—The “End of Period Subscribers” metric reports WW subscribers in
Company-owned operations at a given period end as follows: (i) “End of Period Digital Subscribers” is
the total number of Digital, including Personal Coaching + Digital, subscribers; (ii) “End of Period
Studio + Digital Subscribers” is the total number of commitment plan subscribers that have access to
combined workshops and digital offerings; and (iii) “End of Period Subscribers” is the sum of End of
Period Digital Subscribers and End of Period Studio + Digital Subscribers. Recruitment and retention
are key drivers for this metric.
Gross profit and operating expenses as a percentage of revenue.
39
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:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
increased competition from hardware and software-based mobile app and web-based programs and
approaches;
increased consumer interest in fad diets and weight loss trends;
the development of more effective or more favorably perceived weight management methods or
technologies, including by the pharmaceutical, genetics and biotechnology industries;
a failure to develop and market new, innovative services and products, to enhance our existing 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 or an increase
in the effectiveness of our competitors’ similar programs;
an impairment of our brands and other intellectual property;
a failure of our technology or systems to perform as designed;
any event or condition, including health epidemics and natural disasters, that may discourage or impede
people from gathering with others or accessing resources; and
a downturn in general economic conditions or consumer confidence.
North America Metrics and Business Trends
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 the WW Freestyle program in late fiscal
2017.
In fiscal 2018, North America Total Paid Weeks increased 26.3% versus the prior year. The increase in North
America Total Paid Weeks was driven by the higher number of Incoming Subscribers at the beginning of fiscal 2018
versus the beginning of fiscal 2017, higher Digital recruitments versus the prior year driven by the successful launch
of the WW Freestyle program, and improved retention versus the prior year.
In fiscal 2019, North America Total Paid Weeks increased 0.3% versus the prior year. The slight increase in
North America Total Paid Weeks was driven by the higher number of Incoming Subscribers at the beginning of
fiscal 2019 versus the beginning of fiscal 2018, partially offset by lower recruitments versus the prior year. A weak
recruitment start to fiscal 2019 was driven by cycling against the launch of the WW Freestyle program and
ineffective marketing in the first quarter of fiscal 2019. Fiscal 2019 year-over-year recruitment trends improved
through the year and, with the impact of the launch of the myWW program in mid-November 2019, the recruitment
trend turned positive in the fourth quarter of fiscal 2019 versus the prior year period.
Continental Europe Metrics and Business Trends
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 Digital business in fiscal 2017
versus the prior year.
40
In fiscal 2018, Continental Europe Total Paid Weeks increased 30.6% versus the prior year, driven by the
higher number of Incoming Subscribers at the beginning of fiscal 2018 versus the beginning of fiscal 2017, higher
recruitments versus the prior year driven by the successful launch of the WW Freestyle program, and improved
retention versus the prior year.
In fiscal 2019, Continental Europe Total Paid Weeks increased 11.7% versus the prior year, driven by the
higher number of Incoming Subscribers at the beginning of fiscal 2019 versus the beginning of fiscal 2018. A weak
recruitment start to fiscal 2019 was driven by cycling against the launch of the WW Freestyle program in local
markets and ineffective marketing in the first quarter of fiscal 2019. Fiscal 2019 year-over-year recruitment trends
were negative in the first quarter of fiscal 2019 versus the prior year period, and turned positive in the second quarter
of fiscal 2019 and remained so through the rest of the year.
United Kingdom Metrics and Business Trends
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 Digital business.
In fiscal 2018, UK Total Paid Weeks increased 13.2% versus the prior year. The increase in UK Total Paid
Weeks was driven by the higher number of Incoming Subscribers at the beginning of fiscal 2018 versus the
beginning of fiscal 2017, recruitment strength in our Digital business versus the prior year driven by the successful
launch of the WW Freestyle program, and improved retention versus the prior year.
In fiscal 2019, UK Total Paid Weeks increased 3.4% versus the prior year. The increase in UK Total Paid
Weeks was driven by the higher number of Incoming Subscribers at the beginning of fiscal 2019 versus the
beginning of fiscal 2018 and improved retention versus the prior year, partially offset by lower recruitments versus
the prior year. A weak recruitment start to fiscal 2019 was driven by cycling against the launch of the WW Freestyle
program and ineffective marketing in the first quarter of fiscal 2019. Fiscal 2019 year-over-year recruitment trends
improved through the year and, with the impact of the launch of the myWW program in mid-November 2019, the
recruitment trend turned positive in the fourth quarter of fiscal 2019 versus the prior year period.
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. Operating income and operating income margin 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, for fiscal 2017 to
exclude the impairment charge for our goodwill recorded at December 30, 2017 related to our Brazil reporting unit.
We generally refer to such non-GAAP measures as excluding or adjusting for the impact of the goodwill impairment
charge. 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”); total debt less unamortized deferred financing costs, unamortized debt discount and cash on hand (i.e.,
net debt); and a net debt/Adjusted EBITAS ratio. See “—Liquidity and Capital Resources—EBITDAS, Adjusted
EBITDAS and Net Debt” for the reconciliations of these non-GAAP financial measures to the most comparable
GAAP financial measure in each case. 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.
41
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.
Revenue Recognition
Revenues are recognized when control of the promised services or goods is transferred to our customers, in an
amount that reflects the consideration we expect to be entitled to in exchange for those services or goods.
We earn revenue from subscriptions for our digital products and by conducting workshops, for which we
charge a fee, predominantly through commitment plans, as well as prepayment plans or the “pay-as-you-go”
arrangement. We also earn revenue by selling consumer products (including publications) in our workshops, online
through our ecommerce platforms and to our franchisees, as well as through several trusted retail partners; collecting
royalties 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.
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Commitment plan revenues, prepaid workshop fees and magazine subscription revenue are recorded to
deferred revenue and amortized into revenue as control is transferred over the period earned since these performance
obligations are satisfied over time. Digital Subscription Revenues, consisting of the fees associated with
subscriptions for our Digital products, including our Personal Coaching + Digital product, are deferred and
recognized on a straight-line basis as control is transferred over the subscription period. One-time Digital sign-up
fees are considered immaterial in the context of the contract and the related revenue is recorded to deferred revenue
and amortized into revenue over the commitment period. In the Studio + Digital business, we generally charge non-
refundable registration and starter fees in exchange for access to our digital subscription products, an introductory
information session and materials we provide to new members. Revenue from these registration and starter fees is
considered immaterial in the context of the contract and is recorded to deferred revenue and amortized into revenue
over the commitment period. Revenue from “pay-as-you-go” workshop fees, consumer product sales and By Mail,
commissions and royalties is recognized at the point in time control is transferred, which is when services are
rendered, products are shipped to customers and partners and title and risk of loss passes to them, and commissions
and royalties are earned, respectively. Revenue from advertising in magazines and from magazine sales is
recognized upon distribution of the magazine. For revenue transactions that involve multiple performance
obligations, the amount of revenue recognized is determined using the relative fair value approach, which is
generally based on each performance obligation’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 Annual Impairment Test
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 5, 2019 and May 6, 2018, each the first day of fiscal May, on our goodwill
and other indefinite-lived intangible assets.
In performing our annual impairment analysis as of May 5, 2019 and May 6, 2018, we determined that the
carrying amounts of our 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.
When determining fair value, we utilize various assumptions, including projections of future cash flows,
growth rates and discount rates. A change in these underlying assumptions would likely cause a change in the results
of the impairment assessments 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, we would be required to record a corresponding
charge, which would impact earnings. We would also be required to reduce the carrying amounts of the related
assets on our balance sheet. We continue to evaluate these assumptions and believe that these assumptions 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” of this Annual Report
on Form 10-K.
The following is a discussion of our goodwill and franchise rights acquired impairment analysis.
43
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 net book values of goodwill in the
United States, Canada, Brazil and other countries as of the December 28, 2019 balance sheet date were $103.0
million, $41.0 million, $4.4 million and $9.6 million, respectively.
For all reporting units, except for Brazil, there was significant headroom in the goodwill impairment analysis
for fiscal 2019. Based on the results of our annual goodwill impairment test performed for all of our reporting units,
except for Brazil, as of the December 28, 2019 balance sheet date, for reporting units that hold 97.2% of our
goodwill, those units had an estimated fair value at least 60% higher than the respective reporting unit’s carrying
amount. Based on the results of our annual goodwill impairment test performed for our Brazil reporting unit, which
holds 2.8% of our goodwill as of the December 28, 2019 balance sheet date, the estimated fair value of this reporting
unit was approximately 3.0% higher than its carrying value. Accordingly, a change in the underlying assumptions
for Brazil would likely cause a change in the results of the impairment assessment and, as such, could result in an
impairment of the goodwill related to Brazil, for which the net book value was $4.4 million as of December 28,
2019.
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 our 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 analyses (except for
Brazil) for fiscal 2019 and fiscal 2018:
Debt-Free Cumulative Annual Cash Flow
Growth Rate ...............................................
Discount Rate .................................................
Fiscal
2019
4.2%
9.0%
Fiscal
2018
3.8% to 5.4%
8.7%
As it relates to our goodwill 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 our 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, all as reflected in the discount rate. The cost of debt was determined by estimating our current borrowing
rate.
44
For Brazil, the following are the more significant assumptions utilized in our annual goodwill impairment
analyses for fiscal 2019 and fiscal 2018:
Cumulative Annual Revenue Cash
Flow Growth Rate .....................................
Average Operating Income Margin..............
Average Operating Income Margin
Range.........................................................
Discount Rate ...............................................
Fiscal
2019
13.0%
10.2%
Fiscal
2018
14.8%
3.7%
(25.3%) to 24.3%
(17.3%) to 16.5%
16.0%
16.2%
Franchise Rights Acquired
Finite-lived franchise rights acquired are amortized over the remaining contractual period, which is generally
less than one year. Indefinite-lived franchise rights acquired are tested on an annual basis for impairment.
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 Studio + Digital business and a relief from royalty methodology for
our franchise rights related to our Digital 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 both the Studio + Digital
business and the Digital business in the country in which the applicable acquisition occurred. The net book values of
these franchise rights in the United States, Canada, United Kingdom, Australia, and New Zealand at December 28,
2019 were $671.9 million, $55.2 million, $11.8 million, $6.3 million, and $4.7 million, respectively.
For all units of account, except for New Zealand, there was significant headroom in the franchise rights
acquired impairment analysis for fiscal 2019. Based on the results of our annual franchise rights acquired
impairment analysis performed for all of our units of account, except for New Zealand, as of the December 28, 2019
balance sheet date, for units of account that hold 99.4% of our franchise rights acquired, those units had an estimated
fair value at least 40% higher than the respective units of account carrying amount. Based on the results of our
annual franchise rights acquired impairment test performed for our New Zealand unit of account, which holds 0.6%
of our franchise rights acquired as of the December 28, 2019 balance sheet date, the estimated fair value of this unit
of account exceeded its carrying value by approximately 3.0%. Accordingly, a change in the underlying assumptions
for New Zealand would likely cause a change in the results of the impairment assessment and, as such, could result
in an impairment of the franchise rights acquired related to New Zealand, for which the net book value was $4.7
million as of December 28, 2019.
In our hypothetical start-up approach analysis for fiscal 2019, 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 Studio + Digital
business in each country based on assumptions regarding revenue growth and operating income margins. The cash
flows associated with the Digital business in each country were based on the expected Digital revenue for such
country and the application of a market-based royalty rate. The cash flows for the Studio + Digital and Digital
businesses were discounted utilizing rates consistent with those utilized in the annual goodwill impairment analysis.
In performing this impairment analysis for fiscal 2019, for the year of maturity, we assumed Studio + Digital
revenue (comprised of Studio + Digital Fees and revenues from products sold to members in workshops) growth of
(5.3%) to 3.5% in the year of maturity from fiscal 2018, in each case, earned in the applicable country and assumed
cumulative annual revenue growth rates for the years beyond the year of maturity of 1.6%. For the year of maturity
and beyond, we assumed operating income margin rates of 0.3% to 17.4%.
Other Critical Accounting Policies
Information concerning other critical 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.
45
RESULTS OF OPERATIONS FOR FISCAL 2019 (52 weeks) COMPARED TO FISCAL 2018 (52 weeks)
The table below sets forth selected financial information for fiscal 2019 from our consolidated statements of
net income for fiscal 2019 versus selected financial information for fiscal 2018 from our consolidated statements of
net income for fiscal 2018.
Summary of Selected Financial Data
(In millions, except per share amounts)
Revenues, net................................... $
Cost of revenues ..............................
Fiscal 2019
1,413.3
626.7
Fiscal 2018
1,514.1
$
647.7
$
Increase/
(Decrease)
%
Change
% Change
Constant
Currency
(100.8)
(21.1)
(6.7%)
(3.3%)
(5.0%)
(1.7%)
Gross profit ................................
Gross Margin %.........................
786.7
55.7%
866.4
57.2%
(79.7)
(9.2%)
(7.4%)
Marketing expenses .........................
Selling, general & administrative
expenses........................................
Operating income.......................
Operating Income Margin % .....
244.0
226.3
17.7
7.8%
10.4%
254.7
288.0
20.4%
251.1
389.0
25.7%
3.6
(101.0)
1.4%
(26.0%)
2.8%
(24.4%)
Interest expense ...............................
Other expense, net ...........................
Income before income taxes ......
Provision for income taxes ..............
Net income .................................
Net loss attributable to the
noncontrolling interest..................
135.3
1.8
151.0
31.5
119.4
0.2
142.3
2.6
244.1
20.5
223.6
0.2
(7.1)
(0.8)
(93.1)
(5.0%)
(31.8%)
(38.1%)
11.0
(104.1)
53.8%
(46.6%)
(5.0%)
(31.8%)
(35.7%)
62.8%
(44.7%)
(0.0)
(6.4%)
(2.0%)
Net income attributable to
WW International, Inc............. $
Weighted average diluted shares
outstanding ...................................
Diluted earnings per share ............... $
Note: Totals may not sum due to rounding.
Consolidated Results
Revenues
119.6
$
223.7
$
(104.1)
(46.5%)
(44.7%)
69.6
1.72
$
70.1
3.19
$
(0.6)
(1.47)
(0.8%)
(46.1%)
(0.8%)
(44.2%)
Revenues in fiscal 2019 were $1,413.3 million, a decrease of $100.8 million, or 6.7%, versus fiscal 2018.
Excluding the impact of foreign currency, which negatively impacted our revenues for fiscal 2019 by $25.8 million,
revenues in fiscal 2019 would have decreased 5.0% versus the prior year. This decrease was driven primarily by the
revenue declines in North America. See “—Segment Results” for additional details on revenues.
46
Cost of Revenues and Gross Profit
Total cost of revenues in fiscal 2019 decreased $21.1 million, or 3.3%, versus the prior year. Gross profit
decreased $79.7 million, or 9.2%, in fiscal 2019 compared to fiscal 2018 primarily due to the decrease in revenues.
Excluding the impact of foreign currency, which negatively impacted gross profit for fiscal 2019 by $15.5 million,
gross profit in fiscal 2019 would have decreased 7.4% versus the prior year. Gross margin in fiscal 2019 decreased
1.6% to 55.7% versus 57.2% in fiscal 2018. Gross margin decline was driven primarily by a decrease in operating
leverage across all businesses, partially offset by a mix shift to the higher margin Digital business.
Marketing
Marketing expenses for fiscal 2019 increased $17.7 million, or 7.8%, versus fiscal 2018. Excluding the impact
of foreign currency, which decreased marketing expenses for fiscal 2019 by $6.0 million, marketing expenses in
fiscal 2019 would have increased 10.4% versus fiscal 2018. This increase in marketing expense was largely due to
increased TV media and production costs, Online media expense, and agency and celebrity fees, all on a global
basis. Marketing expenses as a percentage of revenue increased to 17.3% in fiscal 2019 as compared to 14.9% in
fiscal 2018.
Selling, General and Administrative
Selling, general and administrative expenses for fiscal 2019 increased $3.6 million, or 1.4%, versus fiscal
2018. Excluding the impact of foreign currency, which decreased selling, general and administrative expenses for
fiscal 2019 by $3.5 million, selling, general and administrative expenses for fiscal 2019 would have increased 2.8%
versus the prior year. The increase in selling, general and administrative expenses in fiscal 2019 was driven
primarily by expenses related to our previously disclosed organizational realignment in the first quarter of fiscal
2019 and higher salary and related costs partially offset by a reduction in professional fees. Selling, general and
administrative expenses as a percentage of revenue for fiscal 2019 increased to 18.0% from 16.6% for fiscal 2018.
Operating Income
Operating income for fiscal 2019 decreased $101.0 million, or 26.0%, versus fiscal 2018. Excluding the
impact of foreign currency, which negatively impacted operating income for fiscal 2019 by $6.0 million, operating
income in fiscal 2019 would have decreased 24.4% versus the prior year. This decrease in operating income was
driven primarily by lower operating income in all reportable segments as compared to the prior year. Operating
income margin for fiscal 2019 decreased 5.3% to 20.4% from 25.7% for fiscal 2018. This decrease in operating
income margin was driven primarily by an increase in marketing expenses as a percentage of revenue, by a decrease
in gross margin and by an increase in selling, general and administrative expenses as a percentage of revenue.
Interest Expense
Interest expense in fiscal 2019 decreased $7.1 million, or 5.0%, versus fiscal 2018. The decrease in interest
expense was driven primarily by a decrease in our outstanding indebtedness resulting from principal repayments.
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 2019 and fiscal 2018 and excluding the
impact of our interest rate swap then in effect, increased to 8.07% per annum at fiscal 2019 year end from 7.63% per
annum at fiscal 2018 year end. Including the impact of our interest rate swap then in effect, 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 2019 and fiscal 2018, increased to 8.02% per annum at fiscal
2019 year end from 7.79% per annum at fiscal 2018 year end. See “—Liquidity and Capital Resources—Long-Term
Debt” for additional details regarding our debt, including interest rates and payments thereon. For additional details
on our interest rate swaps, see “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in this Annual
Report on Form 10-K.
47
Other Expense, Net
Other expense, net, which consists primarily of the impact of foreign currency on intercompany transactions,
decreased by $0.8 million in fiscal 2019 to $1.8 million of expense as compared to $2.6 million of expense in the
prior year.
Tax
Our effective tax rate for fiscal 2019 was 20.9% as compared to 8.4% for fiscal 2018. The effective tax rate in
fiscal 2019 was impacted by a $5.1 million tax expense related to income earned in foreign jurisdictions and a $3.5
million tax expense related to GILTI. The impact of these expenses was partially offset by a $5.7 million tax benefit
related to FDII, a $1.4 million tax benefit related to the reversal of tax reserves no longer needed, and a $0.8 million
tax benefit related to the cessation of certain publishing operations.
Our effective tax rate in fiscal 2018 was impacted by (i) a $25.3 million tax benefit related to tax windfalls
from stock compensation, (ii) an $8.5 million tax benefit due to the reversal of a valuation allowance related to
foreign tax credits that have been fully utilized, (iii) a $4.3 million tax benefit related to favorable tax return
adjustments, (iv) a $3.4 million tax benefit primarily related to the reversal of tax reserves resulting from the closure
of various tax audits, (v) a $3.4 million tax benefit due to the reversal of a valuation allowance related to certain net
operating losses that are now expected to be realized, and (vi) a $1.9 million tax benefit related to the cessation of
operations of our Mexican subsidiary.
Net Income Attributable to the Company and Earnings Per Share
Net income attributable to the Company in fiscal 2019 decreased $104.1 million, or 46.5%, from $223.7
million in fiscal 2018. Excluding the impact of foreign currency, which negatively impacted net income attributable
to the Company in fiscal 2019 by $4.2 million, net income attributable to the Company in fiscal 2019 would have
decreased by 44.7% versus the prior year.
Earnings per fully diluted share, or EPS, in fiscal 2019 was $1.72 compared to $3.19 in fiscal 2018. EPS for
fiscal 2019 included a $0.07 expense in connection with our organizational realignment in the first quarter of fiscal
2019.
EPS for fiscal 2018 included: (i) a $0.25 tax benefit from Ms. Winfrey’s exercise of a portion of her stock
options; (ii) a $0.12 tax benefit due to the reversal of a valuation allowance related to foreign tax credits that have
been fully utilized; (iii) a $0.06 tax benefit related to favorable tax return adjustments; and (iv) a $0.05 tax benefit
due to the reversal of a valuation allowance related to certain net operating losses that are now expected to be
realized.
48
Segment Results
Metrics and Business Trends
The following tables set forth key metrics by reportable segment for fiscal 2019 and the percentage change in
those metrics versus the prior year:
(in millions except percentages and as noted)
GAAP
Product
Sales &
Other
Total
Revenues
Service
Revenues
Fiscal 2019
Constant Currency
Product
Sales &
Other
Service
Revenues
Total
Revenues
Total
Paid
Weeks
Incoming
Subscribers
EOP
Subscribers
(in thousands)
North
America .... $ 848.5
255.0
CE.............
71.0
UK ............
Other (1).....
32.8
Total ......... $1,207.3
$130.8
38.3
23.5
13.5
$206.1
$ 979.3
293.3
94.6
46.2
$1,413.3
$ 849.9
269.5
74.3
35.2
$1,228.9
$131.0
40.6
24.7
13.9
$210.2
$ 980.9
310.0
99.0
49.2
$1,439.1
151.7
57.4
20.5
5.5
235.0
2,558.5
940.2
333.7
100.0
3,932.3
2,722.1
1,059.9
361.4
101.8
4,245.3
% Change Fiscal 2019 vs. Fiscal 2018
North
America ....
CE.............
UK ............
Other (1).....
Total .........
(5.8%) (10.5%)
(0.8%) (18.9%)
(9.2%) (18.5%)
(10.9%) (27.8%)
(5.2%) (14.5%)
(6.5%)
(3.6%)
(11.7%)
(16.6%)
(6.7%)
(5.7%) (10.4%)
4.8% (14.1%)
(5.0%) (14.4%)
(4.3%) (25.3%)
(3.5%) (12.8%)
(6.3%) 0.3%
1.9% 11.7%
(7.5%) 3.4%
(11.4%) 1.0%
(5.0%) 3.1%
20.9%
30.0%
12.7%
27.8%
22.4%
6.4%
12.7%
8.3%
1.8%
8.0%
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)
Digital Subscription
Revenues
Digital
Incoming
EOP
Studio + Digital Fees
Studio
+
Digital
Fiscal 2019
GAAP
Constant
Currency
Paid
Weeks
Digital
Subscribers
Digital
Subscribers
GAAP
Constant
Currency
Paid
Weeks
(in thousands)
Incoming
Studio +
Digital
Subscribers
EOP
Studio +
Digital
Subscribers
(in thousands)
North
America ...... $401.9
CE ............... 167.0
UK .............. 26.9
Other (1) ....... 14.2
Total............ $610.0
$ 402.6
176.5
28.1
15.3
$ 622.4
100.9
45.8
10.1
3.2
160.0
1,648.4
730.3
160.1
55.3
2,594.0
1,870.5
863.4
189.7
61.4
2,984.9
$446.6
88.0
44.1
18.6
$597.3
$ 447.3
93.0
46.2
20.0
$ 606.5
50.7
11.6
10.5
2.3
75.1
910.1
209.9
173.6
44.7
1,338.4
851.6
196.6
171.8
40.4
1,260.4
% Change Fiscal 2019 vs. Fiscal 2018
6.1%
North
6.3% 7.5%
America ......
CE ............... 11.7% 18.0% 17.9%
UK ..............
5.2% 10.0% 12.4%
Other (1) .......
9.4% 9.7%
1.7%
Total............
9.6% 10.6%
7.4%
31.8%
36.6%
19.2%
24.9%
32.1%
13.5% (14.5%) (14.4%) (11.5%)
18.2% (18.2%) (13.5%) (7.7%)
18.5% (16.2%) (12.3%) (4.0%)
11.0% (18.7%) (12.7%) (9.1%)
15.1% (15.3%) (14.0%) (9.8%)
5.1%
11.3%
7.3%
31.6%
7.1%
(6.4%)
(6.4%)
(1.0%)
(9.5%)
(5.8%)
Note: Totals may not sum due to rounding.
(1)
Represents Australia, New Zealand and emerging markets operations and franchise revenues.
49
North America Performance
The decrease in North America revenues in fiscal 2019 versus the prior year was driven by both a decrease in
Service Revenues and a decrease in product sales and other. This decrease in Service Revenues in fiscal 2019 versus
the prior year was driven primarily by the decrease in Studio + Digital Fees, partially offset by an increase in Digital
Subscription Revenues. The slight increase in North America Total Paid Weeks was driven by the higher number of
Incoming Subscribers at the beginning of fiscal 2019 versus the beginning of fiscal 2018, partially offset by lower
recruitments versus the prior year. Lower recruitments in fiscal 2019 were driven by cycling against the successful
launch of the WW Freestyle program and by the impact of ineffective marketing at the start of fiscal 2019.
The decrease in North America product sales and other in fiscal 2019 versus the prior year was driven
primarily by a decrease in product sales.
Continental Europe Performance
The decrease in Continental Europe revenues in fiscal 2019 versus the prior year was driven by the impact of
foreign currency. Excluding foreign currency, revenues in fiscal 2019 would have increased above the prior year
driven by an increase in Service Revenues. This increase in Service Revenues in fiscal 2019 versus the prior year
was driven by an increase in Digital Subscription Revenues, partially offset by a decrease in Studio + Digital Fees.
The increase in Continental Europe Total Paid Weeks was driven primarily by the higher number of Incoming
Subscribers at the beginning of fiscal 2019 versus the beginning of fiscal 2018.
The decrease in Continental Europe product sales and other in fiscal 2019 versus the prior year was driven
primarily by a decrease in product sales.
United Kingdom Performance
The decrease in UK revenues in fiscal 2019 versus the prior year was driven by both the decrease in Service
Revenues and product sales and other. This decrease in Service Revenues in fiscal 2019 versus the prior year was
driven primarily by the decrease in Studio + Digital Fees. The increase in UK Total Paid Weeks was driven by the
higher number of Incoming Subscribers at the beginning of fiscal 2019 versus the beginning of fiscal 2018 and
improved retention versus the prior year, partially offset by lower recruitments in fiscal 2019. Lower recruitments in
fiscal 2019 were driven by cycling against the successful launch of the WW Freestyle program and by the impact of
ineffective marketing at the start of fiscal 2019.
The decrease in UK product sales and other in fiscal 2019 versus the prior year was driven primarily by a
decrease in product sales and to a lesser extent a decrease in licensing.
Other Performance
The decrease in Other revenues in fiscal 2019 versus the prior year was driven by both a decrease in Service
Revenues and a decrease in product sales and other. The decrease in Service Revenues in fiscal 2019 versus the
prior year was driven primarily by the decrease in Studio + Digital Fees.
The decrease in Other product sales and other in fiscal 2019 versus the prior year was driven primarily by a
decrease in product sales.
50
RESULTS OF OPERATIONS FOR FISCAL 2018 (52 weeks) COMPARED TO FISCAL 2017 (52 weeks)
The table below sets forth selected financial information for fiscal 2018 from our consolidated statements of
net income for fiscal 2018 versus selected financial information for fiscal 2017 from our consolidated statements of
net income for fiscal 2017.
Summary of Selected Financial Data
(In millions, except
per share amounts)
Revenues, net..................................... $
Cost of revenues ................................
Fiscal 2018
1,514.1
647.7
Fiscal 2017
1,306.9
$
614.3
$
Increase/
(Decrease)
%
Change
% Change
Constant
Currency
207.2
33.4
15.9%
5.4%
14.7%
4.5%
Gross profit ..................................
Gross Margin %...........................
866.4
57.2%
692.6
53.0%
173.8
25.1%
23.8%
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 ........
Provision for (benefit from) income
taxes...................................................
Net income ...................................
Net loss attributable to the
noncontrolling interest.......................
Net income attributable to WW
International, Inc. ...................... $
Weighted average diluted shares
outstanding ........................................
Diluted earnings per share ................. $
Note: Totals may not sum due to rounding.
*
Note: Percentage in excess of 100.0%.
226.3
200.8
25.5
12.7%
10.3%
251.1
0.0
389.0
25.7%
211.2
13.3
267.3
20.5%
39.9
(13.3)
121.7
18.9%
(100.0%)
45.5%
18.6%
(100.0)%
44.2%
142.3
2.6
0.0
244.1
20.5
223.6
0.2
112.8
0.5
9.0
145.1
29.6
2.1
(9.0)
99.0
26.2%
100.0% *
(100.0%)
68.2%
26.2%
100.0% *
(100.0%)
65.8%
(18.2)
163.3
38.7
60.3
(100.0%)*
36.9%
(100.0%)*
35.4%
0.2
(0.0)
(8.2%)
4.4%
223.7
$
163.5
$
60.2
36.8%
35.4%
70.1
3.19
$
68.2
2.40
$
1.9
0.80
2.7%
33.2%
2.7%
31.8%
51
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.
Operating
Income
Operating
Income
Margin
(in millions except percentages)
Fiscal 2017............................................................. $
Adjustments to Reported Amounts (1)
Goodwill impairment .......................................
Total Adjustments (1)...................................
Fiscal 2017, as adjusted (1) ................................... $
267.3
20.5%
13.3
13.3
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 2018 were $1,514.1 million, an increase of $207.2 million, or 15.9%, versus fiscal 2017.
Excluding the impact of foreign currency, which positively impacted our revenues for fiscal 2018 by $14.9 million,
revenues in fiscal 2018 would have increased 14.7% versus the prior year. This increase was driven by revenue
growth in all major markets. See “—Segment Results” for additional details on revenues.
Cost of Revenues and Gross Profit
Total cost of revenues in fiscal 2018 increased $33.4 million, or 5.4%, versus the prior year. Gross profit
increased $173.8 million, or 25.1%, in fiscal 2018 compared to fiscal 2017 primarily due to the increase in revenues.
Excluding the impact of foreign currency, which positively impacted gross profit for fiscal 2018 by $9.1 million,
gross profit in fiscal 2018 would have increased 23.8% versus the prior year. Gross margin in fiscal 2018 increased
4.2% to 57.2% versus 53.0% in fiscal 2017. Gross margin expansion was driven primarily by improved operating
leverage and a mix shift to the higher margin Digital business.
Marketing
Marketing expenses for fiscal 2018 increased $25.5 million, or 12.7%, versus fiscal 2017. Excluding the
impact of foreign currency, which increased marketing expenses for fiscal 2018 by $4.8 million, marketing expenses
in fiscal 2018 would have increased 10.3% versus fiscal 2017. This increase in marketing expense was largely due
to investments in both digital marketing initiatives and evolving our brand. Marketing expenses as a percentage of
revenue decreased to 14.9% in fiscal 2018 as compared to 15.4% in fiscal 2017.
Selling, General and Administrative
Selling, general and administrative expenses for fiscal 2018 increased $39.9 million, or 18.9%, versus fiscal
2017. Excluding the impact of foreign currency, which increased selling, general and administrative expenses for
fiscal 2018 by $0.7 million, selling, general and administrative expenses for fiscal 2018 would have increased 18.6%
versus the prior year. The increase in selling, general and administrative expenses in fiscal 2018 was driven
primarily by higher compensation and incentive-related costs as well as investments in strategic initiatives. Selling,
general and administrative expenses as a percentage of revenue for fiscal 2018 increased to 16.6% from 16.2% for
fiscal 2017.
52
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 2018 increased $121.7 million, or 45.5%, versus fiscal 2017. Excluding the $13.3
million impairment charge for goodwill related to our Brazil reporting unit from fiscal 2017 and the impact of
foreign currency, which positively impacted operating income for fiscal 2018 by $3.6 million, operating income in
fiscal 2018 would have increased 37.3% versus the prior year. This increase in operating income was driven by
higher operating income in both North America and Continental Europe as compared to the prior year. Operating
income margin for fiscal 2018 increased 5.2% to 25.7% from 20.5% for fiscal 2017. This increase in operating
income margin was driven by an increase in gross margin as compared to the prior year.
Interest Expense
Interest expense in fiscal 2018 increased $29.6 million, or 26.2%, versus fiscal 2017. The increase in interest
expense was driven primarily by higher interest expense arising from the interest rates under our 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 2018 and fiscal 2017 and excluding the impact of our interest rate swap then in
effect, increased to 7.63% per annum at fiscal 2018 year end from 4.96% per annum at fiscal 2017 year
end. Including the impact of our interest rate swap then in effect, 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 2018 and fiscal 2017, increased to 7.79% per annum at fiscal 2018 year end from
5.78% per annum at fiscal 2017 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 payments on our debt. For additional details on our interest rate swaps, see “Item 7A. Quantitative
and Qualitative Disclosures about Market Risk” in this Annual Report on Form 10-K.
Other Expense, Net
Other expense, net, which consists primarily of the impact of foreign currency on intercompany transactions,
increased by $2.1 million in fiscal 2018 to $2.6 million from $0.5 million in the prior year.
Tax
Our effective tax rate for fiscal 2018 was 8.4% as compared to (12.6%) for fiscal 2017. The effective tax rate
in fiscal 2018 was impacted by (i) a $25.3 million tax benefit related to tax windfalls from stock compensation, (ii)
an $8.5 million tax benefit due to the reversal of a valuation allowance related to foreign tax credits that have been
fully utilized, (iii) a $4.3 million tax benefit related to favorable tax return adjustments, (iv) a $3.4 million tax
benefit primarily related to the reversal of tax reserves resulting from the closure of various tax audits, (v) a $3.4
million tax benefit due to the reversal of a valuation allowance related to certain net operating losses that are now
expected to be realized, and (vi) a $1.9 million tax benefit related to the cessation of operations of our Mexican
subsidiary.
53
As previously disclosed, on December 22, 2017, the Tax Cuts and Jobs Act of 2017, or 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 13 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.
Net Income Attributable to the Company and Earnings Per Share
Net income attributable to the Company in fiscal 2018 increased $60.2 million, or 36.8%, from fiscal 2017.
Excluding the impact of foreign currency, which positively impacted net income attributable to the Company in
fiscal 2018 by $2.4 million, net income attributable to the Company in fiscal 2018 would have increased by 35.4%
versus the prior year.
EPS in fiscal 2018 was $3.19 compared to $2.40 in fiscal 2017. EPS for fiscal 2018 included: (i) a $0.25 tax
benefit from Ms. Winfrey’s exercise of a portion of her stock options; (ii) a $0.12 tax benefit due to the reversal of a
valuation allowance related to foreign tax credits that have been fully utilized; (iii) a $0.06 tax benefit related to
favorable tax return adjustments; and (iv) a $0.05 tax benefit due to the reversal of a valuation allowance related to
certain net operating losses that are now expected to be realized.
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) a $0.05 tax benefit due to a change in estimate related to the availability of
certain foreign tax credits; and (iii) a $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) a $0.20
impairment charge for goodwill related to our Brazil reporting unit and (ii) a $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.
54
Segment Results
Metrics and Business Trends
The following tables set forth key metrics by reportable segment for fiscal 2018 and the percentage change in
those metrics versus the prior year:
(in millions except percentages and as noted)
GAAP
Product
Sales &
Other
Total
Revenues
Service
Revenues
Fiscal 2018
Constant Currency
Product
Sales &
Other
Service
Revenues
Total
Revenues
Total
Paid
Weeks
Incoming
Subscribers
EOP
Subscribers
(in thousands)
North
America.......... $ 901.1
CE ..................
257.1
UK..................
78.2
Other (1) ..........
36.8
Total ............... $1,273.2
$146.2
47.2
28.8
18.6
$240.9
$1,047.3
304.3
107.1
55.5
$1,514.1
$ 900.8
247.9
75.3
38.3
$1,262.2
$146.1
44.6
27.5
18.8
$237.1
$1,047.0
292.5
102.8
57.0
$1,499.3
151.2
51.4
19.8
5.4
227.9
2,116.4
723.2
296.1
78.3
3,213.9
2,558.5
940.2
333.7
100.0
3,932.3
% Change Fiscal 2018 vs. Fiscal 2017
North
America..........
CE ..................
UK..................
Other (1) ..........
Total ...............
16.2%
31.3%
6.2%
(0.6%)
17.7%
8.2%
8.7%
9.4%
(8.0%)
7.0%
15.0%
27.2%
7.1%
(3.2%)
15.9%
16.2%
26.6%
2.2%
3.3%
16.7%
8.2%
2.6%
4.4%
(7.4%)
5.3%
15.0% 26.3%
22.3% 30.6%
2.8% 13.2%
(0.5%) 9.1%
14.7% 25.5%
23.1%
28.1%
11.7%
8.4%
22.6%
20.9%
30.0%
12.7%
27.8%
22.4%
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)
Digital Subscription
Revenue
Digital
Incoming
EOP
Studio + Digital
Fees
Studio
+ Digital
Fiscal 2018
GAAP
Constant
Currency
Paid
Weeks
Digital
Subscribers
Digital
Subscribers
GAAP
Constant
Currency
Paid
Weeks
(in thousands)
Incoming
Studio
+ Digital
Subscribers
EOP
Studio
+ Digital
Subscribers
(in thousands)
North
America........ $378.7
CE ................ 149.6
UK................ 25.6
Other (1) ........ 14.0
Total ............. $567.8
$ 378.6
144.6
24.6
14.4
$ 562.3
93.9
38.8
8.9
2.9
144.6
1,250.6
534.6
134.3
44.3
1,963.9
1,648.4
730.3
160.1
55.3
2,594.0
$522.4
107.5
52.7
22.9
$705.4
$ 522.2
103.3
50.6
23.8
$ 699.9
57.3
12.6
10.9
2.5
83.3
865.8
188.5
161.7
34.0
1,250.1
910.1
209.9
173.6
44.7
1,338.4
% Change Fiscal 2018 vs. Fiscal 2017
North
America........ 34.6% 34.5% 38.9%
CE ................ 46.6% 41.7% 38.2%
UK................ 19.0% 14.7% 24.2%
Other (1) ........ 18.6% 22.7% 27.5%
Total ............. 36.2% 34.9% 37.5%
28.2%
36.1%
21.8%
9.0%
29.3%
5.8%
5.7% 10.0%
31.8%
36.6% 14.7% 10.2% 11.6%
5.4%
19.2%
(6.4%)
24.9%
9.1%
32.1%
(2.9%)
(5.8%)
5.3%
1.0%
(9.6%)
6.1%
16.4%
9.8%
4.5%
7.7%
13.4%
5.1%
11.3%
7.3%
31.6%
7.1%
Note: Totals may not sum due to rounding.
(1)
Represents Australia, New Zealand and emerging markets operations and franchise revenues.
55
North America Performance
The increase in North America revenues in fiscal 2018 versus the prior year was driven primarily by the
increase in Service Revenues. This increase in Service Revenues in fiscal 2018 versus the prior year was driven
primarily by the increase in Digital Subscription Revenues and to a lesser extent an increase in Studio + Digital
Fees. The increase in North America Total Paid Weeks was driven by the higher number of Incoming Subscribers at
the beginning of fiscal 2018 versus the beginning of fiscal 2017, higher Digital recruitments versus the prior year
driven by the successful launch of the WW Freestyle program, and improved retention in fiscal 2018 versus the prior
year.
The increase in North America consumer product sales and other in fiscal 2018 versus the prior year was
driven by an increase in in-workshop product sales.
Continental Europe Performance
The increase in Continental Europe revenues in fiscal 2018 versus the prior year was driven primarily by the
increase in Service Revenues. This increase in Service Revenues in fiscal 2018 versus the prior year was driven
primarily by the increase in Digital Subscription Revenues. The increase in Continental Europe Total Paid Weeks
was driven by the higher number of Incoming Subscribers at the beginning of fiscal 2018 versus the beginning of
fiscal 2017, higher Digital recruitments versus the prior year driven by the successful launch of the WW Freestyle
program and improved retention in fiscal 2018 versus the prior year.
The increase in Continental Europe product sales and other in fiscal 2018 versus the prior year was driven
primarily by an increase in product sales through our ecommerce platforms.
United Kingdom Performance
The increase in UK revenues in fiscal 2018 versus the prior year was driven primarily by the increase in
Service Revenues. This increase in Service Revenues in fiscal 2018 versus the prior year was driven primarily by the
increase in Digital Subscription Revenues. The increase in UK Total Paid Weeks was driven by the higher number
of Incoming Subscribers at the beginning of fiscal 2018 versus the beginning of fiscal 2017, higher Digital
recruitments versus the prior year driven by the successful launch of the WW Freestyle program, and improved
retention in fiscal 2018 versus the prior year.
The increase in UK product sales and other in fiscal 2018 versus the prior year was driven by an increase in
product sales, partially offset by a decline in licensing revenue.
Other Performance
Other revenues declined in fiscal 2018 versus the prior year. Although Service Revenues increased on a
constant currency basis in fiscal 2018 versus the prior year, the decrease in Product Sales and Other more than offset
such increase. The increase in Other Total Paid Weeks was driven primarily by the higher number of Incoming
Subscribers at the beginning of fiscal 2018 versus the beginning of fiscal 2017 and higher Digital recruitments
versus the prior year driven by the successful launch of the WW Freestyle program in fiscal 2018.
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 strategic initiatives, pay down debt and engage in selective
acquisitions. We believe that cash generated by operations during fiscal 2019, our cash on hand of approximately
$182.7 million at December 28, 2019, our $148.8 million of availability under our Revolving Credit Facility and our
continued cost focus will provide us with sufficient liquidity to meet our obligations for the next twelve months.
56
As market conditions warrant, we may, from time to time, seek to purchase our outstanding debt securities or
loans, including the Notes and borrowings under the Credit Facilities (each as defined below). Such transactions
could be privately negotiated or open market transactions, pursuant to tender offers or otherwise. Subject to any
applicable limitations contained in the agreements governing, or terms of, our indebtedness, any such purchases
made by us may be funded by the use of cash on our balance sheet or the incurrence of new secured or unsecured
debt. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material.
Any such purchases may equate to a substantial amount of a particular class or series of debt, which may reduce the
trading liquidity of such class or series.
Balance Sheet Working Capital
The following table sets forth certain relevant measures of our balance sheet working capital deficit, excluding
cash and cash equivalents and current portion of long-term debt at:
December 28,
December 29,
2019
2018
(in millions)
Increase/
(Decrease)
Total current assets .............................................. $
Total current liabilities.........................................
Working capital (deficit) surplus .........................
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................................................... $
295.4 $
394.1
(98.7)
182.7
96.3
366.4 $
341.3
25.1
237.0
77.0
(71.0)
52.8
123.8
(54.2)
19.3
(185.2) $
(134.9) $
50.3
Note: Totals may not sum due to rounding.
The following table sets forth a summary of the primary factors contributing to the $50.3 million increase in
our working capital deficit, excluding cash and cash equivalents and current portion of long-term debt:
December 28,
2019
December 29,
2018
Increase/
(Decrease)
Impact to
Working
Capital Deficit
Portion of operating lease liabilities due within
one year .............................................................
$
Prepaid income taxes............................................ $
Derivative payable, net......................................... $
Deferred revenue .................................................. $
Accrued interest.................................................... $
Operational liabilities and other, net of assets...... $
Income taxes payable ........................................... $
Working capital deficit change, excluding cash
and cash equivalents and current portion of
long-term debt ...................................................
Note: Totals may not sum due to rounding.
33.2 $
8.4 $
21.6 $
60.6 $
24.6 $
50.0 $
3.6 $
(in millions)
— $
34.0 $
2.1 $
53.5 $
28.7 $
62.0 $
22.6 $
33.2 $
(25.6) $
19.5 $
7.1 $
(4.0) $
(12.0) $
(19.0) $
33.2
25.6
19.5
7.1
(4.0)
(12.0)
(19.0)
$
50.3
The increase in the portion of operating lease liabilities due within one year was due to the adoption of the
updated lease accounting guidance. The decrease in prepaid income taxes and income taxes payable was a function
of timing and primarily related to refunds received and taxes accrued. The increase in derivative payable was due to
a new forward-starting interest rate swap we entered into on June 7, 2019 and a change in fair value driven by the
change in interest rates. The increase in deferred revenue was driven by the launch of the loyalty program in all of
our major markets. The decrease in operational liabilities and other, net of assets, which includes accrued salaries
and wages, was driven primarily by the timing of payments.
57
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 ........................ $
182.4 $
(52.6) $
(183.0) $
295.6 $
(64.0) $
(74.4) $
222.3
(40.8)
(211.5)
December 28,
2019
December 29,
2018
(in millions)
December 30,
2017
Operating Activities
Fiscal 2019
Cash flows provided by operating activities of $182.4 million in fiscal 2019 reflected a decrease of $113.2
million from $295.6 million of cash flows provided by operating activities in fiscal 2018. The decrease in cash
provided by operating activities was primarily the result of a decrease in net income attributable to the Company of
$104.1 million in fiscal 2019 as compared to the prior year.
Fiscal 2018
Cash flows provided by operating activities of $295.6 million in fiscal 2018 reflected an increase of $73.3
million from $222.3 million of cash flows provided by operating activities in fiscal 2017. The increase in cash
provided by operating activities was primarily the result of $60.3 million of higher net income attributable to the
Company in fiscal 2018 as compared to the prior year.
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 provided by 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.
Investing Activities
Fiscal 2019
Net cash used for investing activities totaled $52.6 million in fiscal 2019, a decrease of $11.3 million as
compared to fiscal 2018. This decrease was primarily attributable to investments in intellectual property and cash
paid for acquisitions in fiscal 2018. For additional information on our acquisitions, see “Item 6. Selected Financial
Data.”
Fiscal 2018
Net cash used for investing activities totaled $64.0 million in fiscal 2018, an increase of $23.2 million as
compared to fiscal 2017. This increase was primarily attributable to higher capital expenditures for
technology, investments in intellectual property and cash paid for acquisitions in fiscal 2018 as compared to the
prior year. For additional information on our acquisitions, see “Item 6. Selected Financial Data.”
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 was primarily attributable to higher capital expenditures for technology in
fiscal 2017, which were partially offset by the Miami Acquisition in fiscal 2016. For additional information on our
acquisitions, see “Item 6. Selected Financial Data.”
58
Financing Activities
Fiscal 2019
Net cash used for financing activities totaled $183.0 million in fiscal 2019, primarily due to $100.0 million
used for the previously disclosed debt prepayments and $77.0 million used for scheduled debt repayments under our
Term Loan Facility. See “—Long-Term Debt” for additional details on debt payments.
Fiscal 2018
Net cash used for financing activities totaled $74.4 million in fiscal 2018, primarily due to $25.0 million of net
repayments on the outstanding principal amount on the Revolving Credit Facility and $57.8 million used for
scheduled debt repayments under our Term Loan Facility, which was partially offset by $33.4 million in proceeds
from stock options exercised in fiscal 2018.
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 of $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 Revolving Credit Facility of $25.0 million in connection with the November 2017 debt
refinancing.
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 28, 2019:
Long-Term Debt
At December 28, 2019
(Balances in millions)
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
1,305.3
300.0
1,605.3
96.3
7.4
21.6
1,479.9
Note: Totals may not sum due to rounding.
59
On November 29, 2017, we refinanced our then-existing credit facilities (referred to herein as the November
2017 debt refinancing) 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 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 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 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 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
Revolving Credit Facility.
On both May 31, 2019 and October 10, 2019, we made a voluntary prepayment at par of $50.0 million in
respect of our outstanding term loans under the Term Loan Facility. As a result of these prepayments, we wrote off
deferred financing fees of $0.5 million in the aggregate in fiscal 2019.
As of December 28, 2019, we had $1,305.3 million of debt outstanding under the Credit Facilities with $148.8
million of availability and $1.2 million in issued but undrawn letters of credit outstanding under the Revolving
Credit Facility. There was no outstanding balance under the Revolving Credit Facility as of December 28, 2019.
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:
(cid:129)
(cid:129)
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 First Lien Net Debt Leverage Ratio
(as used 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 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).
60
Borrowings under the 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 cost 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 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 cost of funds for U.S.
dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs. As of
December 28, 2019, the applicable margins for the LIBOR rate borrowings under the Term Loan Facility and the
Revolving Credit Facility were 4.75% and 2.25%, respectively. In the event that LIBOR is phased out as is currently
expected, the Credit Agreement provides that the Company and the administrative agent may amend the Credit
Agreement to replace the LIBOR definition therein with a successor rate subject to notifying the lending syndicate
of such change and not receiving within five business days of such notification objections to such replacement rate
from lenders holding at least a majority of the aggregate principal amount of loans and commitments then
outstanding under the Credit Agreement. If we fail to do so, our borrowings will be based off of the alternative base
rate plus a margin.
On a quarterly basis, we pay a commitment fee to the lenders under the Revolving Credit Facility in respect of
unutilized commitments thereunder, which commitment fee fluctuates depending upon our Consolidated First Lien
Net Debt Leverage Ratio. Based on our Consolidated First Lien Net Debt Leverage Ratio as of December 28, 2019,
the commitment fee was 0.35% per annum. Our Consolidated First Lien Net Debt Leverage Ratio as of
December 28, 2019 was 3.01:1.00.
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 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 28, 2019, we were in compliance with all applicable financial covenants in the Credit
Agreement governing the Credit Facilities.
Senior Notes
The Notes were issued pursuant to an Indenture, dated as of 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.
61
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 Credit Facilities.
Outstanding Debt
At December 28, 2019, we had $1,605.3 million outstanding under the Credit Facilities and the Notes,
consisting of the Term Loan Facility of $1,305.3 million, $0.0 million drawn down on the Revolving Credit Facility
and $300.0 million in aggregate principal amount of Notes issued and outstanding.
At the end of fiscal 2019, fiscal 2018 and fiscal 2017, our debt consisted of both fixed and variable-rate
instruments. Interest rate swaps were entered into to hedge a portion of the cash flow exposure associated with our
variable-rate borrowings. Further information regarding our interest rate swaps can be found in Part IV, Item 15 of
this Annual Report on Form 10-K under Note 19 “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 in effect, was
approximately 8.08%, 7.73% and 7.12% per annum at December 28, 2019, December 29, 2018 and December 30,
2017, respectively, based on interest rates on these 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 in effect, was approximately 7.59%, 7.46% and 7.34% per annum at December 28, 2019, December 29, 2018
and December 30, 2017, respectively, based on interest rates on these 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 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, Adjusted EBITDAS and Net Debt
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.
62
The table below sets forth the reconciliations for EBITDAS and Adjusted EBITDAS, each a non-GAAP
financial measure, to net income, the most comparable GAAP financial measure, for the fiscal years ended:
(in millions)
December 28,
2019
December 29,
2018
December 30,
2017
Net Income ....................................... $
Interest ..............................................
Taxes ................................................
Depreciation and Amortization ........
Stock-based Compensation ..............
EBITDAS ......................................... $
Goodwill Impairment (1) ...................
Adjusted EBITDAS.......................... $
119.6 $
135.3
31.5
45.0
20.5
$
351.9
—
351.9
$
223.7
142.3
20.5
44.1
20.2
450.8
—
450.8
$
$
$
163.5
112.8
(18.2)
50.9
14.9
323.9
13.3
337.2
Note: Totals may not sum due to rounding.
(1)
The “Adjusted EBITDAS” 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.
Reducing leverage is a capital structure priority for the Company. As of December 28, 2019, our net
debt/Adjusted EBITDAS ratio was 4.0x.
The table below sets forth the reconciliation for net debt, a non-GAAP financial measure, to total debt, the
most comparable GAAP financial measure, for the fiscal year ended:
(in millions)
Total debt ............................................................. $
Less: Unamortized deferred financing costs........
Less: Unamortized debt discount.........................
Less: Cash on hand ..............................................
Net debt................................................................ $
December 28, 2019
1,605.3
7.4
21.6
182.7
1,393.4
Note: Totals may not sum due to rounding.
We present EBITDAS, Adjusted EBITDAS and net debt/Adjusted EBITDAS because we consider them to be
useful supplemental measures of our performance. In addition, we believe EBITDAS, Adjusted EBITDAS and net
debt/Adjusted 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 2019 was approximately $51.8
million.
63
The following table summarizes our future contractual obligations as of the end of fiscal 2019:
Payment Due by Period
Total
Less than
1 Year
1-3 Years 3-5 Years
More than
5 Years
Long-Term Debt(1).....................................................
Principal ............................................................... $ 1,605.3 $
558.1
Interest..................................................................
96.3 $
138.0
154.0 $ 1,055.0 $
183.9
210.3
300.0
25.9
Operating leases, finance leases and non-cancelable
agreements..............................................................
218.6
Total (2) ................................................................. $ 2,382.0 $
49.0
283.3 $
34.5
69.1
433.4 $ 1,273.4 $
66.0
391.9
(in millions)
Note: Totals may not sum due to rounding.
(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 2019 remains constant for all periods presented.
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.
Acquisition of Kurbo
On August 10, 2018, we acquired substantially all of the assets of Kurbo, a family-based healthy lifestyle
coaching program, for a net purchase price of $3.1 million.
Franchisee Acquisitions
On October 21, 2019, we acquired substantially all of the assets of our franchisee for certain territories in
Nevada and Utah, Weight Watchers of Las Vegas, Inc., for a purchase price of $4.5 million.
On December 10, 2018, we acquired substantially all of the assets of our franchisee for certain territories in
South Carolina, At Goal, Inc., for a purchase price of $4.0 million.
Factors Affecting Future Liquidity
Any future acquisitions, joint ventures or other similar transactions could require additional capital and we
cannot be certain that any additional capital will be available on acceptable terms or at all. Our ability to fund our
capital expenditure requirements, interest, principal and dividend payment obligations and working capital
requirements 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 Arrangements
As part of our ongoing business, we do not participate in arrangements 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.
64
Seasonality
Our business is seasonal due to the importance of the winter season to our overall member recruitment
environment. Historically, we experience our highest level of recruitment during the first quarter of the year, which
is supported with the highest concentration of advertising spending. Therefore, our number of End of Period
Subscribers in the first quarter of the year is typically higher than the number in other quarters of the year,
historically reflecting a decline over the course of the year.
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 2019 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 Credit Facilities.
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 to $1.0 billion on April 1, 2019. This
interest rate swap effectively fixed 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 2019, we had $1,305.3 million of variable rate debt,
of which $305.3 million remained unhedged.
As of December 28, 2019, borrowings under the Credit Facilities bore interest at LIBOR plus an applicable
margin of 4.75%. For the 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 28, 2019, our interest rate swap in effect had a notional amount of $1.0 billion. Accordingly, as of
December 28, 2019, 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 90 basis point
increase in interest rates would have increased annual interest expense by approximately $2.7 million and a
hypothetical 90 basis point decrease in interest rates would have decreased annual interest expense by approximately
$2.7 million. This increase is driven primarily by the interest rate applicable to our 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 our exposure to market risk from the end of fiscal 2018 as compared
to the end of fiscal 2019.
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.
65
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-
43 and our financial statement schedule on page S-1, including the report thereon of PricewaterhouseCoopers LLP
on pages F-2 to F-4.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be
disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’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 28, 2019, the end of fiscal
2019. 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 2019, 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 GAAP.
Our management assessed the effectiveness of our internal control over financial reporting as of December 28,
2019, the end of fiscal 2019. 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 28, 2019, our
internal control over financial reporting was effective based on those criteria.
The effectiveness of our internal control over financial reporting as of December 28, 2019 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which
appears on pages F-2 to F-4 to our consolidated financial statements.
66
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.
67
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 2020 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 and (ii) 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.
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 our corporate website at corporate.ww.com/govdocs.
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 our
corporate website at corporate.ww.com/govdocs and https://corporate.ww.com/corporate-
actions//Index?KeyGenPage=1073752069, respectively. 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.
68
Item 15.
Exhibits and Financial Statement Schedules
PART IV
(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.
69
WW 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 28, 2019 and December 29, 2018 .................................................
F-5
Consolidated Statements of Net Income for the fiscal years ended December 28, 2019, December 29, 2018,
and December 30, 2017 ................................................................................................................................
F-6
Consolidated Statements of Comprehensive Income for the fiscal years ended December 28, 2019,
December 29, 2018 and December 30, 2017 ................................................................................................
F-7
Consolidated Statements of Changes in Total Deficit for the fiscal years ended December 28, 2019,
December 29, 2018 and December 30, 2017 ................................................................................................
F-8
Consolidated Statements of Cash Flows for the fiscal years ended December 28, 2019, December 29, 2018,
and December 30, 2017 .................................................................................................................................
F-9
Notes to Consolidated Financial Statements ......................................................................................................
F-10
Schedule II—Valuation and Qualifying Accounts and Reserves for the fiscal years ended
December 28, 2019, December 29, 2018 and December 30, 2017 ...............................................................
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 WW International, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of WW International, Inc. and its subsidiaries (the
“Company”) as of December 28, 2019 and December 29, 2018, 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 28, 2019, 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 28, 2019, 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 28, 2019 and December 29, 2018, and the results of its operations
and its cash flows for each of the three fiscal years in the period ended December 28, 2019 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 28, 2019,
based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 3 to the consolidated financial statements, the Company changed the manner in which it
accounts for leases in 2019.
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.
F-2
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
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.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that (i) relates
to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way
our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical
audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which
it relates.
Goodwill and Indefinite-Lived Franchise Rights Acquired Impairment Assessments - United States and Canada
As described in Notes 2 and 7 to the consolidated financial statements, goodwill associated with the United States
and Canada reporting units was $103 million and $41 million, respectively, as of December 28, 2019, and the
indefinite-lived franchise rights acquired for the United States and Canada was $672 million and $55 million,
respectively, as of December 28, 2019. Management reviews goodwill and indefinite-lived franchise rights acquired
for potential impairment on at least an annual basis or more often if events so require. Potential goodwill impairment
is identified by comparing the estimated fair value of a reporting unit to its carrying value, and potential impairment
of indefinite-lived franchise rights acquired is identified by comparing the estimated fair value for these rights to
their carrying value. Fair value of goodwill is estimated by management using a discounted cash flow approach. Fair
value of indefinite-lived franchise rights acquired is estimated by management using a discounted cash flow
approach referred to as the hypothetical start-up approach for franchise rights related to the Company’s Studio +
Digital business and a relief from royalty methodology for franchise rights related to the Company’s Digital
business. Management uses various assumptions to determine fair value, including revenue growth rates, operating
income margin, market-based royalty rate, and discount rates.
The principal considerations for our determination that performing procedures relating to the goodwill and
indefinite-lived franchise rights acquired impairment assessments for the United States and Canada is a critical audit
matter are there was significant judgment and estimation by management when developing the fair value
measurements. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing
procedures and evaluating audit evidence related to management’s revenue and cash flow projections and significant
assumptions, including revenue growth rates and operating income margins.
F-3
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming
our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of
controls relating to management’s goodwill and indefinite-lived franchise rights acquired impairment assessments,
including controls over the valuation of the Company’s reporting units and indefinite-lived franchise rights acquired.
These procedures also included, among others, testing management’s process for developing the fair value
estimates, including (i) evaluating the appropriateness of the discounted cash flow approach and the relief from
royalty methodology, (ii) testing the completeness, accuracy and relevance of underlying data used in the discounted
cash flow approach and relief from royalty methodology, and (iii) evaluating the significant assumptions used by
management, including revenue growth rates and operating income margins. Evaluating management’s assumptions
related to revenue growth rates and operating income margins involved evaluating whether the assumptions used by
management were reasonable considering the current and past performance of the reporting units and indefinite-
lived franchise rights acquired and whether these assumptions were consistent with evidence obtained in other areas
of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the
Company’s discounted cash flow approach and relief from royalty methodology and the discount rates.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 25, 2020
We have served as the Company’s auditor since 1999.
F-4
WW INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AT
(IN THOUSANDS)
December 28,
December 29,
2019
2018
ASSETS
CURRENT ASSETS
Cash and cash equivalents ........................................................................... $
Receivables (net of allowances: December 28, 2019 - $1,813 and
December 29, 2018 - $1,743) ...................................................................
Inventories ...................................................................................................
Prepaid income taxes ...................................................................................
Prepaid marketing and advertising ..............................................................
Prepaid expenses and other current assets ...................................................
TOTAL CURRENT ASSETS................................................................
Property and equipment, net .............................................................................
Operating lease assets .......................................................................................
Franchise rights acquired ..................................................................................
Goodwill............................................................................................................
Other intangible assets, net ...............................................................................
Deferred income taxes ......................................................................................
Other noncurrent assets .....................................................................................
TOTAL ASSETS ................................................................................... $
LIABILITIES AND TOTAL DEFICIT
CURRENT LIABILITIES
Portion of long-term debt due within one year............................................ $
Portion of operating lease liabilities due within one year ...........................
Accounts payable.........................................................................................
Salaries and wages payable .........................................................................
Accrued marketing and advertising .............................................................
Accrued interest ...........................................................................................
Other accrued liabilities...............................................................................
Derivative payable .......................................................................................
Income taxes payable...................................................................................
Deferred revenue .........................................................................................
TOTAL CURRENT LIABILITIES .......................................................
Long-term debt, net...........................................................................................
Long-term operating lease liabilities.................................................................
Deferred income taxes ......................................................................................
Other..................................................................................................................
TOTAL LIABILITIES...........................................................................
Commitments and contingencies (Note 16)
Redeemable noncontrolling interest..................................................................
TOTAL DEFICIT
Common stock, $0 par value; 1,000,000 shares authorized; 120,352
shares issued at December 28, 2019 and December 29, 2018..................
Treasury stock, at cost, 52,933 shares at December 28, 2019 and 53,396
shares at December 29, 2018 ....................................................................
Retained earnings ........................................................................................
Accumulated other comprehensive loss ......................................................
TOTAL DEFICIT ..................................................................................
TOTAL LIABILITIES AND TOTAL DEFICIT................................... $
182,736 $
236,974
30,519
27,204
8,395
15,954
30,582
295,390
54,066
151,983
753,445
157,916
59,031
14,319
12,164
1,498,314 $
96,250 $
33,236
29,064
66,656
14,815
24,637
43,558
21,597
3,644
60,613
394,070
1,479,920
128,464
175,235
2,446
2,180,135
27,247
25,851
33,997
7,040
35,315
366,424
52,202
0
751,134
152,519
57,162
16,230
18,870
1,414,541
77,000
0
27,098
64,600
14,052
28,651
48,218
5,578
22,618
53,501
341,316
1,669,708
0
190,258
18,289
2,219,571
3,722
3,913
0
0
(3,158,274)
2,500,083
(27,352)
(685,543)
1,498,314 $
(3,175,624)
2,382,438
(15,757)
(808,943)
1,414,541
The accompanying notes are an integral part of the consolidated financial statements.
F-5
WW INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET INCOME FOR THE FISCAL YEARS ENDED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
December 28,
December 29,
December 30,
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 .............................................
Provision for (benefit from) income taxes .............................
Net income........................................................................
Net loss attributable to the noncontrolling interest ................
Net income attributable to WW International, Inc. .......... $
Earnings Per Share attributable to WW
International, Inc.
2019
1,207,266
206,071
1,413,337
502,907
123,748
626,655
786,682
243,998
254,699
0
287,985
135,267
1,758
0
150,960
31,513
119,447
169
119,616
Basic.................................................................................. $
Diluted .............................................................................. $
Weighted average common shares outstanding
Basic..................................................................................
Diluted ..............................................................................
1.78
1.72
67,188
69,550
$
$
$
$
2018
1,273,196 $
240,925
1,514,121
508,477
139,234
647,711
866,410
226,319
251,106
0
388,985
142,346
2,578
0
244,061
20,493
223,568
181
223,749 $
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
3.38 $
3.19 $
66,280
70,115
2.54
2.40
64,329
68,248
The accompanying notes are an integral part of the consolidated financial statements.
F-6
WW INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE FISCAL YEARS ENDED
(IN THOUSANDS)
December 28,
December 29,
December 30,
Net income .................................................................................
Other comprehensive (loss) gain:
$
Foreign currency translation gain (loss) ...............................
Income tax (expense) benefit on foreign currency
translation gain (loss).........................................................
Foreign currency translation gain (loss), net of taxes...........
(Loss) gain on derivatives.....................................................
Income tax benefit (expense) on (loss) gain on
derivatives..........................................................................
(Loss) gain on derivatives, net of taxes ................................
Total other comprehensive (loss) gain .......................................
Comprehensive income ..............................................................
Net loss attributable to the noncontrolling interest...............
Foreign currency translation loss, net of taxes
attributable to the noncontrolling interest..........................
Comprehensive loss attributable to the noncontrolling
interest .....................................................................................
Comprehensive income attributable to WW
International, Inc. ....................................................................
2019
2018
119,447
$
223,568 $
2017
163,317
3,676
(11,462)
9,848
(939)
2,737
(19,222)
4,868
(14,354)
(11,617)
107,830
169
22
191
2,906
(8,556)
7,205
(1,827)
5,378
(3,178)
220,390
181
373
554
(3,840)
6,008
17,393
(6,783)
10,610
16,618
179,935
197
35
232
$
108,021
$
220,944 $
180,167
The accompanying notes are an integral part of the consolidated financial statements.
F-7
WW INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL DEFICIT
(IN THOUSANDS)
WW International, Inc.
Redeemable
Noncontrolling Common Stock
Treasury Stock
Interest
Shares Amount Shares Amount
Accumulated
Other
Comprehensive Retained
Earnings
Loss
Total
Balance at December 31,
2016................................. $
Comprehensive income
(loss)................................
Issuance of treasury stock
under stock plans.............
Compensation expense on
share-based awards .........
Balance at December 30,
2017................................. $
Comprehensive income
(loss)................................
Issuance of treasury stock
under stock plans.............
Compensation expense on
share-based awards .........
Issuance of common
stock ................................
Cumulative effect of
revenue accounting
change .............................
Cumulative effect of tax
accounting change...........
Balance at December 29,
2018................................. $
Comprehensive income
(loss)................................
Issuance of treasury stock
under stock plans.............
Compensation expense on
share-based awards .........
Balance at December 28,
2019................................. $
4,699 118,947 $
0
55,021 $(3,237,346) $
(27,120) $2,056,893 $(1,207,573)
(232)
16,653
163,514
180,167
(763)
28,510
(32,039)
(3,529)
14,949
14,949
4,467 118,947 $
0
54,258 $(3,208,836) $
(10,467) $2,203,317 $(1,015,986)
(554)
(2,805)
223,749
220,944
(862)
33,212
(30,618)
2,594
1,405
20,188
20,188
9,796
9,796
2,933
2,933
(2,485)
(46,927)
(49,412)
3,913 120,352 $
0
53,396 $(3,175,624) $
(15,757) $2,382,438 $ (808,943)
(191)
(11,595)
119,616
108,021
(463)
17,350
(22,442)
(5,092)
20,471
20,471
3,722 120,352 $
0
52,933 $(3,158,274) $
(27,352) $2,500,083 $ (685,543)
The accompanying notes are an integral part of the consolidated financial statements.
F-8
WW INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE FISCAL YEARS ENDED
(IN THOUSANDS)
December 28,
December 29,
December 30,
2019
2018
2017
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 .................................................................................
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 (payments) borrowings on revolver ........................................................
Proceeds from new long term debt ................................................................
Financing costs and debt discount .................................................................
Payments on long-term debt ..........................................................................
Taxes paid related to net share settlement of equity awards..........................
Proceeds from stock options exercised ..........................................................
Other items, net ..............................................................................................
Cash used for financing activities............................................................
Effect of exchange rate changes on cash and cash equivalents............................
Net (decrease) increase in cash and cash equivalents ..........................................
Cash and cash equivalents, beginning of period ..................................................
Cash and cash equivalents, end of period............................................................. $
119,447 $
223,568 $
163,317
45,017
9,318
0
307
0
20,471
(9,424)
(123)
8,710
1,235
0
1,331
(9,127)
13,619
1,347
(6,968)
6,199
(878)
(18,098)
182,383
(17,159)
(30,824)
(4,060)
(580)
(52,623)
0
0
0
(177,000)
(6,582)
1,076
(487)
(182,993)
(1,005)
(54,238)
236,974
182,736 $
44,061
8,539
0
27
0
20,188
(13,673)
130
7,906
2,036
0
(7,999)
(1,148)
(3,991)
2,224
16,600
(17,198)
(13,001)
27,323
295,592
(19,050)
(27,763)
(7,100)
(10,045)
(63,958)
(25,000)
0
0
(57,750)
(25,020)
33,417
0
(74,353)
(3,361)
153,920
83,054
236,974 $
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)
25,000
1,840,000
(53,636)
(2,018,773)
(9,548)
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-9
WW 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 WW International, Inc. and all of
its subsidiaries. The terms “Company” and “WW” as used throughout these notes are used to indicate WW
International, Inc. and all of its operations consolidated for purposes of its financial statements. The Company’s
“Digital” business refers to providing subscriptions to the Company’s digital product offerings, including the
Personal Coaching + Digital product. The Company’s “Studio + Digital” business refers to providing access to the
Company’s weekly in-person workshops combined with the Company’s digital subscription product offerings to
commitment plan subscribers. The “Studio + Digital” business also includes the provision of access to workshops
for members who do not subscribe to commitment plans, including the Company’s “pay-as-you-go” members.
The consolidated financial statements have been prepared in conformity with accounting principles generally
accepted in the United States (“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.
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 2019, fiscal 2018 and fiscal 2017 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, revenue, 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.
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.
F-10
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
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 2019, fiscal 2018 and fiscal 2017, the Company recorded impairment charges of $307, $0 and $674,
respectively, related to internal-use computer software that was not expected to provide substantive service
potential.
In fiscal 2019, fiscal 2018 and fiscal 2017, the Company recorded impairment charges of $0, $27 and $8,
respectively, related to property, plant and equipment that were expected to be disposed of before the end of their
estimated useful lives.
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 5, 2019 and May 6, 2018, each the first day of
fiscal May, on its goodwill and other indefinite-lived intangible assets.
For the Company’s Brazil reporting unit only, given the then-challenging economic environment, the negative
performance trends and the Company’s reduced expectations regarding the future impact of its business growth
strategies in the country at December 30, 2017, the Company performed an interim goodwill impairment analysis at
such time. In performing the interim goodwill impairment analysis for its Brazil reporting unit, the Company
recorded a $13,323 impairment charge at December 30, 2017.
In performing its annual impairment analysis as of May 5, 2019 and May 6, 2018, 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.
F-11
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
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 likely cause a change in the
results of the impairment assessments 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.
For all reporting units, except for Brazil, there was significant headroom in the goodwill impairment analysis
for fiscal 2019. Based on the results of the Company’s annual goodwill impairment test performed for all of its
reporting units, except for Brazil, as of the December 28, 2019 balance sheet date, for reporting units that hold
97.2% of the Company’s goodwill, those units had an estimated fair value at least 60% higher than the respective
reporting unit’s carrying amount. Based on the results of the Company’s annual goodwill impairment test performed
for its Brazil reporting unit, which holds 2.8% of the Company’s goodwill as of the December 28, 2019 balance
sheet date, the estimated fair value of this reporting unit was approximately 3.0% higher than its carrying value.
Accordingly, a change in the underlying assumptions for Brazil would likely cause a change in the results of the
impairment assessment and, as such, could result in an impairment of the goodwill related to Brazil, for which the
net book value was $4,399 as of December 28, 2019.
For all units of account, except for New Zealand, there was significant headroom in the franchise rights
acquired impairment analysis for fiscal 2019. Based on the results of the Company’s annual franchise rights
acquired impairment analysis performed for all of its units of account, except for New Zealand, as of the
December 28, 2019 balance sheet date, for units of account that hold 99.4% of the Company’s franchise rights
acquired, those units had an estimated fair value at least 40% higher than the respective units of account carrying
amount. Based on the results of the Company’s annual franchise rights acquired impairment test performed for its
New Zealand unit of account, which holds 0.6% of the Company’s franchise rights acquired as of the December 28,
2019 balance sheet date, the estimated fair value of this unit of account exceeded its carrying value by
approximately 3.0%. Accordingly, a change in the underlying assumptions for New Zealand would likely cause a
change in the results of the impairment assessment and, as such, could result in an impairment of the franchise rights
acquired related to New Zealand, for which the net book value was $4,742 as of December 28, 2019.
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 unit. The Company has determined the appropriate
reporting unit for purposes of assessing annual impairment to be the country for all reporting units. The net book
values of goodwill in the United States, Canada, Brazil and other countries as of the December 28, 2019 balance
sheet date were $102,968, $40,972, $4,399 and $9,577, respectively, totaling $157,916 and the net book values as of
the December 29, 2018 balance sheet date were $98,857, $39,300, $4,584 and $9,778, respectively, totaling
$152,519.
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-12
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
As it relates to the goodwill 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, all as reflected in the discount rate. 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. Indefinite-lived franchise rights acquired are tested on an annual basis for impairment.
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 Studio + Digital business and a relief from royalty
methodology for franchise rights related to the Company’s Digital 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 both the Studio + Digital business and the Digital business in the country in which the applicable
acquisition occurred. The net book values of these franchise rights in the United States, Canada, United Kingdom,
Australia, and New Zealand at December 28, 2019 were $671,914, $55,171, $11,784, $6,273 and $4,742,
respectively, totaling $749,884 and the net book values at December 29, 2018 were $671,914, $52,919, $11,441,
$6,327 and $4,747, respectively, totaling $747,348.
In its hypothetical start-up approach analysis for fiscal 2019, 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
Studio + Digital business in each country based on assumptions regarding revenue growth and operating income
margins. The cash flows associated with the Digital business in each country were based on the expected Digital
revenue for such country and the application of a market-based royalty rate. The cash flows for the Studio + Digital
and Digital businesses were discounted utilizing rates consistent with those utilized in the annual 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-13
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Revenue Recognition:
Revenues are recognized when control of the promised services or goods is transferred to the Company’s
customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those services or
goods.
The Company earns revenue from subscriptions for its digital products and by conducting workshops, for
which it charges a fee, predominantly through commitment plans, as well as prepayment plans or the “pay-as-you-
go” arrangement. The Company also earns revenue by selling consumer products (including publications) in its
workshops, online through its ecommerce platforms and to its franchisees, as well as through several trusted retail
partners; collecting royalties 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 plan revenues, prepaid workshop fees and magazine subscription revenue are recorded to
deferred revenue and amortized into revenue as control is transferred over the period earned since these performance
obligations are satisfied over time. “Digital Subscription Revenues,” consisting of the fees associated with
subscriptions for the Company’s Digital products, including its Personal Coaching + Digital product, are deferred
and recognized on a straight-line basis as control is transferred over the subscription period. One-time Digital sign-
up fees are considered immaterial in the context of the contract and the related revenue is recorded to deferred
revenue and amortized into revenue over the commitment period. In the Studio + Digital business, the Company
generally charges non-refundable registration and starter fees in exchange for access to the Company’s digital
subscription products, an introductory information session and materials it provides to new members. Revenue from
these registration and starter fees is considered immaterial in the context of the contract and is recorded to deferred
revenue and amortized into revenue over the commitment period. Revenue from “pay-as-you-go” workshop fees,
consumer product sales and By Mail, commissions and royalties is recognized at the point in time control is
transferred, which is when services are rendered, products are shipped to customers and partners and title and risk of
loss passes to them, and commissions and royalties are earned, respectively. Revenue from advertising in magazines
and from magazine sales is recognized upon distribution of the magazine. For revenue transactions that involve
multiple performance obligations, the amount of revenue recognized is determined using the relative fair value
approach, which is generally based on each performance obligation’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 28, 2019, December 29,
2018 and December 30, 2017 were $235,826, $218,062 and $193,423, 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.
F-14
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
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.
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. Interest rate swaps were 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 interest rate swaps 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 swaps are reported as a component of accumulated other
comprehensive loss on its balance sheet. See Note 18 for a further discussion regarding the fair value of the
Company’s interest rate swaps. The net effect of the interest payable and receivable under the Company’s effective
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 9). 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. Amortization expense for the fiscal years ended December 28, 2019, December 29, 2018 and
December 30, 2017 was $9,318, $8,539 and $6,112, 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 28, 2019, December 29, 2018 and
December 30, 2017, the cumulative balance of changes in fair value of derivative instruments, net of taxes, was
$15,529, $1,175 and $5,392, respectively. At December 28, 2019, December 29, 2018 and December 30, 2017, the
cumulative balance of the effects of foreign currency translations, net of taxes, was $11,823, $14,582 and $5,075,
respectively.
F-15
WW 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 February 2016, the Financial Accounting Standards Board (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. In July 2018, the
FASB issued updated guidance by providing an entity with an additional and optional transition method to adopt the
new lease guidance. On December 30, 2018, the Company adopted the updated lease guidance on a modified
retrospective basis as of the adoption date. Periods prior to the adoption date continue to be reported under the
historical lease accounting guidance. See Note 4 for further details.
4.
Leases
Adoption of Lease Standard
On December 30, 2018, the Company adopted the updated guidance on leases using the modified
retrospective transition method. Results for reporting periods beginning on or after December 30, 2018 are presented
under the updated guidance, while prior period amounts are not adjusted and continue to be reported in accordance
with the Company’s historical lease accounting.
The adoption of the standard had a material impact on the Company’s consolidated balance sheets but did not
have a material impact on its consolidated statements of net income. The Company recorded $155,178 as a right of
use asset, $163,486 of lease liabilities and $0 for retained earnings for operating leases upon adoption of the updated
guidance. The amounts previously reported in the first quarter of 2019 have been revised by $3,595 due to the
impact of prepaid rent. The standard did not have a material impact on the Company’s finance lease contracts.
A lease is defined as an arrangement that contractually specifies the right to use and control an identified asset
for a specific period of time in exchange for consideration. Operating leases are included in operating lease assets,
portion of operating lease liabilities due within one year, and long-term operating lease liabilities in the Company’s
2019 consolidated balance sheet. Finance leases are included in property and equipment, net, other accrued
liabilities, and other long-term liabilities in the Company’s 2019 consolidated balance sheet. Lease assets represent
the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s
obligation to make lease payments arising from the lease. Lease assets and liabilities are recognized at
commencement date based on the present value of lease payments over the lease term, using the Company’s
incremental borrowing rate commensurate with the lease term, since the Company’s lessors do not provide an
implicit rate, nor is one readily available. The incremental borrowing rate is calculated based on the Company’s
credit yield curve and adjusted for collateralization, credit quality and economic environment impact, all where
applicable. The lease asset includes scheduled lease payments and excludes lease incentives, such as free rent
periods and tenant improvement allowances. The Company has certain leases that may include an option to renew
and when it is reasonably probable to exercise such option, the Company will include the renewal option terms in
determining the lease asset and lease liability. The Company does not have any renewal options that would have a
material impact on the terms of the leases and that are also reasonably expected to be exercised as of December 28,
2019. A lease may contain both fixed and variable payments. Variable lease payments that are linked to an index or
rate are measured based on the current index or rate at adoption of the updated guidance, or lease commencement
date for new leases, with the impact of future changes in the index or rate being recorded as a period expense. Lease
expense for lease payments is recognized on a straight-line basis over the lease term.
The Company’s operating and finance leases are primarily for its studios, corporate offices, data centers and
certain equipment, including automobiles.
F-16
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
At December 28, 2019, the Company’s lease assets and lease liabilities were as follows:
Assets:
Operating lease assets..................................................................... $
Finance lease assets ........................................................................
Total leased assets .......................................................................... $
Liabilities:
Current
Operating .................................................................................. $
Finance......................................................................................
Noncurrent......................................................................................
Operating .................................................................................. $
Finance......................................................................................
Total lease liabilities....................................................................... $
December 28, 2019
151,983
259
152,242
33,236
126
128,464
96
161,922
For the fiscal year ended December 28, 2019, the components of the Company’s lease expense were as
follows:
Operating lease cost:
Fixed lease cost ............................................................................ $
Variable lease cost........................................................................
Total operating lease cost................................................................... $
Finance lease cost:
Amortization of leased assets .......................................................
Interest on lease liabilities ............................................................
Total finance lease cost...................................................................... $
Total lease cost................................................................................... $
Year Ended
December 28,
2019
51,256
0
51,256
487
20
507
51,763
At December 28, 2019, the Company’s weighted average remaining lease term and weighted average discount
rates were as follows:
Weighted Average Remaining Lease Term (years)
Operating leases ........................................................................
Finance leases............................................................................
Weighted Average Discount Rate
Operating leases ........................................................................
Finance leases............................................................................
December 28, 2019
7.06
2.43
7.02
5.97
The Company’s leases have remaining lease terms of 0 to 13 years with a weighted average lease term of 7.06
years.
F-17
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
At December 28, 2019, the maturity of the Company’s lease liabilities in each of the next five fiscal years and
thereafter were as follows:
Operating
Leases
Finance
Leases
2020 ................................................... $
2021 ...................................................
2022 ...................................................
2023 ...................................................
2024 ...................................................
Thereafter ..........................................
Total lease payments ......................... $
Less imputed interest.........................
Present value of lease liabilities ........ $
43,595 $
38,824
27,869
19,803
14,673
65,954
210,718 $
49,018
161,700 $
135 $
52
22
24
5
—
238 $
16
222 $
Total
43,730
38,876
27,891
19,827
14,678
65,954
210,956
49,034
161,922
Minimum commitments under non-cancelable obligations, primarily for office and rental facilities operating
leases, at December 29, 2018, consisted of the following:
2019................................................................................................................ $
2020................................................................................................................
2021................................................................................................................
2022................................................................................................................
2023................................................................................................................
2024 and thereafter ........................................................................................
Total.......................................................................................................... $
63,261
38,491
22,341
14,017
9,192
37,704
185,006
Total rent expense charged to operations for office and rental facilities under these operating leases for the
fiscal years ended December 29, 2018 and December 30, 2017 was $44,130 and $42,259, respectively.
Supplemental cash flow information related to leases for the year ended December 28, 2019 were as follows:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases .......................................... $
Operating cash flows from finance leases.............................................. $
Financing cash flows from finance leases.............................................. $
Leased assets obtained in exchange for new operating lease liabilities ...... $
Leased assets obtained in exchange for new finance lease liabilities ......... $
Year Ended
December 28,
2019
51,326
20
487
41,693
105
Practical Expedients and Accounting Policy Elections
The Company elected the package of practical expedients permitted under the transition guidance within the
new standard, which allowed the Company not to reassess whether any expired or existing contracts contained
leases, to carry forward existing lease classifications and not to reassess initial direct costs for existing leases. In
addition, the Company elected the benefit of hindsight practical expedient in determining the lease term for existing
leases upon adoption of the updated guidance.
The Company has lease agreements with lease and non-lease components and has elected the practical
expedient not to separate non-lease components from lease components and instead to account for each separate
lease component and non-lease component as a single lease component.
F-18
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
The Company has elected the short-term lease exception accounting policy, whereby the recognition
requirements of the updated guidance is not applied and lease expense is recorded on a straight-line basis with
respect to leases with an initial term of 12 months or less.
5.
Revenue
Adoption of Revenue from Contracts with Customers
On December 31, 2017, the Company adopted the updated guidance on revenue from contracts with
customers using the modified retrospective method applied to those contracts which were not completed as
of December 31, 2017. Results for reporting periods beginning after December 31, 2017 are presented under the
updated guidance, while prior period amounts are not adjusted and continue to be reported in accordance with the
Company’s historical revenue accounting.
The Company recorded a net increase to opening retained earnings of $2,145 as of December 31, 2017 due to
the cumulative impact of adopting the updated guidance, inclusive of a $3,501 decrease to deferred revenue, a
decrease of $568 to prepaid expenses and other current assets and an increase to the deferred income tax liability of
$788.
Revenue Recognition
Revenues are recognized when control of the promised services or goods is transferred to the Company’s
customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those services or
goods. See Note 2 for further information on the Company’s revenue recognition policies.
The following table presents the Company’s revenues disaggregated by revenue source:
Digital Subscription Revenues .................................$
Studio + Digital Fees................................................
Service Revenues, net .........................................$
Product sales and other, net......................................
Revenues, net ......................................................$
December 28,
2019
609,996
597,270
1,207,266
206,071
1,413,337
$
$
$
Fiscal Year Ended
December 29,
2018
December 30,
2017
567,767
705,429
1,273,196
240,925
1,514,121
$
$
$
416,722
664,957
1,081,679
225,232
1,306,911
The following tables present the Company’s revenues disaggregated by revenue source and segment:
North
America
Continental
Fiscal Year Ended December 28, 2019
United
Europe
Kingdom
Digital Subscription Revenues.......... $
Studio + Digital Fees.........................
Service Revenues, net.................. $
Product sales and other, net...............
Revenues, net............................... $
401,890
446,576
848,466
130,836
979,302
$
$
$
167,008
$
87,962
$
254,970
38,263
$
293,233
26,898 $
44,145
71,043 $
23,514
94,557 $
Other
Total
609,996
14,200 $
18,587
597,270
32,787 $ 1,207,266
13,458
206,071
46,245 $ 1,413,337
Digital Subscription Revenues.......... $
Studio + Digital Fees.........................
Service Revenues, net.................. $
Product sales and other, net...............
378,678
522,372
901,050
146,201
Revenues, net............................... $ 1,047,251
$
$
$
Continental
Fiscal Year Ended December 29, 2018
United
North
America
Europe
Kingdom
149,571
$
107,528
257,099
$
47,226
$
304,325
25,557 $
52,676
78,233 $
28,839
107,072 $
Other
Total
567,767
13,961 $
705,429
22,853
36,814 $ 1,273,196
18,659
240,925
55,473 $ 1,514,121
F-19
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
North
America
Continental
Fiscal Year Ended December 30, 2017
United
Europe
Kingdom
Digital Subscription Revenues.......... $
Studio + Digital Fees.........................
Service Revenues, net.................. $
Product sales and other, net...............
Revenues, net............................... $
281,432
493,800
775,232
135,117
910,349
$
$
$
102,039
$
93,723
195,762
$
43,461
$
239,223
21,477 $
52,161
73,638 $
26,351
99,989 $
Other
Total
416,722
11,774 $
25,273
664,957
37,047 $ 1,081,679
225,232
20,303
57,350 $ 1,306,911
Information about Contract Balances
For Service Revenues, the Company typically collects payment in advance of providing services. Any
amounts collected in advance of services being provided are recorded in deferred revenue. In the case where
amounts are not collected, but the service has been provided and the revenue has been recognized, the amounts are
recorded in accounts receivable. The opening and ending balances of the Company’s deferred revenues are as
follows:
Balance as of December 29, 2018 .............................. $
Net increase (decrease) during the period ..................
Balance as of December 28, 2019 .............................. $
53,501 $
7,112
60,613 $
961
(907)
54
Deferred
Revenue
Deferred
Revenue-Long Term
Revenue recognized from amounts included in current deferred revenue as of December 29, 2018 was $53,479
for the fiscal year ended December 28, 2019. The Company’s long-term deferred revenue, which is included in other
liabilities on the Company’s consolidated balance sheet, had a balance of $54 and $961 at December 28, 2019 and
December 29, 2018, respectively, for revenue that will not be recognized during the next fiscal year and is generally
related to upfront payments received as an inducement for entering into certain sales-based royalty agreements with
third party licensees. This revenue is amortized on a straight-line basis over the term of the applicable agreement.
Practical Expedients and Exemptions
The Company elected to apply the updated guidance only to contracts that were not completed as of December
31, 2017, the date of adoption. The Company does not disclose the value of unsatisfied performance obligations for
contracts with an original expected length of one year or less. The Company expenses sales commissions when
incurred (amortization period would have been one year or less) and these expenses are recorded within selling,
general and administrative expenses. The Company treats shipping and handling fees as fulfillment costs and not as
a separate performance obligation, and as a result, any fees received from customers are included in the transaction
price allocated to the performance obligation of providing goods with a corresponding amount accrued within cost
of product sales and other for amounts paid to applicable carriers. Sales tax, value-added tax, and other taxes the
Company collects concurrent with revenue-producing activities are excluded from revenue.
6.
Acquisitions
Acquisition of Kurbo Health, Inc.
On August 10, 2018, the Company acquired substantially all of the assets of Kurbo Health, Inc. (“Kurbo”), a
family-based healthy lifestyle coaching program, for a net purchase price of $3,063. Payment was in the form of
cash. The total purchase price of Kurbo has been allocated to goodwill ($1,101), website development ($1,916),
prepaid expenses ($78) and other assets ($32) partially offset by deferred revenue ($57) and other liabilities ($7).
The acquisition of Kurbo has been accounted for under the purchase method of accounting and, accordingly,
earnings of Kurbo have been included in the consolidated operating results of the Company since the date of
acquisition. The goodwill will be deductible annually for tax purposes.
F-20
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Acquisition of Franchisees
On October 21, 2019, the Company acquired substantially all of the assets of its franchisee for certain
territories in Nevada and Utah, Weight Watchers of Las Vegas, Inc., for a purchase price of $4,500 (the “Las Vegas
Acquisition”). Payment was in the form of cash ($4,060) plus cash in reserves ($385) and assumed net liabilities
($55). The total purchase price has been allocated to goodwill ($4,111), customer relationship value ($271) and
franchise rights acquired ($118). 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.
On December 10, 2018, the Company acquired substantially all of the assets of its franchisee for certain
territories in South Carolina, At Goal, Inc., for a purchase price of $4,000 (the “South Carolina Acquisition”).
Payment was in the form of cash ($4,000) and assumed net liabilities ($37). The total purchase price has been
allocated to franchise rights acquired ($3,791) and customer relationship value ($209). 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.
7.
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 2019 and fiscal 2018 on May 5, 2019 and May 6, 2018, respectively.
For the Company’s Brazil reporting unit only, given the then-challenging economic environment, the negative
performance trends and the Company’s reduced expectations regarding the future impact of its business growth
strategies in the country at December 30, 2017, the Company performed an interim goodwill impairment analysis at
such time. In performing the interim goodwill impairment analysis for its Brazil reporting unit, the Company
recorded a $13,323 impairment charge at December 30, 2017.
In performing its annual impairment analysis as of May 5, 2019 and May 6, 2018, 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.
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 28, 2019, the change in the carrying value of franchise rights acquired is due to
the franchisee acquisition as described in Note 6 and the effect of exchange rate changes.
Goodwill primarily relates to the acquisition of the Company by The Kraft Heinz Company (successor to H.J.
Heinz Company) in 1978 and the Company’s acquisitions of WW.com, Inc. (formerly known as
WeightWatchers.com, Inc.) in 2005, the Company’s franchised territories and the majority interest in Vigilantes do
Peso Marketing Ltda. See Note 6 for additional information about acquisitions by the Company. For the fiscal year
ended December 28, 2019, the change in the carrying amount of goodwill was due to a franchise acquisition and the
effect of exchange rate changes as follows:
North
America
Continental
Europe
Balance as of December 29, 2018 .................. $ 138,156
4,111
Goodwill acquired during the period..............
Effect of exchange rate changes .....................
1,673
Balance as of December 28, 2019 .................. $ 143,940
$
$
7,242
0
(227)
7,015
United
Kingdom
1,178
$
0
35
1,213
$
Other
5,943
0
(195)
5,748
$
$
Total
$ 152,519
4,111
1,286
$ 157,916
F-21
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Finite-lived Intangible Assets
The below table reflects the carrying values of finite-lived intangible assets as of December 28, 2019 and
December 29, 2018:
December 28, 2019
December 29, 2018
Gross
Carrying
Amount
Capitalized software costs .......................... $ 119,537
77,823
Website development costs.........................
11,869
Trademarks .................................................
14,003
Other ...........................................................
Trademarks and other intangible
assets .................................................. $ 223,232
8,180
Total finite-lived intangible assets ........ $ 231,412
Franchise rights acquired............................
$
Accumulated
Amortization
97,588
50,748
11,228
4,637
Gross
Carrying
Amount
$ 121,508
105,710
11,620
13,967
Accumulated
Amortization
$ 102,659
77,825
11,010
4,149
$ 164,201
4,618
$ 168,819
$ 252,805
8,110
$ 260,915
$ 195,643
4,319
$ 199,962
Aggregate amortization expense for finite-lived intangible assets was recorded in the amounts of $29,330,
$28,995 and $36,040, for the fiscal years ended December 28, 2019, December 29, 2018 and December 30, 2017,
respectively. The franchise rights acquired related to the South Carolina Acquisition will be amortized ratably over
an 18 year period. The franchise rights acquired related to the Las Vegas Acquisition were fully amortized in fiscal
2019.
Estimated amortization expense of existing finite-lived intangible assets for the next five fiscal years and
thereafter is as follows:
Fiscal 2020....................................................................... $
Fiscal 2021....................................................................... $
Fiscal 2022....................................................................... $
Fiscal 2023....................................................................... $
Fiscal 2024 and thereafter ............................................... $
25,042
17,802
7,754
1,413
10,582
8.
Property and Equipment
The below table reflects the carrying values of property and equipment as of December 28, 2019 and
December 29, 2018:
December 28, December 29,
Equipment .................................................................... $
Leasehold improvements..............................................
Less: Accumulated depreciation and amortization ......
$
2019
83,288 $
84,079
167,367
(113,301)
54,066 $
2018
75,531
80,002
155,533
(103,331)
52,202
Depreciation and amortization expense of property and equipment for the fiscal years ended December 28,
2019, December 29, 2018, and December 30, 2017 was $15,687, $15,066 and $14,840, respectively.
F-22
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
9.
Long-Term Debt
The components of the Company’s long-term debt were as follows:
December 28, 2019
December 29, 2018
Unamortized
Deferred
Financing
Costs
Principal
Balance
Unamortized
Debt Discount
Effective
Rate (1)
Principal
Balance
Unamortized
Deferred
Financing
Costs
Unamortized
Debt Discount
Effective
Rate (1)
Revolving Credit Facility due
November 29, 2022.................................... $
Term Loan Facility due
November 29, 2024.................................... 1,305,250
300,000
Notes due December 1, 2025 ........................
Total ................................................ $1,605,250 $
96,250
Less: Current Portion ....................................
0 $
0 $
0
0.00% $
0 $
0 $
0
4.39%
6,418
1,028
7,446 $
21,634
0
21,634
7.93% 1,482,250
8.72%
300,000
8.07% $1,782,250 $
77,000
8,307
1,202
9,509 $
26,033
0
26,033
7.53%
8.69%
7.63%
Unamortized Deferred
Financing Costs...................................
Unamortized Debt Discount...................
7,446
21,634
Total Long-Term Debt .................... $1,479,920
9,509
26,033
$1,669,708
(1)
Includes amortization of deferred financing costs and debt discount.
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 “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 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 Credit Facilities consist of (1) $1,540,000 in aggregate principal amount of senior
secured tranche B term loans due in 2024 (the “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 “Revolving Credit
Facility”).
On both May 31, 2019 and October 10, 2019, the Company made a voluntary prepayment at par of $50,000 in
respect of its outstanding term loans under the Term Loan Facility. As a result of these prepayments, the Company
wrote off deferred financing fees of $526 in the aggregate in fiscal 2019.
As of December 28, 2019, the Company had $1,305,250 of debt outstanding under the Credit Facilities, with
$148,841 of availability and $1,159 in issued but undrawn letters of credit outstanding under the Revolving Credit
Facility. There was no outstanding balance under the Revolving Credit Facility as of December 28, 2019.
F-23
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
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:
(cid:129)
(cid:129)
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 First Lien Net Debt
Leverage Ratio (as used 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 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”).
Borrowings under the 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 cost 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 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 cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for
certain additional costs. As of December 28, 2019, the applicable margins for the LIBOR rate borrowings under the
Term Loan Facility and the Revolving Credit Facility were 4.75% and 2.25%, respectively. In the event that LIBOR
is phased out as is currently expected, the Credit Agreement provides that the Company and the administrative agent
may amend the Credit Agreement to replace the LIBOR definition therein with a successor rate subject to notifying
the lending syndicate of such change and not receiving within five business days of such notification objections to
such replacement rate from lenders holding at least a majority of the aggregate principal amount of loans and
commitments then outstanding under the Credit Agreement. If the Company fails to do so, its borrowings will be
based off of the alternative base rate plus a margin.
On a quarterly basis, the Company pays a commitment fee to the lenders under the Revolving Credit Facility
in respect of unutilized commitments thereunder, which commitment fee fluctuates depending upon the Company’s
Consolidated First Lien Net Debt Leverage Ratio. Based on the Company’s Consolidated First Lien Net Debt
Leverage Ratio as of December 28, 2019, the commitment fee was 0.35% per annum. The Company’s Consolidated
First Lien Net Debt Leverage Ratio as of December 28, 2019 was 3.01:1.00.
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.
F-24
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
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 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 28, 2019, the Company was in compliance with all applicable financial covenants in the
Credit Agreement governing the Credit Facilities.
Senior Notes
The Notes were issued pursuant to an Indenture, dated as of 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.
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 Credit Facilities.
Outstanding Debt
At December 28, 2019, the Company had $1,605,250 outstanding under the Credit Facilities and the Notes,
consisting of borrowings under the Term Loan Facility of $1,305,250, $0 drawn down on the Revolving Credit
Facility and $300,000 in aggregate principal amount of Notes issued and outstanding.
At December 28, 2019 and December 29, 2018, the Company’s debt consisted of both fixed and variable-rate
instruments. Interest rate swaps were entered into to hedge a portion of the cash flow exposure associated with the
Company’s variable-rate borrowings. See Note 19 for information on the Company’s interest rate swaps. 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 in effect, was approximately 8.08% and 7.73% per
annum at December 28, 2019 and December 29, 2018, respectively, based on interest rates on these dates. 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 in effect, was approximately 7.59% and 7.46% per
annum at December 28, 2019 and December 29, 2018, respectively, based on interest rates on these dates.
F-25
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Maturities
At December 28, 2019, 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:
2020 ................................................................................. $
2021 .................................................................................
2022 .................................................................................
2023 .................................................................................
2024 .................................................................................
2025 and thereafter ..........................................................
96,250
77,000
77,000
77,000
978,000
300,000
$ 1,605,250
10. 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, the
addition of $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 this program. The repurchase program
currently has no expiration date.
During the fiscal years ended December 28, 2019, December 29, 2018, and December 30, 2017, the Company
repurchased no shares of its common stock under this program or otherwise. As of the end of fiscal 2019, $208,933
remained available to purchase shares of the Company’s common stock under the repurchase program.
11. 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:
December 28,
2019
December 29,
December 30,
2018
2017
Numerator:
Net income attributable to WW
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 WW
International, Inc. .........................................
Basic .......................................................... $
Diluted ....................................................... $
119,616
$
223,749
$
163,514
67,188
66,280
64,329
2,362
3,835
3,919
69,550
70,115
68,248
1.78
1.72
$
$
3.38
3.19
$
$
2.54
2.40
F-26
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
The number of anti-dilutive common stock equivalents excluded from the calculation of the weighted average
number of common shares for diluted EPS was 1,705, 419 and 1,427 for the fiscal years ended December 28, 2019,
December 29, 2018 and December 30, 2017, respectively.
12.
Stock Plans
Incentive Compensation Plans and Inducement Option
On May 6, 2008, the Company’s shareholders approved the 2008 Stock Incentive Plan (the “2008 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 2008 Plan, the “Stock Plans”), which replaced the 2008 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 long-term equity incentive compensation
program has historically included time-vesting non-qualified stock option and/or restricted stock unit (“RSUs”)
(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. 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, 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 former Interim
Office of the Chief Executive Officer in fiscal 2017. 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 subject to limited
exceptions. During the fiscal years ended December 28, 2019, December 29, 2018 and December 30, 2017, the
Company granted to members of the Company’s Board of Directors an aggregate of 29, 11 and 30 fully-vested
shares, respectively, and recognized compensation expense of $756, $754 and $664, respectively. During the fiscal
year ended December 30, 2017, the Company granted to director members of the former 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 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 $20,471,
$20,188 and $14,949 for the fiscal years ended December 28, 2019, December 29, 2018 and December 30, 2017,
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 $2,141,
$4,007 and $3,580 for the fiscal years ended December 28, 2019, December 29, 2018 and December 30, 2017,
respectively. The tax benefits realized from options exercised and RSUs and PSUs vested totaled $2,840, $30,268
and $7,210 for the fiscal years ended December 28, 2019, December 29, 2018 and December 30, 2017, respectively.
No compensation costs were capitalized. As of December 28, 2019, there was $35,862 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 1.4 years.
F-27
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
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 award agreement. Time-Vesting Options outstanding at December 28, 2019,
December 29, 2018 and December 30, 2017 vest over a period of three to five years and the expiration term is seven
to ten years. Time-Vesting Options outstanding at December 28, 2019, December 29, 2018 and December 30, 2017
have an exercise price between $3.97 and $63.59 per share. The Company did not grant Time-Vesting Options in
fiscal 2019 and fiscal 2018.
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,
2017
0.0%
51.3%-51.7%
2.17%
6.0-7.0
Option Activity
A summary of all option activity for the fiscal year ended December 28, 2019 is presented below:
Weighted-
Average
Exercise
Shares
Price
Weighted-
Average
Remaining
Contractual
Life (Yrs.)
Aggregate
Intrinsic
Value
Outstanding at December 29, 2018 ............................
Granted ..................................................................
Exercised ...............................................................
Cancelled...............................................................
Outstanding at December 28, 2019 ............................
Exercisable at December 28, 2019 .............................
3,789 $
0 $
(74) $
(15) $
3,700 $
3,050 $
21.69
0.00
11.76
49.17
21.77
16.61
5.3 $
5.4 $
72,356
71,614
The weighted-average grant-date fair value of all options granted was $0.00, $0.00 and $15.21, for the fiscal
years ended December 28, 2019, December 29, 2018, and December 30, 2017, respectively. The total intrinsic value
of Time-Vesting Options exercised was $1,105, $105,647 and $5,930 for the fiscal years ended December 28, 2019,
December 29, 2018 and December 30, 2017, respectively.
Cash received from Time-Vesting Options exercised during the fiscal years ended December 28, 2019,
December 29, 2018 and December 30, 2017 was $1,076, $33,385 and $5,475, respectively.
F-28
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Restricted Stock Unit Awards with Time-Vesting Criteria
RSUs are exercisable based on the terms outlined in the applicable award agreement. The RSUs generally vest
over a period of 2 to 4 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 28, 2019 is presented below:
Weighted-
Average
Grant-Date Fair
Value
Shares
Outstanding at December 29, 2018 ...................
Granted.........................................................
Vested...........................................................
Forfeited .......................................................
Outstanding at December 28, 2019 ...................
881 $
852 $
(387) $
(193) $
1,153 $
37.91
19.09
31.67
29.77
27.46
The weighted-average grant-date fair value of RSUs granted was $19.09, $63.91 and $31.58 for the fiscal
years ended December 28, 2019, December 29, 2018 and December 30, 2017, respectively. The total fair value of
RSUs vested during the fiscal years ended December 28, 2019, December 29, 2018 and December 30, 2017 was
$12,268, $8,484 and $10,211, respectively.
Performance-Based Stock Unit Awards with Time- and Performance-Vesting Criteria
In fiscal 2019, the Company granted 280.1 PSUs having both time- and performance-vesting criteria. The
time-vesting criteria for these PSUs will be satisfied upon continued employment (with limited exceptions) on the
third anniversary of the grant date. The performance-vesting criteria for these PSUs will be satisfied if the Company
has achieved a certain annual operating income objective for the performance period of fiscal 2021. 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 achievement percentage, rounded
down to avoid the issuance of fractional shares. The Company is currently accruing compensation expense to what it
believes is the probable outcome upon vesting.
In fiscal 2018, the Company granted 81.3 PSUs having both time- and performance-vesting criteria. The time-
vesting criteria for these PSUs will be satisfied upon continued employment (with limited exceptions) on the third
anniversary of the grant date. The performance-vesting criteria for these PSUs will be satisfied if the Company has
achieved a certain annual operating income objective for the performance period of fiscal 2020. 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 achievement percentage, rounded down to
avoid the issuance of fractional shares. The applicable achievement percentage shall increase in the event the
Company has achieved a certain revenue target during such performance period. The Company is currently accruing
compensation expense to what it believes is the probable outcome upon vesting.
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 upon continued
employment (with limited exceptions) on May 15, 2020. Certain of the performance-vesting criteria for these PSUs
was satisfied when the Company 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 of the fiscal 2017 and fiscal 2018 performance years. The performance-vesting criteria for the fiscal 2019
performance year was not satisfied. When the performance measure was met, if at all, for a particular 2017 Award
Performance Year (i.e., each fiscal year over a three-year period, fiscal 2017 through fiscal 2019), that portion of
units was “banked” for potential issuance following the satisfaction of the time-vesting criteria. Such portion of units
“banked” was 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.
The Company is currently accruing compensation expense to what it believes is the probable outcome upon vesting.
F-29
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
In fiscal 2016, the Company granted 289.9 PSUs having both time- and performance-vesting criteria (the
“2016 PSUs”). The time-vesting criteria for these PSUs was satisfied upon continued employment (with limited
exceptions) on the third anniversary of the grant date. The performance-vesting criteria for these PSUs was satisfied
when the Company 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 below 4.5x over the performance period from
December 31, 2017 to December 29, 2018. Pursuant to these awards, the number of PSUs that became vested in
fiscal 2019 upon the satisfaction of the time-vesting criteria of 219.3 was calculated as (x) the target number of
PSUs granted multiplied by (y) 166.67%, the applicable Debt Ratio achievement percentage, rounded down to avoid
the issuance of fractional shares. The Company accrued compensation expense in an amount equal to the 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 28, 2019 is
presented below:
Weighted-
Average
Grant-Date Fair
Value
Shares
Outstanding at December 29, 2018 ...................
Granted (a) ...................................................
Vested...........................................................
Forfeited .......................................................
Outstanding at December 28, 2019 ...................
380 $
368 $
(219) $
(92) $
437 $
32.56
17.51
13.19
29.08
30.35
(a)
Includes the incremental shares vested with respect to the Company satisfying certain applicable performance vesting criteria for the 2016
PSUs.
The weighted-average grant-date fair value of PSUs granted was $17.51, $80.18 and $27.22 during the fiscal
years ended December 28, 2019, December 29, 2018 and December 30, 2017, respectively. The total fair value of
PSUs vested during the fiscal year ended December 28, 2019 was $2,891. No PSUs vested during the fiscal years
ended December 29, 2018 and December 30, 2017.
13.
Income Taxes
In December 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) was enacted. The 2017 Tax Act included
a number of changes to previous U.S. tax laws that impacted 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 2017 Tax Act
also included foreign provisions that tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries and
provide a special deduction for foreign-derived intangible income (“FDII”).
Certain impacts of the 2017 Tax Act generally would have been required to be completed and incorporated
into the Company’s fiscal 2017 year-end financial statements. However, due to the complexity of the 2017 Tax Act,
the staff of the U.S. Securities and Exchange Commission issued guidance that provided companies with up to a
one-year window to finalize the 2017 impact of this new legislation. The Company finalized its accounting related
to the 2017 Tax Act during the fourth quarter of fiscal 2018.
The Company’s estimates concerning the impact of the 2017 Tax Act on its accounting and business remain
subject to developing interpretations of the provisions of the 2017 Tax Act. U.S. Treasury regulations,
administrative interpretations or court decisions interpreting the 2017 Tax Act may require further adjustments and
changes in the Company’s estimates as new guidance is issued.
F-30
WW 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:
Current:
December 28, December 29, December 30,
2018
2017
2019
U.S. federal ........................................................... $
State ......................................................................
Foreign ..................................................................
$
Deferred:
U.S. federal ........................................................... $
State ......................................................................
Foreign ..................................................................
$
Total tax provision (benefit) ................................. $
20,900 $
1,873
18,164
40,937 $
(9,137) $
(2,434)
2,147
(9,424) $
31,513 $
1,235 $
5,918
27,013
34,166 $
(10,367) $
(2,566)
(740)
(13,673) $
20,493 $
9,224
1,993
18,762
29,979
(51,788)
481
3,091
(48,216)
(18,237)
The components of the Company’s consolidated income before income taxes consist of the following:
Domestic ..................................................................... $
Foreign ........................................................................
$
December 28, December 29, December 30,
2018
126,171 $
117,890
244,061 $
2019
75,932 $
75,028
150,960 $
2017
53,045
92,035
145,080
The effective tax rates for the fiscal years ended December 28, 2019, December 29, 2018 and December 30,
2017 were 20.9%, 8.4% and (12.6%), 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 28, 2019 was impacted by the following
items: (i) a $5,148 tax expense related to income earned in foreign jurisdictions and (ii) a $3,524 tax expense related
to GILTI. In addition, the effective tax rate for fiscal 2019 was impacted by the following: (i) a $5,650 tax benefit
related to FDII, (ii) a $1,375 tax benefit related to the reversal of tax reserves no longer needed, and (iii) a $746 tax
benefit related to the cessation of certain publishing operations.
The Company’s effective tax rate for the fiscal year ended December 29, 2018 was affected by the following
items: (i) a $25,353 tax benefit related to tax windfalls from stock compensation, (ii) a $8,535 tax benefit due to the
reversal of a valuation allowance on foreign tax credit carryforwards that have been fully utilized, (iii) a $3,435 tax
benefit due to the reversal of a valuation allowance on certain net operating losses that are now expected to be
realized, (iv) a $3,430 tax benefit primarily related to the reversal of tax reserves resulting from the closure of
various tax audits, (v) a $2,678 tax benefit related to favorable tax return adjustments due to the 2017 Tax Act, and
(vi) a $1,858 tax benefit related to the cessation of operations of the Company’s Mexican subsidiary.
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-31
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
December 28,
2019
December 29,
2018
December 30,
2017
U.S. federal statutory tax rate........................
State income taxes (net of federal benefit)....
Cessation of operations .................................
Research and development credit..................
Tax windfall on share-based awards .............
Reserves for uncertain tax positions .............
Tax rate changes............................................
(Decrease) increase in valuation adjustment
related to foreign tax credits.......................
GILTI ............................................................
FDII ...............................................................
Increase (decrease) in valuation allowance
due to net operating loss.............................
Goodwill impairment ....................................
Tax return adjustments related to the 2017
Tax Act.......................................................
Impact of foreign operations .........................
Other..............................................................
Total effective tax rate .............................
21.0%
(0.3%)
(0.5%)
(1.2%)
(0.1%)
(0.9%)
0.0%
0.0%
2.3%
(3.7%)
0.4%
0.0%
(0.7%)
3.4%
1.2%
20.9%
21.0%
1.1%
(0.8%)
(0.5%)
(8.6%)
(1.4%)
0.3%
(3.5%)
1.5%
(1.9%)
(0.7%)
0.0%
(1.1%)
3.2%
(0.2%)
8.4%
35.0%
2.5%
(8.0%)
(1.3%)
(1.1%)
(0.2%)
(49.6%)
3.5%
0.0%
0.0%
3.0%
3.2%
0.0%
(0.7%)
1.1%
(12.6%)
The deferred tax assets and liabilities recorded on the Company’s consolidated balance sheets are as follows:
December 28, December 29,
2018
Interest expense disallowance ...................................... $
22,418
Operating lease liabilities .............................................
0
Operating loss carryforwards .......................................
9,862
Provision for estimated expenses .................................
2,320
Salaries and wages .......................................................
2,518
Share-based compensation ...........................................
7,666
Other comprehensive income.......................................
5,877
Other.............................................................................
7,481
Less: valuation allowance ............................................
(6,191)
51,951
Total deferred tax assets ............................................... $
Goodwill and intangible assets..................................... $ (228,048) $ (223,938)
Operating lease assets...................................................
0
Depreciation .................................................................
(1,149)
(886)
Prepaid expenses ..........................................................
Total deferred tax liabilities ......................................... $ (267,111) $ (225,973)
Net deferred tax liabilities ............................................ $ (160,916) $ (174,022)
2019
38,396 $
39,095
9,375
2,578
2,037
7,533
9,816
4,125
(6,760)
106,195 $
(36,670)
(1,082)
(1,311)
F-32
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
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 28, 2019 and
December 29, 2018, various foreign subsidiaries had net operating loss carryforwards of approximately $35,534 and
$38,098, respectively, some of which have an unlimited carryforward period, while others will begin to expire in
fiscal 2020.
As a result of the 2017 Tax Act changing the U.S. to a modified territorial tax system, the Company will no
longer assert its $19,124 of undistributed foreign earnings as of December 28, 2019 are permanently reinvested. The
Company has considered whether there would be any potential future costs of not asserting indefinite reinvestment
and does not expect such costs to be significant.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Balance at beginning of year ......................................... $
Increases related to tax positions taken in current
year .............................................................................
Increases related to tax positions taken in prior
years............................................................................
Reductions related to tax positions taken in prior
years............................................................................
Reductions related to settlements with tax
authorities ...................................................................
Reductions related to the expiration of statutes of
limitations ...................................................................
Balance at end of year ................................................... $
December 28, December 29, December 30,
2018
15,173 $
2017
10,297
3,665 $
2019
0
60
266
264
1,207
7,246
(2,731)
(10,560)
(1,268)
(992)
(2,215)
0
0
206 $
0
3,665 $
(1,369)
15,173
At December 28, 2019, the total amount of unrecognized tax benefits that, if recognized, would affect the
Company’s effective tax rate is $206. Given the potential outcome of current examinations, it is reasonably possible
that the balance of unrecognized tax benefits could significantly change within the next twelve months. However, an
estimate of the range of reasonably possible adjustments cannot be made at this time.
In 2019, the Company reached favorable settlements with the IRS for the 2016 tax year, which resulted in a
tax benefit of $485, and with South Carolina for tax years 2012 to 2017, which resulted in a tax benefit of $756. The
Company files income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. At
December 28, 2019, 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 2017, or non-U.S. income tax examinations by tax authorities
for years prior to 2014. The Company is subject to audits in certain non-U.S. jurisdictions for tax years 2014 to
2017. The resolution of these audits is not expected to be material.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense.
The Company had $6 and $186 of accrued interest and penalties at December 28, 2019 and December 29, 2018,
respectively. The Company recognized $(257), $(65) and $63 in interest and penalties during the fiscal years ended
December 28, 2019, December 29, 2018 and December 30, 2017, respectively.
14. 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 28, 2019, December 29, 2018 and
December 30, 2017. Expense related to these contributions for the fiscal years ended December 28, 2019,
December 29, 2018 and December 30, 2017 was $2,901, $3,405 and $2,676, 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.
F-33
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
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 Committee. Expense related to these contributions for the fiscal years
ended December 28, 2019, December 29, 2018 and December 30, 2017 was $1,313, $1,317 and $1,195,
respectively.
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 Committee.
The EPSP 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 28, 2019,
December 29, 2018 and December 30, 2017 was $3,691, $2,913 and $2,382, respectively.
15. Cash Flow Information
December 28, December 29, December 30,
2018
2017
2019
Net cash paid during the year for:
Interest expense ..................................................... $
Income taxes(a) ....................................................... $
130,081 $
34,268 $
119,866 $
12,095 $
115,233
27,282
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 ................................................ $
118 $
6,026 $
0
583 $
(844) $
(3,450)
(a)
Fiscal 2019 includes tax refunds received of $13,309.
See Note 4 for disclosures on supplemental cash flow information related to leases.
F-34
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
16.
Commitments and Contingencies
Securities Class Action and Derivative Matters
In March 2019, two substantially identical class action complaints alleging violations of the federal securities
laws were filed by individual shareholders against the Company, certain of the Company’s current officers and the
Company’s former controlling shareholder, Artal Group S.A. (“Artal”), in the United States District Court for the
Southern District of New York. The actions were consolidated and lead plaintiffs were appointed in June 2019. A
consolidated amended complaint was filed on July 29, 2019, naming as defendants the Company, certain of the
Company’s current officers and directors, and Artal and certain of its affiliates. A second consolidated amended
complaint was filed on September 27, 2019. The operative complaint asserts claims on behalf of all purchasers of
the Company’s common stock between May 4, 2018 and February 26, 2019, inclusive (the “Class Period”),
including purchasers of the Company’s common stock traceable to the May 2018 secondary offering of the
Company’s common stock by certain of its shareholders. The complaint alleges that, during the Class Period, the
defendants disseminated materially false and misleading statements and/or concealed or recklessly disregarded
material adverse facts. The complaint alleges claims under Sections 10(b) and 20(a) of the Securities Exchange Act
of 1934, as amended, and Rule 10b-5 thereunder, and with respect to the secondary offering, under Sections 11,
12(a)(2), and 15 of the Securities Act of 1933, as amended. The plaintiffs seek to recover unspecified damages on
behalf of the class members. The Company believes that the action is without merit and intends to vigorously defend
it. The Company filed a motion to dismiss the complaint on October 31, 2019.
Between March and July 2019, the Company received shareholder litigation demands alleging breaches of
fiduciary duties by certain current and former Company directors and executive officers, to the alleged injury of the
Company. The allegations in the demands relate to those contained in the ongoing securities class action litigation.
In response to the demands, pursuant to Virginia law, the Board of Directors has created a special committee to
investigate and evaluate the claims made in the demands. In addition, four derivative complaints were filed, each
making allegations against certain of the Company’s officers and directors and/or Artal and certain of its affiliates.
First, on June 13, 2019, a shareholder derivative complaint was filed in the Southern District of New York against
certain of the Company’s officers and directors alleging, among other things, that the defendants breached fiduciary
duties to the alleged injury of the Company. The plaintiff voluntarily dismissed the complaint on July 8, 2019 and
the Company agreed to treat the complaint as a litigation demand. Second, on July 23, 2019, another shareholder
derivative complaint was filed in the Southern District of New York against certain of the Company’s officers and
directors alleging, among other things, that the defendants breached fiduciary duties to the alleged injury of the
Company. The plaintiff voluntarily dismissed the complaint the same day. Third, on October 25, 2019, another
shareholder derivative complaint was filed in the Southern District of New York against certain of the Company’s
officers and directors alleging, among other things, that the defendants breached fiduciary duties to the alleged
injury of the Company. Finally, on December 16, 2019, a shareholder derivative complaint was filed in New York
Supreme Court against certain of the Company’s officers and directors, and Artal and certain of its affiliates,
alleging, among other things, that the defendants breached fiduciary duties to the alleged injury of the Company.
The Company believes that these actions are without merit and intends to vigorously defend them.
Other Litigation Matters
Due to the nature of the Company’s activities, it is also, at times, subject to other 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.
F-35
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Commitments
Minimum commitments under non-cancelable purchase obligations at December 28, 2019 was $7,600, of
which $5,300 is due in fiscal 2020 and the remaining $2,300 is due in fiscal 2021. See Note 4 for disclosures related
to minimum commitments under non-cancelable lease obligations, primarily for office and rental facilities operating
leases.
17.
Segment and Geographic Data
The Company has four reportable segments based on an integrated geographical structure as follows: North
America, Continental Europe (CE), United Kingdom 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:
December 28,
2019
979,302
North America ................................................. $
293,233
Continental Europe ..........................................
94,557
United Kingdom...............................................
46,245
Other ................................................................
Total revenue, net............................................. $ 1,413,337
Total Revenue, net
for the Year Ended
December 29,
2018
$ 1,047,251
304,325
107,072
55,473
$ 1,514,121
$
December 30,
2017
910,349
239,223
99,989
57,350
$ 1,306,911
Net Income
for the Year Ended
December 29,
2018
December 28,
2019
December 30,
2017
Segment operating income:
North America ...................................................... $
Continental Europe ...............................................
United Kingdom ...................................................
Other .....................................................................
Total segment operating income...........................
General corporate expenses ..................................
Interest expense ....................................................
Other expense, net ................................................
Early extinguishment of debt, net.........................
Provision for (benefit from) income taxes............
Net income............................................................ $
Net loss attributable to the noncontrolling
interest................................................................
Net income attributable to WW
International, Inc................................................ $
281,937
$
95,201
9,543
4,374
391,055
103,070
135,267
1,758
0
31,513
119,447
$
351,599
$
114,708
18,814
9,604
494,725
105,740
142,346
2,578
0
20,493
223,568
$
247,587
73,689
19,939
(4,358)
336,857
69,552
112,784
472
8,969
(18,237)
163,317
169
181
197
119,616
$
223,749
$
163,514
F-36
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Depreciation and Amortization
for the Year Ended
December 29,
2018
December 28,
2019
December 30,
2017
North America ..................................................... $
Continental Europe..............................................
United Kingdom ..................................................
Other ....................................................................
Total segment depreciation and amortization......
General corporate depreciation and
amortization......................................................
Depreciation and amortization ............................ $
36,643
$
1,709
802
443
39,597
37,137
$
1,347
1,487
597
40,568
14,738
54,335
$
12,032
52,600
$
39,501
1,203
1,205
626
42,535
14,457
56,992
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.
Digital Subscription Revenues ...................................... $
Studio + Digital Fees .....................................................
In-workshop product sales.............................................
Licensing, franchise royalties and other........................
Total Revenue, net for the Year Ended
December 29,
2018
567,767
705,429
148,856
92,069
$ 1,514,121
December 28,
2019
609,996
597,270
118,493
87,578
$ 1,413,337
December 30,
2017
416,722
664,957
137,855
87,377
$ 1,306,911
$
$
United States............................................................. $
Canada ......................................................................
Continental Europe ...................................................
United Kingdom .......................................................
Other .........................................................................
December 28,
2019
913,930 $
65,372
293,233
94,557
46,245
Total Revenue, net for the Year Ended
December 29,
2018
974,843 $
72,408
304,325
107,072
55,473
December 30,
2017
846,249
64,100
239,223
99,989
57,350
$ 1,413,337 $ 1,514,121 $ 1,306,911
December 28,
2019 (a)
Long-Lived Assets for the Year Ended
December 29,
2018
43,772 $
4,825
1,257
1,924
424
52,202 $
December 30,
2017
42,114
2,563
642
1,920
739
47,978
43,909 $
4,997
2,374
2,068
718
54,066 $
United States............................................................. $
Canada ......................................................................
Continental Europe ...................................................
United Kingdom .......................................................
Other .........................................................................
$
(a)
Amounts include finance lease assets
F-37
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Operating lease assets for the year ended December 28, 2019 is as follows:
United States ............................................................................................. $
Canada.......................................................................................................
Continental Europe ...................................................................................
United Kingdom........................................................................................
Other..........................................................................................................
$
December 28, 2019
134,623
9,270
4,490
2,533
1,067
151,983
18. 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:
(cid:129)
(cid:129)
(cid:129)
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 interest rate swap agreements as
of December 28, 2019 and December 29, 2018. The fair value of the Company’s borrowings under the Revolving
Credit Facility approximated a carrying value of $0 at both December 28, 2019 and December 29, 2018.
The fair value of the Company’s Credit Facilities is determined by utilizing average bid prices on or near the
end of each fiscal quarter (Level 2 input). As of December 28, 2019 and December 29, 2018, the fair value of the
Company’s long-term debt was approximately $1,597,852 and $1,757,717, respectively, as compared to the carrying
value (net of deferred financing costs and debt discount) of $1,576,170 and $1,746,708, respectively.
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 19 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 28,
2019.................................................................... $
Interest rate swap asset at December 29, 2018 ..... $
Interest rate swap liability at December 29,
2018.................................................................... $
21,597 $
3,924 $
5,578 $
0 $
0 $
0 $
21,597 $
3,924 $
5,578 $
0
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 28, 2019 and December 29, 2018.
F-38
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
19. Derivative Instruments and Hedging
As of December 28, 2019 and December 29, 2018, the Company had in effect an interest rate swap with a
notional amount totaling $1,000,000 and $1,250,000, 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 to $1,000,000 on April 1, 2019. This
interest rate swap effectively fixed 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.
On June 11, 2018, in order to hedge a portion of its variable rate debt, the Company entered into a forward-
starting interest rate swap (the “2018 swap”) with an effective date of April 2, 2020 and a termination date of March
31, 2024. The initial notional amount of this swap is $500,000. During the term of this swap, the notional amount
will decrease from $500,000 effective April 2, 2020 to $250,000 on March 31, 2021. This interest rate swap
effectively fixed the variable interest rate on the notional amount of this swap at 3.1005%. On June 7, 2019, in order
to hedge a portion of its variable rate debt, the Company entered into a forward-starting interest rate swap (together
with the 2018 swap, the “future swaps”) with an effective date of April 2, 2020 and a termination date of March 31,
2024. The notional amount of this swap is $250,000. This interest rate swap effectively fixed the variable interest
rate on the notional amount of this swap at 1.901%. The future swaps qualify for hedge accounting and, therefore,
changes in the fair value of the future swaps have been recorded in accumulated other comprehensive loss.
As of December 28, 2019 and December 29, 2018, cumulative unrealized losses for qualifying hedges were
reported as a component of accumulated other comprehensive loss in the amounts of $15,529 ($20,856 before taxes)
and $1,175 ($1,634 before taxes), respectively. As of December 28, 2019, the fair value of the Company’s then-
effective swap was a liability of $1,881, which is included in derivative payable in the consolidated balance sheet.
As of December 28, 2019, the fair value of the Company’s future swaps was a liability of $19,716, which is
included in derivative payable in the consolidated balance sheet. As of December 29, 2018, the fair value of the
Company’s then-effective swap included a current asset of $3,526 and a noncurrent asset of $398, which are
included in other current assets and other noncurrent assets, respectively, in the consolidated balance sheet. As of
December 29, 2018, the fair value of the Company’s 2018 swap was a liability of $5,578, which is included in
derivative payable in the consolidated balance sheet.
The Company is hedging forecasted transactions for periods not exceeding the next five years. The Company
expects approximately $5,503 ($7,377 before taxes) of derivative losses included in accumulated other
comprehensive loss at December 28, 2019, based on current market rates, will be reclassified into earnings within
the next 12 months.
F-39
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
20. Accumulated Other Comprehensive Loss
Amounts reclassified out of accumulated other comprehensive loss are as follows:
Changes in Accumulated Other Comprehensive Loss by Component(a)
Fiscal Year Ended December 28, 2019
Loss on
Foreign
Currency
Translation
Loss on
Qualifying
Hedges
Total
Beginning Balance at December 29, 2018 .................. $
(1,175) $ (14,582) $ (15,757)
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 (loss)
income including noncontrolling interest.................
(13,752)
2,737
(11,015)
(602)
0
(602)
(14,354)
2,737
(11,617)
Less: net current period other comprehensive
loss attributable to the noncontrolling interest....
22
Ending Balance at December 28, 2019 ....................... $ (15,529) $ (11,823) $ (27,352)
22
0
(a)
(b)
Amounts in parentheses indicate debits
See separate table below for details about these reclassifications
Beginning Balance at December 30, 2017 .................. $
(5,392) $
(5,075) $ (10,467)
Fiscal Year Ended December 29, 2018
Loss on
Foreign
Currency
Translation
(Loss) Gain
on
Qualifying
Hedges
Total
3,263
(8,556)
(5,293)
2,115
(1,161)
0
(1,324)
2,115
(2,485)
4,217
(9,880)
(5,663)
0
373
(1,175) $ (14,582) $ (15,757)
373
Other comprehensive income (loss) before
reclassifications, net of tax..................................
Amounts reclassified from accumulated other
comprehensive loss, net of tax(b) .........................
Adoption of accounting standard ...........................
Net current period other comprehensive income
(loss) including noncontrolling interest....................
Less: net current period other comprehensive loss
attributable to the noncontrolling interest ...........
Ending Balance at December 29, 2018 ....................... $
(a)
(b)
Amounts in parentheses indicate debits
See separate table below for details about these reclassifications
F-40
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Fiscal Year Ended December 30, 2017
Gain (loss)
on
Foreign
Currency
Translation
Loss on
Qualifying
Hedges
Total
Beginning Balance at December 31, 2016 .................. $ (16,002) $ (11,118) $ (27,120)
Other comprehensive 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 ....................... $
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)
(b)
Amounts in parentheses indicate debits
See separate table below for details about these reclassifications
Reclassifications out of Accumulated Other Comprehensive Loss(a)
2019
Fiscal Year Ended
December 28, December 29, December 30,
2018
Amounts Reclassified from
Accumulated Other
Comprehensive Loss
2017
Affected Line Item in the
Statement Where Net
Income is Presented
Details about Other Comprehensive
Loss Components
Loss on Qualifying Hedges
Interest rate contracts .............. $
Loss on Foreign Currency
Translation ................................. $
$
$
807 $
807
(205)
602 $
(2,835) $
(2,835)
720
(2,115) $
(15,946) Interest expense
(15,946) Income before income taxes
Provision for income taxes
6,219
(9,727) Net income
0 $
0
0
0 $
0 $
0
0
0 $
(787) Other expense (income), net
(787) Income before income taxes
0
Provision for income taxes
(787) Net income
(a)
Amounts in parentheses indicate debits to profit/loss
F-41
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
21. Recently Issued Accounting Pronouncements
In August 2018, the FASB issued updated guidance addressing customer’s accounting for implementation
costs incurred in a cloud computing arrangement that is a service contract, which requires customers to apply
internal-use software guidance to determine the implementation costs that are able to be capitalized. Capitalized
implementation costs is required to be amortized over the term of the arrangement, beginning when the cloud
computing arrangement is ready for its intended use. The effective date of the new guidance for public companies is
for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is
permitted. The Company does not expect the adoption of this guidance to have a material impact on its consolidated
financial statements.
In December 2019, the FASB issued updated guidance simplifying the accounting for income taxes by
removing certain exceptions to the general principles in Topic 740 as well as by improving consistent application of
GAAP by clarifying and amending existing guidance. The effective date of the new guidance for public companies
is for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. Early adoption is
permitted. The Company is currently evaluating the timing of adoption and impact of the updated guidance on its
consolidated financial statements.
22. Related Party
As previously disclosed, on October 18, 2015, the Company entered into the Strategic Collaboration
Agreement with Oprah Winfrey, under which she would consult with the Company and participate in developing,
planning, executing and enhancing the WW program and related initiatives, and provide it with services in her
discretion to promote the Company and its programs, products and services for an initial term of five years (the
“Initial Term”).
As previously disclosed, on December 15, 2019, the Company entered into an amendment of the Strategic
Collaboration Agreement with Ms. Winfrey, pursuant to which, among other things, the Initial Term of the Strategic
Collaboration Agreement was extended until April 17, 2023 (with no additional successive renewal terms) after
which a second term will commence and continue through the earlier of the date of the Company’s 2025 annual
meeting of shareholders or May 31, 2025. Ms. Winfrey will continue to provide the above-described services during
the remainder of the Initial Term and, during the second term, will provide certain consulting and other services to
the Company. In consideration of Ms. Winfrey entering into the amendment to the Strategic Collaboration
Agreement and the performance of her obligations thereunder, on December 15, 2019 the Company granted Ms.
Winfrey a fully vested option to purchase 3,276 shares of the Company’s common stock (the "Winfrey Amendment
Option") which shall become exercisable at any time after the date on which shareholder approval of such option
becomes effective. The amendment to the Strategic Collaboration Agreement will not become operative unless and
until the Company's shareholders approve the Winfrey Amendment Option on or before June 30, 2020. The
Company will submit the Winfrey Amendment Option for shareholder approval at the Company's 2020 annual
meeting of shareholders. If the Company’s shareholders do not approve the Winfrey Amendment Option, Ms.
Winfrey could terminate the Strategic Collaboration Agreement with the Company as a result.
In addition to the Strategic Collaboration Agreement, Ms. Winfrey and her related entities provided services to
the Company totaling $2,791, $2,208 and $4,266 for the fiscal years ended December 28, 2019, December 29, 2018
and December 30, 2017, respectively, which services included advertising, production and related fees. Also, during
the fiscal year ended December 28, 2019, the Company received advertising services from entities related to Ms.
Winfrey at no charge with an estimated value of $330. During fiscal 2017, the Company also purchased $84 of
books, authored by Ms. Winfrey, for resale.
The Company’s accounts payable to parties related to Ms. Winfrey at December 28, 2019 and December 29,
2018 was $72 and $62, respectively.
In March 2018, as permitted by the transfer provisions set forth in the previously disclosed Share Purchase
Agreement, dated October 18, 2015, between the Company and Ms. Winfrey, and the Option Agreement, dated
October 18, 2015, between the Company and Ms. Winfrey, Ms. Winfrey sold 954 of the shares she purchased under
such purchase agreement and exercised a portion of her stock options resulting in the sale of 1,405 shares issuable
under such options, respectively.
F-42
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
23. Restructuring
As previously disclosed, in the first quarter of fiscal 2019, the Company undertook an organizational
realignment which resulted in the elimination of certain positions and termination of employment for certain
employees worldwide. The Company recorded expenses in connection with employee termination benefit costs of
$6,331 ($4,727 after tax) for the fiscal year ended December 28, 2019 (all expenses were recorded in the first
quarter of fiscal 2019). These expenses impacted cost of revenues by $1,425 and selling, general and administrative
expense by $4,906 for the fiscal year ended December 28, 2019. The Company does not anticipate recording
additional expenses in connection with this organizational realignment. All expenses were recorded to general
corporate expenses and therefore there was no impact to the segments.
For the fiscal year ended December 28, 2019, the Company made payments of $5,077 towards the liability for
these expenses and lowered provision estimates by $83. The Company expects the remaining liability of $1,171 to
be paid in full in fiscal 2020.
24. Quarterly Financial Information (Unaudited)
The following is a summary of the unaudited quarterly consolidated results of operations for the fiscal years
ended December 28, 2019 and December 29, 2018.
For the Fiscal Quarters Ended
March 30,
2019
June 29,
September 28, December 28,
2019
2019
2019
Fiscal year ended December 28, 2019
Revenues, net ............................................................. $ 363,164 $ 369,023 $
Gross profit................................................................. $ 200,948 $ 215,814 $
21,897 $ 105,473 $
Operating income ....................................................... $
53,834 $
Net (loss) income attributable to the Company.......... $ (10,687) $
0.80 $
(0.16) $
Basic (loss) earnings per share ................................... $
0.78 $
(0.16) $
Diluted (loss) earnings per share ................................ $
348,567 $ 332,583
194,769 $ 175,151
65,886
94,729 $
29,383
47,086 $
0.44
0.70 $
0.42
0.68 $
For the Fiscal Quarters Ended
March 31,
2018
June 30,
September 29, December 29,
2018
2018
2018
Fiscal year ended December 29, 2018
Revenues, net ............................................................. $ 408,223 $ 409,747 $
Gross profit ................................................................ $ 221,003 $ 244,794 $
Operating income....................................................... $ 62,073 $ 127,708 $
Net income attributable to the Company ................... $ 39,112 $ 70,720 $
1.07 $
Basic earnings per share............................................. $
1.01 $
Diluted earnings per share ......................................... $
0.60 $
0.56 $
365,765 $
215,394 $
118,860 $
70,132 $
1.05 $
1.00 $
330,386
185,220
80,347
43,785
0.65
0.63
Basic and diluted EPS are computed independently for each of the periods presented. Accordingly, the sum of
the quarterly EPS amounts may not agree to the total for the year.
F-43
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 28, 2019
Allowance for doubtful accounts ..................... $
Inventory and other reserves ............................ $
Tax valuation allowance................................... $
1,743 $
3,843 $
6,191 $
(123) $
8,710 $
709 $
0 $
0 $
(40) $
193 $
(7,868) $
(100) $
1,813
4,685
6,760
FISCAL YEAR ENDED DECEMBER 29, 2018
2,001 $
Allowance for doubtful accounts ..................... $
Inventory and other reserves ............................ $
3,984 $
Tax valuation allowance................................... $ 22,760 $
130 $
7,906 $
1,893 $
0 $
0 $
(388) $
(8,047) $
(403) $ (18,059) $
1,743
3,843
6,191
FISCAL YEAR ENDED DECEMBER 30, 2017
(587) $
Allowance for doubtful accounts ..................... $
Inventory and other reserves ............................ $
7,823 $
Tax valuation allowance................................... $ 18,277 $ 11,515 $
2,973 $
3,703 $
0 $
0 $
1,079 $
2,001
(385) $
(7,542) $
3,984
(8,111) $ 22,760
(1)
Primarily represents the utilization of established reserves, net of recoveries, where applicable.
S-1
Exhibit
Number
**3.1
**3.2
**4.1
**4.2
*4.3
**10.1
**10.2
**10.3
**10.4
**10.5
**10.6
**10.7
EXHIBIT INDEX
Description
Amended and Restated Articles of Incorporation of WW International, Inc. (effective as of
September 29, 2019)(filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed
on September 30, 2019 (File No. 001-16769), and incorporated herein by reference).
Amended and Restated Bylaws of WW International, Inc. (effective as of September 29, 2019)
(filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K, as filed on September 30,
2019 (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 4.1 above).
Description of Securities.
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).
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).
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).
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).
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).
70
Exhibit
Number
**10.8
**10.9
†**10.10
†**10.11
†**10.12
†**10.13
†**10.14
†**10.15
†**10.16
†**10.17
†**10.18
†**10.19
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).
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).
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).
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 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).
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).
71
Exhibit
Number
†**10.20
†**10.21
†**10.22
†**10.23
†**10.24
†**10.25
†**10.26
†**10.27
†**10.28
†**10.29
†**10.30
Description
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).
2018 Form of Term Sheet for Employee Performance Stock Unit Awards and 2018 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 August 7, 2018 (File No. 001-
16769), and incorporated herein by reference).
2018 Form of Term Sheet for Employee Restricted Stock Unit Awards and 2018 Form of Terms
and Conditions for Employee Restricted Stock Unit Awards (filed as Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q, as filed on August 7, 2018 (File No. 001-16769),
and incorporated herein by reference).
2018 Form of Term Sheet for Employee Performance Stock Unit Awards and 2018 Form of
Terms and Conditions for Employee Performance Stock Unit Awards (Chief Executive Officer
Annual Equity Award) (filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q,
as filed on August 7, 2018 (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 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).
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).
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).
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).
72
Exhibit
Number
†**10.31
†**10.32
†**10.33
†**10.34
†**10.35
†**10.36
†**10.37
†**10.38
†**10.39
†**10.40
**10.41
**10.42
Description
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).
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).
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).
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).
First Addendum to the Mowbray Letter Agreement, dated February 8, 2018, by and between
Stacey Mowbray and Weight Watchers International, Inc. (filed as Exhibit 10.43 to the
Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2017, as filed
on February 28, 2018 (File No. 001-16769), and incorporated herein by reference).
Separation Agreement, dated as of May 30, 2019, by and between Stacey Mowbray and Weight
Watchers International, Inc. (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form
10-Q, as filed on August 7, 2019 (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).
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).
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).
Amendment to Share Purchase Agreement, dated as of December 15, 2019, between WW
International, Inc. and Oprah Winfrey (filed as Exhibit 10.3 to the Company’s Current Report on
Form 8-K, as filed on December 16, 2019 (File No. 001-16769), and incorporated herein by
reference).
73
Exhibit
Number
†**10.43
**10.44
**10.45
†**10.46
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).
First Amendment of Strategic Collaboration Agreement, dated as of December 15, 2019,
between WW International, Inc. and Oprah Winfrey (filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K, as filed on December 16, 2019 (File No. 001-16769), and
incorporated herein by reference).
Option Agreement, dated December 15, 2019, between WW International, Inc. and Oprah
Winfrey (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, as filed on
December 16, 2019 (File No. 001-16769), and incorporated herein by reference).
*21.1
Subsidiaries of WW International, Inc.
*23.1
*31.1
*31.2
*32.1
*Exhibit 101
*EX-101.INS
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.
XBRL Instance Document – the instance document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL document.
*EX-101.SCH Inline XBRL Taxonomy Extension Schema Document
*EX-101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
*EX-101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
*EX-101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
*EX-101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
*Exhibit 104
The cover page from WW International, Inc.’s Annual Report on Form 10-K for the fiscal year
ended December 28, 2019, formatted in Inline XBRL (included within the Exhibit 101
attachments).
*
**
†
Filed herewith.
Previously filed.
Represents a management arrangement or compensatory plan.
74
Item 16.
Form 10-K Summary
None.
75
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 25, 2020
By:
/S/ MINDY GROSSMAN
Mindy Grossman
President, Chief Executive Officer and Director
(Principal Executive Officer)
WW 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 25, 2020
Date: February 25, 2020
Date: February 25, 2020
Date: February 25, 2020
Date: February 25, 2020
Date: February 25, 2020
Date: February 25, 2020
Date: February 25, 2020
Date: February 25, 2020
Date: February 25, 2020
Date: February 25, 2020
Date: February 25, 2020
Date: February 25, 2020
By:
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 Officer)
/S/ AMY KOSSOVER
Amy Kossover
Chief Accounting Officer, Senior Vice President and Corporate
Controller
(Principal Accounting Officer)
/S/ RAYMOND DEBBANE
Raymond Debbane
Director
/S/ STEVEN M. ALTSCHULER
Steven M. Altschuler
Director
/S/ JULIE BORNSTEIN
Julie Bornstein
Director
/S/ TRACEY D. BROWN
Tracey D. Brown
Director
/S/ JONAS M. FAJGENBAUM
Jonas M. Fajgenbaum
Director
/S/ DENIS F. KELLY
Denis F. Kelly
Director
/S/ JULIE RICE
Julie Rice
Director
/S/ THILO SEMMELBAUER
Thilo Semmelbauer
Director
/S/ CHRISTOPHER J. SOBECKI
Christopher J. Sobecki
Director
/S/ OPRAH WINFREY
Oprah Winfrey
Director
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (333-224714) and
Form S-8 (Nos. 333-219779, 333-217835, 333-165637, 333-156185, 333-195800, and 333-208067) of WW
International, Inc. of our report dated February 25, 2020 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 25, 2020
EXHIBIT 31.1
CERTIFICATION
I, Mindy Grossman, certify that:
1. I have reviewed this Annual Report on Form 10-K of WW 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 25, 2020
Signature:
/S/ MINDY GROSSMAN
Mindy Grossman
President, Chief Executive Officer and Director
(Principal Executive Officer)
EXHIBIT 31.2
CERTIFICATION
I, Nicholas P. Hotchkin, certify that:
1. I have reviewed this Annual Report on Form 10-K of WW 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 25, 2020
Signature:
/S/ NICHOLAS P. HOTCHKIN
Nicholas P. Hotchkin
Chief Financial Officer
(Principal Financial 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 WW International, Inc. (the “Company”) for the fiscal
year ended December 28, 2019, 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 25, 2020
Signature:
/S/ MINDY GROSSMAN
Mindy Grossman
President, Chief Executive Officer and Director
(Principal Executive Officer)
Signature:
/S/ NICHOLAS P. HOTCHKIN
Nicholas P. Hotchkin
Chief Financial Officer
(Principal Financial Officer)
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