WeightWatchers 2005 Annual Report Download

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2005 Annual Report

Table of contents

  • Page 1
    2005 Annual Report M JOURNEY SUCCESS TRUST UNIQUE GOAL VIBRANT PRIDE ENERGY BELIEVE MODERN TECHNOLOGY REAL LIFE STRENGTH FREEDOM JOURNEY SUCCESS TRUST UNI NERGY BELIEVE MODERN TECHNOLOGY REAL LIFE STRENGTH FREEDOM JOURNEY SUCCESS TRUST UNIQUE VIBRANT ENERGY BELIEVE MODERN TECHNOLOGY REAL LIF M ...

  • Page 2
    ...: if you follow the plan, it works. " I work in retail and don't have time to go to a meeting, so subscribing to Weight Watchers Online meant I could have resources on hand 24 hours. It was easy to use. I signed up and logged on every day. I used the Weight Tracker tool which created a graph of...

  • Page 3
    ...while further developing a host of product enhancements and innovative services that build on our market leadership, expand our audiences and strengthen our outlook over the long-term. Linda Huett President and Chief Executive Officer In 2005, we generated over $1.15 billion in total revenue, up 12...

  • Page 4
    ..., we offer Internet weight management subscription products to consumers while maintaining a worldwide online presence for the Weight Watchers brand. The integration of this online business has gone very smoothly and we are thrilled with its performance to date. WeightWatchers.com generates revenues...

  • Page 5
    ... Solutions brings Weight Watchers tried and true approaches to weight management to an entirely new group of potential customers in the corporate arena. WeightWatchers.com " Our business model offers investors tangible results today and attractive growth potential in the years ahead." As our 2005...

  • Page 6
    ... over 2005. Further, even with its impressive performance this year, WeightWatchers.com is still in an early stage of growth. We will continue to target this important and largely untapped online market in the years ahead. Weight Watchers is a great organization. We are the clear market leader with...

  • Page 7
    ... OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2005. អ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File no. 000-03389 WEIGHT WATCHERS INTERNATIONAL, INC. (Exact name of Registrant as specified in...

  • Page 8

  • Page 9
    ... and Related Transactions ...Principal Accountant Fees and Services ... ... 20 22 25 46 46 47 47 47 48 54 59 61 64 66 ... Exhibits and Financial Statement Schedules ... The following terms used in this Annual Report on Form 10-K are our trademarks: Weight Watchers↦, WeightWatchers.com↦, POINTS...

  • Page 10

  • Page 11
    ... twice the market share of its next largest Internet competitor. Currently, we provide two subscription offerings: Weight Watchers Online and Weight Watchers eTools. Weight Watchers Online provides interactive and personalized resources that allow users to follow our weight management plans via the...

  • Page 12
    ... weight management programs. This growth is also a result of an increasing willingness of employers and governments to promote and contribute towards the cost of weight management programs. Our Services and Products Our Weight Management Plans In each of our markets, we offer services and products...

  • Page 13
    ... office party to making time to exercise. The leader encourages substantial participation and discusses supporting products and materials as appropriate. At the end of the meeting, new members are given special instruction in our current weight management plan. Our leaders help set a member's weight...

  • Page 14
    Product Sales We sell a range of products, including bars, snacks, cookbooks, POINTS value guides, Weight Watchers magazines and POINTS calculators, that complement our weight management plans and help our customers in their weight management efforts. Our emphasis has been on consumables that drive ...

  • Page 15
    ...Weight Watchers Online subscribers can currently purchase Weight Watchers On-the-Go for an additional $5 per month. We believe men represent an important market opportunity for us and we are developing a version of our Internet subscription products customized for men. Based on our internal research...

  • Page 16
    ... of food and other consumer products to carefully selected partners. We seek to increase our licensing revenues by targeting sizeable product categories where the Weight Watchers brand can add real value. We have recently expanded our global licensing team in order to focus on increasing the number...

  • Page 17
    ..., an industry tracking service. In addition to generating revenues from subscription sales and advertising, Weight Watchers Magazine also reinforces the value of our brand and serves as a powerful tool for marketing to both existing and potential customers. Marketing and Promotion Word of Mouth The...

  • Page 18
    ... subscription products, the website contributes value to our meeting business by promoting our brand, advertising Weight Watchers meetings and keeping members involved with Weight Watchers outside of meetings through useful offerings, such as a meeting locator, low calorie recipes, weight management...

  • Page 19
    ...not comparable. For example, many of these competitors' businesses are based on the sale of pre-packaged meals and meal replacements. Our meetings use group support, education and behavior modification to help our members change their eating habits, in conjunction with flexible food plans that allow...

  • Page 20
    ... finance this redemption as well as pay related fees and expenses. As a result of this redemption, we now own 100% of WeightWatchers.com. The merger and the redemption transactions were evaluated, negotiated and recommended by a Special Committee of Weight Watchers International's Board of Directors...

  • Page 21
    ... areas is set forth in Note 15 of our Consolidated Financial Statements, contained in Part IV, Item 15 of this Annual Report on Form 10-K. Available Information Corporate information, press releases and our periodic reports (e.g. 10-K's, 10-Q's, 8-K's) and amendments thereto are available free of...

  • Page 22
    ... • competition, including price competition and competition with self-help, pharmaceutical, surgical, dietary supplements and meal replacement products, and other weight management brands, diets, programs and products; • risks associated with the relative success of our marketing and advertising...

  • Page 23
    ... such as brand image, marketing programs, cost and perception of the efficacy of the product and service offerings. Moreover, customers can, and frequently do, change weight management approaches easily and at little cost. For example, in fiscal 2003 and fiscal 2004, our revenue growth was adversely...

  • Page 24
    ... 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...

  • Page 25
    ...year-to-year comparability of our results. For example, in 2006, Easter will fall on April 16, which means that the pre-summer diet season will begin later than it did in 2005. This seasonality could cause our stock price to fluctuate as the comparative change in our results for an interim financial...

  • Page 26
    ... we may be forced to limit our product and service offerings. Any of these results could reduce our revenues and our ability to compete effectively, increase our costs and harm our business. Any failure of our technology or systems to perform satisfactorily could result in expenditure of significant...

  • Page 27
    among prospective and existing customers regarding our use of personal information collected on our websites or through our products and services, such as weight management information, financial data, e-mail addresses and home addresses, could keep them from using our websites or purchasing our ...

  • Page 28
    ... corporate governance requirements. Artal controls a majority of the voting power of our outstanding common stock. Under the New York Stock Exchange rules, a listed company of which more than 50% of the voting power is held by another person or group of persons acting together is a ''controlled...

  • Page 29
    ... investors might be willing to pay in the future for shares of our common stock. Item 1B. Unresolved Staff Comments None. Item 2. Properties We are currently headquartered in New York, New York in leased office space. Each of our four regions of NACO has a small regional office under a short-term...

  • Page 30
    ... listed on the New York Stock Exchange, or the NYSE. Our common stock trades on the NYSE under the symbol ''WTW.'' The following table sets forth, for the period indicated, the high and low sales prices per share for our common stock as reported on the NYSE consolidated tape. Fiscal 2005 (Year ended...

  • Page 31
    .... Our Board of Directors may decide at any time to decrease the amount of dividends or discontinue the payment of dividends based on these factors. The Weight Watchers International credit facility also contains restrictions on our ability to pay dividends on our common stock. See ''Management...

  • Page 32
    .... SELECTED FINANCIAL DATA (in millions, except per share amounts) Fiscal 2005 (52 weeks) Fiscal 2004 (52 weeks) Fiscal 2003 (53 weeks) Fiscal 2002 (52 weeks) Fiscal 2001 (52 weeks) Revenues, net ...Net income ...Working capital (deficit) Total assets ...Long-term obligations . . Earnings per share...

  • Page 33
    ..., resulting in no increase in our net borrowing. On June 24, 2005, Weight Watchers International amended certain provisions of the WWI Credit Facility to allow for the December 16, 2005 redemption by WeightWatchers.com of shares held by Artal. On December 16, 2005, WeightWatchers.com borrowed $215...

  • Page 34
    ...by the end of the second quarter of 2002. On July 2, 2002 and September 1, 2002, we acquired the assets of our franchises in San Diego and eastern North Carolina for a total purchase price of $11.0 million and $10.6 million, respectively. These acquisitions were financed through cash from operations...

  • Page 35
    ...2005. We derive our revenues principally from: • Meeting fees. Members pay us a weekly fee to attend our meetings. • Product sales. We sell proprietary products that complement our weight management plans, such as bars, snacks, cookbooks, POINTS value guides, Weight Watchers magazines and POINTS...

  • Page 36
    ... as a result of our increased focus on expanding the number of Weight Watchers branded products worldwide and the reversion to us at the end of the third quarter of fiscal 2004 of revenues from certain third party licenses which had been paid to Heinz up until that time. As shown in the chart...

  • Page 37
    ...manage our business and assess the quality of and potential variability of our cash flows and earnings. These key performance indicators include: • net revenues, which are an indicator of our overall business growth; • attendance; • meeting fee revenue per attendee and in-meeting product sales...

  • Page 38
    ...fad diets; • a failure to develop innovative new products and services; • a decrease in the effectiveness of our marketing and advertising programs; and • an impairment of the Weight Watchers brand and other intellectual property. Acquisitions Acquisition of WeightWatchers.com On June 13, 2005...

  • Page 39
    ... ads are published. Revenue from magazine sales is recognized when the magazine is sent to the customer. Deferred revenue, consisting of prepaid meeting fees and magazine subscription revenue, is amortized into income over the period earned. Discounts to customers, including free registration offers...

  • Page 40
    ... fiscal quarter ended April 3, 2004, our consolidated balance sheet includes the balance sheet of WeightWatchers.com. Effective at the beginning of the second quarter of fiscal 2004, our consolidated statement of operations and statement of cash flows include the results of WeightWatchers.com. All...

  • Page 41
    ... Accounting Research Bulletin No. 51, ''Consolidated Financial Statements'' as a result of our increased ownership interest in WeightWatchers.com. Comparison of Fiscal 2005 (52 weeks) to Fiscal 2004 (52 weeks) As a result of the July 2, 2005 transaction which increased Weight Watchers International...

  • Page 42
    ... in licensing revenues, and a $10.8 million increase in product sales. Due to the timing of the adoption of FIN 46R, our fiscal 2004 consolidated results included one quarter of WeightWatchers.com royalty income of $2.0 million. Included in the $126.4 million increase in net revenues is a benefit of...

  • Page 43
    ... 2005 increased 230 basis points from 52.5% of sales in the prior year. A number of factors contributed to this margin expansion: price increases in NACO and U.K. meeting fees and in the WeightWatchers.com subscription fee; less frequent discounting of product sales; and strong growth in our high...

  • Page 44
    ... revenues in fiscal 2005. This increase comes primarily from the impact of strengthening our management team and higher performance bonuses for staff in most of our regions. In addition, the consolidation of an additional quarter of WeightWatchers.com in fiscal 2005 as compared to fiscal 2004 added...

  • Page 45
    ... included WeightWatchers.com's results of operations, net of intercompany eliminations, for only the nine months ended January 1, 2005. The impact of the consolidation on fiscal 2004 was to add $58.8 million in revenues and $39.9 million of gross profit. Operating income for the year increased by...

  • Page 46
    ...and the consolidation of WeightWatchers.com. The chart below compares Weight Watchers International's fiscal 2004 results to the prior year comparable period: Weight Watchers International Increase/ Fiscal 2004 Fiscal 2003 (Decrease) (in millions, except per share data) Revenues ...Cost of revenues...

  • Page 47
    ... 72.2% over fiscal 2003, due to our continued focus on introducing a range of Weight Watchers branded products worldwide. Revenues from advertising, our WeightWatchers.com licensee and other sources contributed to the remainder of the increase. Cost of revenues was $468.2 million for fiscal 2004, an...

  • Page 48
    ... stock purchase transaction with Heinz. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2005 and January 1, 2005, the balance sheets of WeightWatchers.com are fully consolidated with Weight Watchers International, and therefore the consolidated balance sheets for both periods are comparable. Balance...

  • Page 49
    ... Weight Watchers International. CASH FLOW Consolidated Results Fiscal 2005 Consolidated Results Fiscal 2004 (in millions) Increase/ (Decrease) Cash provided by operating activities ...Cash used for investing activities ...Cash used for financing activities ...Effect of exchange rate changes on cash...

  • Page 50
    ..., in the first quarter of fiscal 2004, as is required by this pronouncement, we recorded a $5.7 million net increase in cash as a result of the impact of consolidating WeightWatchers.com. The remainder of this section will address the financial position of Weight Watchers International on a stand...

  • Page 51
    ... arising at the time of The WW Group acquisition at the end of March 2003. Long-Term Debt The WWI Credit Facility consists of Term Loans and a Revolver. The WW.com Credit Facilities consist of first and second lien term loans. As of December 31, 2005, Weight Watchers International had debt of...

  • Page 52
    ...15% 6.25% 5.67% 6.62% 9.12% Total Debt ...Less Current Portion ...Total Long-Term Debt ...$ 741.4 The WWI Term Loan B and the WWI Revolver bear interest at an annual rate equal to LIBOR plus 1.75% or, at Weight Watchers International's option, the alternate base rate (as defined in the WWI Credit...

  • Page 53
    ... to the WW.com Second Lien Term Loan. Dividends On February 16, 2006, our Board of Directors authorized the initiation of a quarterly cash dividend of $0.175 per share of our common stock, which corresponds to an annual dividend rate of $0.70 per share. The initial quarterly dividend will be payable...

  • Page 54
    ... merger agreement effective July 2, 2005, the last day of our second quarter, Weight Watchers International increased its ownership interest in WeightWatchers.com from approximately 20% to approximately 53% for a total cash outlay of $136.4 million including $107.9 million paid to WeightWatchers.com...

  • Page 55
    ... in 2005. Our operating income for the first half of the year is generally the strongest. While WeightWatchers.com experiences similar seasonality in terms of new subscriber signups, its revenue tends to be less seasonal because it amortizes subscription revenue over the related subscription period...

  • Page 56
    ... exchange rates may impact our shareholders' equity. The assets and liabilities of our non-U.S. subsidiaries are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. Revenues and expenses are translated into U.S. dollars at the weighted average exchange rate...

  • Page 57
    ... principal executive officer and principal financial officer, concluded that, as of December 31, 2005, our internal control over financial reporting was effective based on those criteria. Our management's assessment of the effectiveness of the Company's internal control over financial reporting as...

  • Page 58
    ... our Chief Executive Officer in December 2000. Ms. Huett joined our company in 1984 as a meeting leader. Ms. Huett was promoted to U.K. Training Manager in 1986. In 1990, Ms. Huett was appointed Director of the United Kingdom operation and in 1993 was appointed Vice President of Weight Watchers...

  • Page 59
    ...WeightWatchers.com in January 2000 as Senior Vice President, Strategy and Business Development, and served as Chief Financial Officer of WeightWatchers.com from January 2003 until his departure in August 2003. Prior to joining WeightWatchers.com in January 2000, he was Director of Corporate Strategy...

  • Page 60
    ... of Keebler Foods Company. Previously, he was Chief Executive Officer of Specialty Foods Corporation's Western Bakery Group division. He is a director of the Tractor Supply Company and TreeHouse Foods, Inc. Mr. Reed received a B.A. from Rice University and an M.B.A. from Stanford Graduate School of...

  • Page 61
    ..., LLC. Board of Directors Our Board of Directors is currently comprised of nine directors. Classes and Terms of Directors Our Board of Directors is divided into three classes, equal in number, with each director serving a three-year term and one class being elected at each year's annual meeting of...

  • Page 62
    ... on our Board of Directors. Code of Business Conduct and Ethics We have adopted a Code of Business Conduct and Ethics for our officers, including our principal executive officer, principal financial officer, principal accounting officer and controller, and our employees and directors. Our Code of...

  • Page 63
    ... Weight Watchers International, Inc., Attn: Corporate Secretary, 11 Madison Avenue, 17th Floor, New York, NY 10010, (212) 589-2700. Any amendment of our Code of Business Conduct and Ethics or waiver thereof applicable to any of our principal executive officer, principal financial officer, principal...

  • Page 64
    ...most highly compensated executive officers whose total annual salary and bonus was in excess of $100,000. Summary Compensation Table Long-Term Compensation Awards(5) Restricted Securities Stock Underlying (6) Awards($) Options(#) Name and principal position Twelve Months Ended Twelve Month Period...

  • Page 65
    ... to performance targets. In any event, the options become fully vested upon the occurrence of a change in control of our company. In April 2000, our Board of Directors adopted the WeightWatchers.com Stock Incentive Plan pursuant to which selected employees were granted options to purchase shares of...

  • Page 66
    ... (1) annual compensation in the amount of $30,000, paid quarterly, half in cash and half in our common stock; (2) $1,000 per Audit Committee meeting; (3) options for 2,000 shares of our common stock per year, each with an exercise price equal to the closing price of our common stock on the day that...

  • Page 67
    In addition, during fiscal 2005 and in connection with their service on the Special Committee of independent directors of Weight Watchers International's Board of Directors in connection with the acquisition of WeightWatchers.com, (i) Mr. Bard, as Chairman of the Special Committee, received ...

  • Page 68
    ..., the average annual bonus actually earned by the executive in respect of the three full fiscal years prior to the year in which the notice of termination is given) under our bonus plan; (ii) A lump sum cash payment equal to the sum of (w) the executive's unpaid base salary and vacation days accrued...

  • Page 69
    ... and chief executive officer and each of the named executive officers, (iii) each director and (iv) all directors and executive officers as a group. Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and...

  • Page 70
    ... All directors and executive officers as a group (15 people) * Less than 1.0% ... (1) The information concerning Artal Group S.A. is based on a Schedule 13D filed with the SEC on March 18, 2004 by Westend S.A., the parent company of Artal Group S.A., and other information known to us. Artal Group...

  • Page 71
    ... shared dispositive power over 165,800 shares. The address of these entities is 2005 Market Street, Philadelphia, Pennsylvania 19103. (4) Our executive officers and directors may be contacted c/o Weight Watchers International, Inc., 11 Madison Avenue, 17th Floor, New York, New York 10010. (5) Number...

  • Page 72
    ...online advertising and promotion of activities conducted offline); and (4) use any materials related to the Weight Watchers program, including any text, artwork and photographs, and advertising, marketing and promotional materials on the Internet. The license agreement also grants WeightWatchers.com...

  • Page 73
    ... and the products and services of our affiliates and franchisees. Weight Watchers International is required to pay for all expenses incurred by WeightWatchers.com directly attributable to the services it performs under this agreement, plus a fee of 10% of those expenses. For fiscal 2005, prior to...

  • Page 74
    ... Total ...Audit Fees Audit fees for fiscal 2005 were for professional services rendered by PricewaterhouseCoopers LLP in connection with their (i) integrated audits of our consolidated financial statements and internal control over financial reporting as of and for the year ended December 31, 2005...

  • Page 75
    All Other Fees All other fees for fiscal 2005 and fiscal 2004 were for services rendered by PricewaterhouseCoopers LLP primarily related to employee benefit plan advisory services. All audit related services, tax services and other services were pre-approved by the Audit Committee, which concluded ...

  • Page 76
    ... Item 15. Exhibits and Financial Statement Schedules 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...

  • Page 77
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE COVERED BY REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Items 15(a) 1 & 2 Pages Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets at ...

  • Page 78
    ... REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Weight Watchers International, Inc.: We have completed integrated audits of Weight Watchers International Inc.'s 2005 and 2004 consolidated financial statements and of its internal control over financial reporting as of...

  • Page 79
    ... 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...

  • Page 80
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AT (IN THOUSANDS) December 31, 2005 January 1, 2005 ASSETS CURRENT ASSETS Cash and cash equivalents ...Receivables (net of allowances: December 31, 2005-$1,882 and January 1, 2005- $2,008) ...Inventories, net ......

  • Page 81
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE FISCAL YEARS ENDED (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) December 31, 2005 (52 Weeks) January 1, 2005 (52 Weeks) January 3, 2004 (53 Weeks) Meeting fees, net ...Product sales and other, net ......

  • Page 82
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS) Common Stock Shares Balance at December 28, 2002 ...Comprehensive Income: Net income ...Translation adjustment, net of taxes of $4,116 ...Changes in fair value of ...

  • Page 83
    ... from stock options exercised ...and other costs ... Cash provided by/(used for) financing activities ...Effect of exchange rate changes on cash and cash equivalents and other ...Impact of consolidating WeightWatchers.com ...Net (decrease) increase in cash and cash equivalents ...Cash and cash...

  • Page 84
    ... consolidated financial statements include the accounts of Weight Watchers International, Inc., and its wholly-owned subsidiaries, which effective December 16, 2005 includes WeightWatchers.com, Inc. and its subsidiaries (collectively, ''WeightWatchers.com'' or ''WW.com''). From the second quarter...

  • Page 85
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) weeks. WeightWatchers.com's fiscal year ends on December 31st of each year. This difference in fiscal years does not have a material effect on the ...

  • Page 86
    ...local currency. Assets and liabilities of these operations are translated into U.S. dollars using the exchange rate in effect at the end of each reporting period. Income statement accounts are translated at the average rate of exchange prevailing during each reporting period. Translation adjustments...

  • Page 87
    ... ads are published. Revenue from magazine sales is recognized when the magazine is sent to the customer. Deferred revenue, consisting of prepaid meeting fees and magazine subscription revenue, is amortized into income over the period earned. Discounts to customers, including free registration offers...

  • Page 88
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Advertising Costs: Advertising costs consist primarily of national and local direct mail, television, and spokesperson's fees. All costs related to ...

  • Page 89
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Investments: The Company uses the cost method to account for investments in which it holds 20% or less of the investee's voting stock and over which it...

  • Page 90
    ... per share if the Company had applied the fair value recognition provisions of SFAS No. 123 in each fiscal year: December 31, 2005 January 1, 2005 January 3, 2004 Net income, as reported ...Add: Total stock-based employee compensation expense as recorded under FIN 44 and APB 25, net of related tax...

  • Page 91
    ... franchises of The WW Group, Inc. and its affiliates, Weight Watchers of Fort Worth, Inc. and F-W Family Corporation have been accounted for under the purchase method of accounting and, accordingly, earnings have been included in the consolidated operating results of the Company since their dates...

  • Page 92
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Franchise Acquisitions On March 30, 2003, the Company completed the acquisition of certain assets of eight of the fifteen franchises of The WW Group, ...

  • Page 93
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) with WW.com (the ''Merger''), 1,126 shares of WW.com common stock owned by the employees of WW.com and other parties not related to Artal for a total ...

  • Page 94
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 4. Goodwill and Other Intangible Assets In accordance with SFAS No. 142, the Company no longer amortizes goodwill or other indefinite lived intangible...

  • Page 95
    ...assets of WeightWatchers.com) and $4,832, respectively. 6. Long-Term Debt The Company's components of long-term debt are as follows: December 31, 2005 Effective Balance rate January 1, 2005 Effective Balance rate Revolver due 2009 ...Term Loan B due 2010 ...Additional Term Loan B due 2010 ...Senior...

  • Page 96
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) from $45,000 to $350,000. At December 31, 2005, WWI had $112,200 of availability under the Revolver. Due to the early extinguishment of the Term Loans ...

  • Page 97
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) an aggregate principal amount of $170,000 (the ''First Lien Term Credit Facility'') and (ii) a five and one-half year, senior secured second lien term ...

  • Page 98
    ... the Company's outstanding common stock. On June 13, 2005, the Company, at the direction of WWI's Board of Directors, authorized adding $250,000 to this program. The repurchase program allows for shares to be purchased from time to time in the open market or through privately negotiated transactions...

  • Page 99
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 8. Earnings Per Share Basic earnings per share (''EPS'') computations are calculated utilizing the weighed average number of common shares outstanding...

  • Page 100
    ... of authorized common stock as of the plan's effective date. In 2001, the number of shares available for grant was increased to 7,058 shares. Under the stock purchase component of the 1999 Plan, 1,639 shares of common stock were sold to 45 members of WWI's management group at a price of $2.13 to...

  • Page 101
    ...44.04 WeightWatchers.com Stock Incentive Plan of Weight Watchers International, Inc. and Subsidiaries: In April 2000, the Board of Directors of WWI adopted the WeightWatchers.com Stock Incentive Plan of Weight Watchers International, Inc. and Subsidiaries, pursuant to which selected employees F-25

  • Page 102
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) were granted options to purchase shares of common stock of WeightWatchers.com that are owned by WWI. The number of shares available for grant under ...

  • Page 103
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The components of the Company's consolidated income before income taxes and the cumulative effect of accounting change consist of the following: ...

  • Page 104
    ... monthly subscription weight loss plans on the Internet. WeightWatchers.com provides these weight management products to consumers through paid access to specified areas of its website. It also provides marketing services to WWI. Due to the adoption of FIN 46R, the Company's consolidated financial...

  • Page 105
    ... certain types of services. WWI is required to pay for all expenses incurred by WeightWatchers.com directly attributable to the services it performs under this agreement, plus a fee of 10% of those expenses. The Company recorded service expense of $558 and $1,971 for the years ended January 1, 2005...

  • Page 106
    ... Weight Watchers Executive Profit Sharing Plan. Under the Internal Revenue Service (''IRS'') definition, this plan is considered a Nonqualified Deferred Compensation Plan. There is a promise of payment by the Company made on the employees' behalf instead of an individual account with a cash balance...

  • Page 107
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 13. Cash Flow Information December 31, 2005 January 1, 2005 January 3, 2004 Net cash paid during the year for: Interest expense ...Income taxes ......

  • Page 108
    ... effect of accounting change. Therefore, the measure of profitability for WeightWatchers.com for the fiscal year ended January 1, 2005 includes only their results of operations beginning with the second quarter of 2004. Prior to April 3, 2004, the Company was engaged principally in one line...

  • Page 109
    ... STATEMENTS (Continued) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Information about the Company's reportable operating segments is as follows: Fiscal Year Ended December 31, 2005 Weight Watchers Weight Intercompany International Watchers.com Eliminations Consolidated Revenues from external customers...

  • Page 110
    ..., short and long-term debt, and interest rate swap agreements. In evaluating the fair value of significant financial instruments, the Company generally uses quoted market prices of the same or similar instruments or calculates an estimated fair value on a discounted cash flow basis using the rates...

  • Page 111
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Derivative Instruments and Hedging: Prior to the extinguishment of the Euro Notes (as described in Note 6), the Company entered into forward and swap ...

  • Page 112
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 17. Quarterly Financial Information (Unaudited) The following is a summary of the unaudited quarterly consolidated results of operations for the fiscal...

  • Page 113
    SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN THOUSANDS) Additions Balance at Charged to Charged Balance at Beginning Costs and to Other End of Period Expenses Accounts(2) Deductions(1) of Period FISCAL YEAR ENDED DECEMBER 31, 2005 Allowance for doubtful accounts ...Inventory ...

  • Page 114
    ... 10.1 filed with the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended July 2, 2005. Redemption Agreement, by and among Artal Luxembourg, S.A., WeightWatchers.com Inc., and Weight Watchers International, Inc., dated as of June 13, 2005 is incorporated herein by reference to...

  • Page 115
    .... Weight Watchers Executive Profit Sharing Plan, dated as of October 4, 1999 is incorporated herein by reference to Exhibit 10.18 filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended April 29, 2000. 1999 Stock Purchase and Option Plan of Weight Watchers International, Inc...

  • Page 116
    ... quarter ended July 2, 2005. WeightWatchers.com Stock Incentive Plan of Weight Watchers International, Inc. and Subsidiaries is incorporated herein by reference to Exhibit 10.20 filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended April 29, 2000. Warrant Agreement, dated...

  • Page 117
    ... executive officers) is incorporated herein by reference to Exhibit No. 10.39 filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended January 3, 2004. Principal Stockholders Agreement among Weight Watchers International, Inc., WeightWatchers.com, Inc. and Artal Luxembourg...

  • Page 118
    Exhibit Number Description ***32.1 ***32.2 Certification pursuant to 18 U.S.C. Section 1350,...Pursuant to Commission Release No. 33-8212, this certification will be treated as ''accompanying'' this Form 10-K and not ''filed'' as part of such report for purposes of Section 18 of the Exchange Act, or...

  • Page 119
    ...Exchange Act of 1934, the registrant has duly caused this report to be signed on his behalf by the undersigned, thereunto duly authorized. WEIGHT WATCHERS INTERNATIONAL, INC. Date: February 27, 2006 By: /s/ LINDA HUETT Linda Huett President, Chief Executive Officer and Director (Principal Executive...

  • Page 120
    ... Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: February 27, 2006 By: /s/ LINDA HUETT Linda Huett President, Chief Executive Officer and Director (Principal Executive Officer) Date...

  • Page 121
    ... Weight Watchers International, Inc. of our report dated February 27, 2006 relating to the financial statements, financial statement schedule, management's assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting...

  • Page 122
    ... I, Linda Huett, President and Chief Executive Officer of Weight Watchers International, Inc., certify that: 1. 2. I have reviewed this Annual Report on Form 10-K of Weight Watchers International, Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or...

  • Page 123
    ... CERTIFICATION I, Ann M. Sardini, Chief Financial Officer of Weight Watchers International, Inc., certify that: 1. 2. I have reviewed this Annual Report on Form 10-K of Weight Watchers International, Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or...

  • Page 124
    ...ACT OF 2002 In connection with the Annual Report on Form 10-K of Weight Watchers International, Inc. (the ''Company'') for the fiscal year ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the ''Report''), I, Linda Huett, Chief Executive Officer of the...

  • Page 125
    ... OF 2002 In connection with the Annual Report on Form 10-K of Weight Watchers International, Inc. (the ''Company'') for the fiscal year ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the ''Report''), I, Ann M. Sardini, Chief Financial Officer of the...

  • Page 126

  • Page 127
    Corporate and Shareholder Information The Annual Meeting of Shareholders of Weight Watchers International, Inc. Location: The Carlton Hotel, 88 Madison Avenue, New York, N.Y. 10016 Date: Tuesday, May 2, 2006, at 10:00 a.m. Eastern Time. Corporate Headquarters 11 Madison Avenue 17th Floor New York,...

  • Page 128
    ...UNIQUE GOAL VIBRANT PRIDE ENERGY BELIEVE MODERN TECHNOLOGY REAL LIFE STRENGTH FREEDOM JOURNEY SUCCESS TRUST UNIQ NERGY BELIEVE MODERN TECHNOLOGY REAL LIFE STRENGTH FREEDOM JOURNEY SUCCESS TRUST UNIQUE VIBRANT ENERGY BELIEVE MODERN TECHNOLOGY REAL LIF M JOURNEY SUCCESS TRUST UNIQUE GOAL VIBRANT PRIDE...