WeightWatchers 2006 Annual Report Download - page 22

Competition among commercial weight management programs is largely based on program recognition and
reputation and the effectiveness, safety and price of the program. In the United States, we compete with several
other companies in the commercial weight management industry, although we believe that the businesses are not
comparable. For example, many of these competitors’ businesses are based on the sale of pre-packaged meals
and meal replacements. Our meetings use group support, education and behavior modification to help our
members change their eating habits, in conjunction with flexible food plans that allow members the freedom to
choose what they eat. There are no significant group education-based competitors in any of our major markets,
except in the United Kingdom. Even there, we have an almost 50% market share, which is more than 60% larger
than that of our nearest competitor.
We believe that food manufacturers that produce meal replacement products are not comparable
competition because these businesses’ meal replacement products do not engender behavior modification through
education in conjunction with a flexible, healthy diet.
We also compete with various self-help diets, products and publications, such as low-carbohydrate diets,
which gained in popularity and media exposure beginning in 2003.
History
Early Development
In 1961, Jean Nidetch, the founder of our company, attended a New York City obesity clinic and took what
she learned from her personal experience at the obesity clinic and began weight-loss meetings with a group of her
overweight friends in the basement of a New York apartment building. Under Ms. Nidetch’s leadership, the
group members supported each other in their weight-loss efforts, and word of the group’s success quickly spread.
Ms. Nidetch and Al and Felice Lippert, who all successfully lost weight through these efforts, formally launched
our business in 1963. Weight Watchers International, Inc. was incorporated as a Virginia corporation in 1974 and
succeeded to the business started in New York in 1963. Heinz acquired us in 1978.
Artal Ownership
In September 1999, Artal Luxembourg, S.A., Artal Luxembourg, an indirect subsidiary of Artal Group,
S.A., together with its parent and its subsidiaries, Artal, acquired us from Heinz. Subsequent to Artal’s
acquisition of us, Artal Luxembourg transferred ownership of its shares in us to Artal Participations and
Management S.A. and Artal Holdings Sp. z o.o., each also members of Artal. Currently, Artal Holdings Sp. z o.o.
is the only record holder of our shares by Artal.
WeightWatchers.com Acquisition
On June 13, 2005, we entered into an agreement to acquire control of our licensee and affiliate,
WeightWatchers.com. On July 1 and 2, 2005, we increased our ownership interest in WeightWatchers.com from
approximately 20% to approximately 53% by (i) exercising warrants to purchase WeightWatchers.com common
stock for a total purchase price of approximately $45.7 million, (ii) acquiring shares of WeightWatchers.com
common stock owned by the employees of WeightWatchers.com and other parties not related to Artal through a
merger of a subsidiary of ours with WeightWatchers.com for a total purchase price of approximately
$28.4 million and (iii) acquiring additional shares of WeightWatchers.com common stock, representing
outstanding stock options then held by WeightWatchers.com employees, for a total purchase price of
approximately $62.3 million.
On June 13, 2005, WeightWatchers.com also entered into a redemption agreement with Artal to purchase all
of the shares of WeightWatchers.com owned by Artal at the same price per share as we paid in the merger.
Subsequently, on December 16, 2005, WeightWatchers.com redeemed all of its outstanding common stock held
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