WeightWatchers 2015 Annual Report Download

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ÈANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 2, 2016.
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 001-16769
WEIGHT WATCHERS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Virginia 11-6040273
(State or other jurisdiction of incorporation or organization) (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 Name of each exchange on which registered
Common Stock, no par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No È
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 È
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 ÈNo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).
Yes ÈNo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer È
Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes No È
The aggregate market value of the registrant’s common stock held by non-affiliates as of July 2, 2015 (based upon the
closing price of $4.09 per share of common stock as of July 2, 2015, the last business day of the registrant’s second fiscal
quarter of 2015, as quoted on the New York Stock Exchange) was $112,751,513. For purposes of this computation, it is
assumed that shares of common stock held by our directors, executive officers and our controlling shareholders as of July 2,
2015 would be deemed stock held by affiliates.
The number of shares outstanding of common stock as of February 1, 2016 was 63,648,349.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for its 2016 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 January 2, 2016.

Table of contents

  • Page 1
    ... charter) . WEIGHT WATCHERS INTERNATIONAL, INC. Virginia (State or other jurisdiction of incorporation or organization) (Address of principal executive offices) (Zip code) 11-6040273 (I.R.S. Employer Identification No.) 675 Avenue of the Americas, 6th Floor, New York, New York 10010 Registrant...

  • Page 2
    ...Executive Officers and Directors of the Company ... 1 12 21 22 22 23 24 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...

  • Page 3
    ...fiscal year ended January 3, 2015 (included a 53rd week); "fiscal 2015" refers to our fiscal year ended January 2, 2016; and "fiscal 2016" refers to our fiscal year ended December 31, 2016. The following terms used in this Annual Report on Form 10-K are our trademarks: Weight Watchers®, PointsPlus...

  • Page 4
    ... our websites, mobile sites and apps, products sold at meetings, licensed products sold in retail channels and magazine subscriptions and other publications. Our primary sources of revenue are subscriptions for our monthly commitment plans for Weight Watchers meetings and Online subscriptions. Our...

  • Page 5
    ... the Beyond the Scale program, members and subscribers get daily and weekly SmartPoints targets, personalized activity goals and relevant content tailored to their needs. Prior to the launch of SmartPoints in December 2015, we offered a weight management plan known as PointsPlus in North America, or...

  • Page 6
    ...support and personalized planning from a Weight Watchers-certified Coach as well as access to other Online tools. Our Online subscription products are based on the Weight Watchers approach to weight management and provide additional tools to our meetings members, as applicable. They help subscribers...

  • Page 7
    ... recurring purchases. Our products are designed to be high quality, offer benefits related to the Weight Watchers program and be easy to merchandise. We sell our products through our meetings business, online and to our franchisees. Excluding sales to or by our franchisees, in fiscal 2015, sales of...

  • Page 8
    ... Commercial Diet Plan" and "Easiest Diet to Follow." Marketing and Promotion Our communications with consumers and other promotional efforts enhance our brand image and awareness, and motivate both former and potential new customers to join Weight Watchers meetings or purchase our Online products...

  • Page 9
    ... 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. Further information regarding our competition can be found in Part II, Item 7 of this Annual Report on Form 10-K under...

  • Page 10
    ... services (including in advertising, promotion, materials and content), and we granted Ms. Winfrey the right to use our WEIGHT WATCHERS marks to collaborate with and promote the Company and its programs, products and services. The Strategic Collaboration Agreement has an initial term of five years...

  • Page 11
    ... or the Exchange Act. As a result, we continue to qualify as a "controlled company" under the applicable rules of The New York Stock Exchange, or the NYSE. The transactions contemplated by the Strategic Collaboration Agreement, Winfrey Purchase Agreement and Winfrey Option Agreement are collectively...

  • Page 12
    ... Corporate information and our press releases, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments thereto, are available free of charge on our website at www.weightwatchersinternational.com as soon as reasonably practicable after such material...

  • Page 13
    ... implement new strategic initiatives; the effectiveness of our advertising and marketing programs, including the strength of our social media presence; the impact on the Weight Watchers brand of actions taken by our franchisees, licensees, suppliers and other partners; the impact of our debt service...

  • Page 14
    ... 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...

  • Page 15
    ..., free mobile and other weight management apps and other electronic weight management approaches; surgical procedures; the pharmaceutical industry; self-help weight management regimens and other self-help weight management products, services and publications, such as books, magazines, websites and...

  • Page 16
    ... cases celebrities, in our advertising and marketing programs to communicate on a personal level with consumers. Actions taken by these members, subscribers and celebrities that harm their personal reputation, or include the cessation of using our services and products, could have an adverse impact...

  • Page 17
    ... associated with these actions or these third parties would adversely affect our brand and may result in decreased meeting attendance, Online product subscriptions and product sales and, as a result, lower revenues and profits. Our debt service obligations could adversely affect our financial...

  • Page 18
    ... and existing customers, as well as companies and health plan providers who we currently or may in the future partner with, 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, 15

  • Page 19
    ... partnership arrangements with her, could have an adverse effect on our business, financial condition and results of operations. We also depend heavily upon our service providers to support our members and Personal Coaching subscribers in their weight management efforts. If we fail to appropriately...

  • Page 20
    ... our reported international revenues and earnings will be reduced because the local currency will translate into fewer US dollars. In addition, 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...

  • Page 21
    ... their discretionary spending which, in turn, could reduce attendance at our meetings, Online product subscriptions and product sales. Any reduction in consumer spending may adversely affect our business, financial condition or results of operations. We may not successfully make acquisitions or...

  • Page 22
    ... 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...

  • Page 23
    ... advertising and marketing practices, consumer pricing and billing arrangements, relations with consumers, employees, service providers, licensees or franchisees, or our services and products, may have an adverse impact on us. If we do not maintain effective internal control over financial reporting...

  • Page 24
    ... the New York Stock Exchange, or the NYSE, rules, a listed company of which more than 50% of the voting power for the election of directors is held by another person or group of persons acting together is a "controlled company" and such a company may elect not to comply with certain NYSE corporate...

  • Page 25
    ... the Company's current and former officers and directors, and Artal Group, in the United States District Court for the Southern District of New York. The complaints were purportedly filed on behalf of all purchasers of the Company's common stock, no par value per share, between February 14, 2012 and...

  • Page 26
    ... of New York. Specifically, the plaintiff is asserting that, as a result of the temporary glitches in the Company's website and app in November and December 2015, the Company has: (1) breached its Subscription Agreement with its OnlinePlus members; and (2) engaged in misleading advertising and...

  • Page 27
    ...Secretary Chief Financial Officer President, United Kingdom President, International Chairman of the Board of Directors Director Director Director Director Director Director Director Director (1) We recently announced that Ms. Lemmens will leave the Company in April 2016. (2) Member of Compensation...

  • Page 28
    ... of European short holiday break villages, including most recently serving as the Director B2B Strategy / Marketing from November 2005 to July 2006. Prior to joining Center Parcs Europe, Ms. Lemmens was working as an accountant in the audit practice with Ernst & Young LLP where she serviced a range...

  • Page 29
    ... and was a Research Fellow at the Center for Policy Alternatives of the Massachusetts Institute of Technology. Mr. Amouyal is a director and member of the Compensation Committee of Lexicon Pharmaceuticals, Inc. and Blue Buffalo Pet Products, Inc., as well as a number of private companies of which...

  • Page 30
    ... 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...

  • Page 31
    ...." The following table sets forth, for the periods indicated, the high and low sales prices per share for our common stock as reported on the NYSE composite price history. Fiscal 2015 (Year ended January 2, 2016) High Low First Quarter ...Second Quarter ...Third Quarter ...Fourth Quarter ...Fiscal...

  • Page 32
    stock. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations- Liquidity and Capital Resources-Long-Term Debt" in Part II, and "Item 15. Exhibits and Financial Statement Schedules-Financial Statements-Note 7. Long-Term Debt", of this Annual Report on Form ...

  • Page 33
    .... SELECTED FINANCIAL DATA (in millions, except per share amounts) Fiscal 2015 (52 weeks) Fiscal 2014 (53 weeks) Fiscal 2013 (52 weeks) Fiscal 2012 (52 weeks) Fiscal 2011 (52 weeks) Revenues, net ...Net income attributable to the Company ...Working capital deficit ...Total assets ...Long-term debt...

  • Page 34
    ... based on the exchange rates at the end of fiscal 2012. In January 2013, $6.8 million was paid to HMRC, representing the balance due over the approximately $30.0 million paid to HMRC in February 2012, and the balance of the reserve was used to pay associated costs. Long-Term Debt On March 15, 2012...

  • Page 35
    ... of term loans outstanding under the Tranche B-1 Term Facility. On March 20, 2015, we accepted offers with a discount equal to or greater than 9.00% in respect of such term loans. On March 25, 2015, we paid an aggregate amount of cash proceeds totaling $57.4 million plus an amount sufficient to pay...

  • Page 36
    ...the WWI Credit Facility, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources-Long-Term Debt" in Part II of this Annual Report on Form 10-K. Working Capital In fiscal 2015, the change in working capital was driven in large...

  • Page 37
    ... all of the assets of our Memphis, Tennessee franchisee, Weight Watchers of the Mid-South, Inc., for a purchase price of $10.0 million. These acquisitions were financed through cash from operations. These acquisitions have been accounted for as purchases and financial results have been included...

  • Page 38
    ... our websites, mobile sites and apps, products sold at meetings, licensed products sold in retail channels and magazine subscriptions and other publications. Our primary sources of revenue are subscriptions for our monthly commitment plans for Weight Watchers meetings and Online subscriptions. Our...

  • Page 39
    .... Service Revenues declined at a compound annual rate of 17.0% from fiscal 2013 to fiscal 2015 due to a decline in Total Paid Weeks from negative recruitment trends in both our meetings and Online businesses in the majority of the countries in which we operate. See "-Material Trends- Performance...

  • Page 40
    ...provider compensation changes in fiscal 2015, as well as technology and training costs associated with the December 2014 introduction of new product offerings negatively impacted margin. Online Subscription Revenues were substantially flat as a percent of total revenues in fiscal 2015 as compared to...

  • Page 41
    ...fees associated with subscriptions for our Online subscription products, including our Personal Coaching product. Paid Weeks-The "Paid Weeks" metric reports paid weeks by Weight Watchers customers in Company-owned operations for a given period as follows: (i) "Meeting Paid Weeks" is the sum of total...

  • Page 42
    ...to meetings members and Online subscribers who participate in recurring billing programs, such as our monthly commitment plans for our meetings business. The "Incoming Active Subscribers" metric reports active Weight Watchers subscribers in Company-owned operations at a given period start as follows...

  • Page 43
    ...United States, due to the difficulty in attracting members to our brand. In fiscal 2014, North America Total Paid Weeks declined 16.8%, driven by a decline in both Online Paid Weeks of 17.5% and Meeting Paid Weeks of 15.8%, versus the prior year. Despite the launch of the new Simple Start program at...

  • Page 44
    ... in Meeting Paid Weeks was driven by the lower number of Incoming Active Meeting Subscribers at the start of fiscal 2015 versus the start of fiscal 2014 coupled with lower meeting recruitments in fiscal 2015 as compared to the prior year. Although the number of Incoming Active Online Subscribers at...

  • Page 45
    ... 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...

  • Page 46
    ...subscriptions, selling advertising space on our website and in copies of our magazines, ecommerce fees and By Mail product sales. Monthly commitment plans, prepaid meeting fees and magazine subscription revenue is recorded to deferred revenue and amortized into revenue over the period earned. Online...

  • Page 47
    ..., see "Item 1A. Risk Factors". The following is a more detailed discussion of our goodwill and franchise rights acquired impairment analysis. Goodwill In performing the impairment analysis for goodwill, the fair value for our reporting units is estimated using a discounted cash flow approach. This...

  • Page 48
    ... by reviewing external market data. The cost of debt was determined by estimating the Company's current borrowing rate. The following are the more significant assumptions utilized in our impairment analysis for fiscal 2015 and 2014: January 2, 2016 January 3, 2015 Debt-Free Cash Flow Growth Rate...

  • Page 49
    ...compound annual growth rates subsequent to the year of maturity used in our discounted cash flow analysis ranged from a decline of approximately 9% to growth of approximately 16%. Information concerning significant accounting policies affecting us is set forth in Note 2 of our consolidated financial...

  • Page 50
    ...1.8%, of additional Online Paid Weeks, and 3.1 million, or 1.8%, in additional Total Paid Weeks to fiscal 2014. The additional week in fiscal 2014 also resulted in an additional week of interest expense for that year. The table below sets forth selected financial information for fiscal 2015 from our...

  • Page 51
    ..." above for an explanation of our use of nonGAAP financial measures. Consolidated Results Revenues Revenues in fiscal 2015 declined by 21.3% versus fiscal 2014 driven by revenue declines in the meetings and Online businesses globally, particularly in North America. Excluding the impact of foreign...

  • Page 52
    ... TV media and production costs globally as well as lower agency fees and celebrity and talent costs primarily in the United States. Marketing expenses as a percentage of revenue were 17.3% in fiscal 2015 as compared to 17.7% in the prior year. Selling, General and Administrative Selling, general and...

  • Page 53
    ... swaps, our effective interest rate on our debt, based on interest incurred and our average borrowings during fiscal 2015 and 2014, increased to 5.07% per annum at fiscal 2015 year end from 4.67% per annum at fiscal 2014 year end. See "- Liquidity and Capital Resources-Long-Term Debt" for additional...

  • Page 54
    ... the prior year: Fiscal 2015 GAAP Constant Currency Product Product Total Incoming EOP Service Sales & Total Service Sales & Total Paid Active Active Revenues Other Revenues Revenues Other Revenues Weeks Base Base (in thousands) (in millions unless otherwise stated) North America ...$639.4 $116...

  • Page 55
    ... markets operations and franchise revenues. North America Performance The decline in North America revenues in fiscal 2015 versus the prior year was driven primarily by the decline in Service Revenues. The decline in North America Total Paid Weeks primarily resulted from the lower Incoming Active...

  • Page 56
    ... Paid Weeks, the higher number of Incoming Active Online Subscribers at the start of fiscal 2015 versus the start of fiscal 2014 benefitted Online Subscription Revenues in fiscal 2015. Continental Europe product sales and other in fiscal 2015 was driven primarily by a decline in in-meeting product...

  • Page 57
    ...versus selected financial information for fiscal 2013 from our consolidated statements of net income for fiscal 2013. Summary of Selected Financial Data (In millions, except per share amounts) Fiscal Fiscal Increase/ 2014 2013 (Decrease) % Change Revenues, net ...$1,479.9 $1,724.1 Cost of revenues...

  • Page 58
    ... offset by an increase in gross margin in Continental Europe. The decline in North America gross margin was driven primarily by fixed cost deleverage and the impact of service provider compensation changes and training and technology in support of the Personal Coaching offering, 24/7 Expert Chat...

  • Page 59
    ... the prior year, the 25 basis point increase related to the issuance of revised corporate ratings by S&P and Moody's on February 21, 2014 and higher interest rates on our debt as a result of the April 2, 2013 debt refinancing. See "-Liquidity and Capital Resources-Long-Term Debt" for additional...

  • Page 60
    ... the prior year: Fiscal 2014 GAAP Constant Currency Product Product Total Incoming EOP Service Sales & Total Service Sales & Total Paid Active Active Revenues Other Revenues Revenues Other Revenues Weeks Base Base (in thousands) (in millions unless otherwise stated) North America ...$ 794.4 $153...

  • Page 61
    ... set, including mobile apps and activity monitors, during fiscal 2014. The Company believes this competition drove declines in all revenue categories in North America in fiscal 2014 versus the prior year. The decline in North America Total Paid Weeks primarily resulted from the lower Incoming Active...

  • Page 62
    ... of Incoming Active Online Subscribers at the start of fiscal 2014 versus the start of fiscal 2013 which drove higher Online Paid Weeks in the year as compared to the prior year. This increase in Online Subscription Revenues more than offset a lower number of Incoming Active Meeting Subscribers and...

  • Page 63
    ... following table sets forth certain relevant measures of our balance sheet working capital at: January 2, 2016 January 3, 2015 (in millions) Increase/ (Decrease) Total current assets ...Total current liabilities ...Working capital deficit ...Cash and cash equivalents ...Current portion of long-term...

  • Page 64
    ... fiscal 2015. Cash Flows The following table sets forth a summary of the Company's cash flows for the fiscal years ended: January 2, 2016 January 3, 2015 (in millions) December 28, 2013 Net cash provided by operating activities ...Net cash used in investing activities ...Net cash used in financing...

  • Page 65
    ... to support our customer relationship management platform and other global systems initiatives. Financing Activities Fiscal 2015 Net cash used in financing activities totaled $68.6 million in fiscal 2015, primarily due to $137.1 million of debt prepayments in connection with the debt tender offers...

  • Page 66
    ... benefit thereon in fiscal 2013. 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...

  • Page 67
    ... available to be used for working capital and general corporate purposes. At the end of fiscal 2015, fiscal 2014 and fiscal 2013, our debt consisted entirely of variable-rate instruments. Interest rate swaps were entered into to hedge a portion of the cash flow exposure associated with our variable...

  • Page 68
    ... our assets secure the WWI Credit Facility. Dividends On October 30, 2013, we announced that we suspended our quarterly cash dividend. We currently intend to use the annual cash savings to preserve financial flexibility while funding our strategic growth initiatives and building cash for future debt...

  • Page 69
    ... 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...

  • Page 70
    ... 19, 2015, we issued and sold to Ms. Winfrey an aggregate of 6.4 million shares of our common stock for an aggregate cash purchase price of $43.2 million. For additional details on the Winfrey Transaction, see "Item 1. Business-History-Winfrey Transaction" in Part I of this Annual Report on Form...

  • Page 71
    ...loss). Effective April 2, 2013, due to the Company's debt refinancing, the Company ceased the application of hedge accounting for this swap. Accordingly, changes in the fair value of this swap were recorded in earnings subsequent to April 2, 2013 and were immaterial for the fiscal year ended January...

  • Page 72
    ... principles generally accepted in the United States of America ("GAAP"). Our management assessed the effectiveness of our internal control over financial reporting as of January 2, 2016, the end of fiscal 2015. In making this assessment, our management used the criteria set forth by the Committee of...

  • Page 73
    ... 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 website at www.weightwatchersinternational.com...

  • Page 74
    ... 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...

  • Page 75
    PART IV 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 ...

  • Page 76
    ... of Changes in Total Deficit for the fiscal years ended January 2, 2016, January 3, 2015 and December 28, 2013 ...Consolidated Statements of Cash Flows for the fiscal years ended January 2, 2016, January 3, 2015 and December 28, 2013 ...Notes to Consolidated Financial Statements ...Schedule II...

  • Page 77
    ... in all material respects, the financial position of Weight Watchers International, Inc. and its subsidiaries (the "Company") at January 2, 2016 and January 3, 2015, and the results of their operations and their cash flows for each of the three years in the period ended January 2, 2016 in conformity...

  • Page 78
    ... intangible assets, net ...Deferred financing costs, net ...Other noncurrent assets ...TOTAL ASSETS ...LIABILITIES AND TOTAL DEFICIT CURRENT LIABILITIES Portion of long-term debt due within one year ...Accounts payable ...Salaries and wages payable ...Accrued marketing and advertising ...Accrued...

  • Page 79
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE FISCAL YEARS ENDED (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) January 2, 2016 (52 weeks) January 3, 2015 (53 weeks) December28, 2013 (52 weeks) Service revenues, net ...Product sales and other, net ......

  • Page 80
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE FISCAL YEARS ENDED (IN THOUSANDS) January 2, 2016 (52 weeks) January 3, 2015 (53 weeks) December 28, 2013 (52 weeks) Net income ...Other comprehensive loss: Foreign currency translation ...

  • Page 81
    ... ...Issuance of treasury stock under stock plans ...Tax benefit of restricted stock units vested and stock options exercised ...Cash dividends ...Compensation expense on share-based awards ...Sale of common stock ...Acquisition of Weilos ...Balance at January 2, 2016 ...$ $ 0 0 Total $1,603,513...

  • Page 82
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE FISCAL YEARS ENDED (IN THOUSANDS) January 2, 2016 (52 Weeks) January 3, 2015 (53 Weeks) December 28, 2013 (52 Weeks) Operating activities: Net income ...Adjustments to reconcile net income to cash ...

  • Page 83
    ... to meetings to the Company's monthly commitment plan subscribers, "pay-as-you-go" members, Total Access subscribers and other meeting members. "Online" refers to Weight Watchers Online, Weight Watchers OnlinePlus, Personal Coaching and other digital subscription products. The consolidated financial...

  • Page 84
    ... 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...

  • Page 85
    ... the historical debt-free cash flows 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...

  • Page 86
    ...by reviewing external market data. The cost of debt was determined by estimating the Company's current borrowing rate. As it relates to the impairment analysis for Brazil, the Company estimated future debt-free cash flows in contemplation of its growth strategies for that market. In developing these...

  • Page 87
    ...subscriptions, selling advertising space on its website and in copies of its magazines, ecommerce fees and By Mail product sales. Monthly commitment plans, prepaid meeting fees and magazine subscription revenue is recorded to deferred revenue and amortized into revenue over the period earned. Online...

  • Page 88
    ... fees paid by the Company as part of the establishment, exchange and/or modification of the Company's long-term debt. During the fiscal year ended January 2, 2016, in connection with the prepayment of debt, the Company wrote-off deferred financing fees of approximately $647, recorded a gain on early...

  • Page 89
    ... developing, planning, executing and enhancing the Weight Watchers program and related initiatives, and provide it with services in her discretion to promote the Company and its programs, products and services. Winfrey Purchase Agreement On October 19, 2015, pursuant to the Share Purchase Agreement...

  • Page 90
    ...share. The term sheet, and related terms and conditions, for the Winfrey Option are referred to herein as the "Winfrey Option Agreement". Based on the Black Scholes option pricing method, the Company recorded $12,759 of compensation expense in the fourth quarter of fiscal 2015 for the Winfrey Option...

  • Page 91
    ... Counties, New York franchisee, Weight Watchers of Franklin and St. Lawrence Counties Inc., for a net purchase price of $274 plus assumed liabilities of $1. The total purchase price of the Manitoba, Canada franchisee has been allocated to franchise rights acquired ($28), goodwill ($4,946), customer...

  • Page 92
    ... effect of these items resulted in the Company recognizing a gain of $10,540 ($6,429 after tax or $0.11 per fully diluted share) in the first quarter of fiscal 2014. The fair value of the redeemable noncontrolling interest has been valued at $6,157. In connection with the acquisition, a call option...

  • Page 93
    ... in fiscal 2015. See Note 4 for further information on certain acquisitions. For the fiscal year ended January 2, 2016, the change in the carrying amount of goodwill is due to the Weilos acquisition and the effect of exchange rate changes as follows: North America UK CE Other Total Balance as of...

  • Page 94
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The carrying values of finite-lived intangible assets as of January 2, 2016 and January 3, 2015 were as follows: January 2, 2016 Gross Carrying Accumulated Amount ...

  • Page 95
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 7. Long-Term Debt The components of the Company's long-term debt were as follows: January 2, 2016 Effective Balance Rate January 3, 2015 Effective Balance Rate ...

  • Page 96
    ... the Tranche B-1 Term Facility. On March 20, 2015, the Company accepted offers with a discount equal to or greater than 9.00% in respect of such term loans. On March 25, 2015, the Company paid an aggregate amount of cash proceeds totaling $57,389 plus an amount sufficient to pay accrued and unpaid...

  • Page 97
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) January 2, 2016, borrowings under the Revolving Facility bore interest at LIBOR plus an applicable margin of 2.50%. On a quarterly basis, the Company will pay a ...

  • Page 98
    ...The following table sets forth the computation of basic and diluted EPS for the fiscal years ended: January 2, 2016 January 3, 2015 December 28, 2013 Numerator: Net income attributable to Weight Watchers International, Inc...Denominator: Weighted average shares of common stock outstanding ...Effect...

  • Page 99
    ... common stock for share-based compensation awards from treasury stock. The total compensation cost that has been charged against income for these plans and the Winfrey Option, as applicable, was $24,771, $10,533, and $4,255 for the years ended January 2, 2016, January 3, 2015 and December 28, 2013...

  • Page 100
    ...the Company's Chief Executive Officer (i.e., so that the new stock options would cover a number of shares equal to the quotient of the number of shares covered by the corresponding surrendered options divided by 3.5). The option exchange program was designed to create better incentives for employees...

  • Page 101
    ... the years ended January 2, 2016, January 3, 2015 and December 28, 2013 was $95, $658, and $16,187, respectively. Restricted Stock Units Under Stock Plans Pursuant to the restricted stock components of the Stock Plans, the Company's Board of Directors authorized the Company to enter into agreements...

  • Page 102
    ... 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 year ended January 2, 2016 is presented below: Weighted-Average Grant-Date Fair Value Shares Outstanding at January 3, 2015 ...Granted ...Vested...

  • Page 103
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The difference between the US federal statutory tax rate and the Company's consolidated effective tax rate is as follows: January 2, 2016 January 3, 2015 December ...

  • Page 104
    ... THOUSANDS, EXCEPT PER SHARE AMOUNTS) A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: January 2, 2016 January 3, 2015 December 28, 2013 Balance at beginning of year ...Additions based on tax positions related to the current year ...Reductions for tax...

  • Page 105
    ... Flow Information January 2, 2016 January 3, 2015 December 28, 2013 Net cash paid during the year for: Interest expense ...Income taxes ...Noncash investing and financing activities were as follows: Fair value of net assets/(liabilities) acquired in connection with acquisitions ...Change in Capital...

  • Page 106
    ... of New York. Specifically, the plaintiff is asserting that, as a result of the temporary glitches in the Company's website and app in November and December 2015, the Company has: (1) breached its Subscription Agreement with its OnlinePlus members; and (2) engaged in misleading advertising and...

  • Page 107
    ... information that is presented to the chief operating decision maker, the Company does not include intercompany activity in the segment results. Total Revenue for the Year Ended January 2, January 3, December 28, 2016 2015 2013 North America ...United Kingdom ...Continental Europe ...Other ...Total...

  • Page 108
    ... or transfers among geographic areas and no material amounts of US export sales. Revenues for the Year Ended January 2, January 3, December 28, 2016 2015 2013 Meeting Fees ...Online Subscription Revenues ...In-meeting product sales ...Licensing, franchise royalties and other ... $ 587,801 349,567...

  • Page 109
    ... end of each fiscal quarter (Level 2 input). As of January 2, 2016 and January 3, 2015, the fair value of the Company's long-term debt was approximately $1,682,778 and $1,888,051, respectively, as compared to carrying value of $2,186,573 and $2,358,000, respectively. Derivative Financial Instruments...

  • Page 110
    ...loss). Effective April 2, 2013, due to the Company's debt refinancing, the Company ceased the application of hedge accounting for this swap. Accordingly, changes in the fair value of this swap were recorded in earnings subsequent to April 2, 2013 and were immaterial for the fiscal year ended January...

  • Page 111
    ...income (loss) are as follows: Changes in Accumulated Other Comprehensive Income (Loss) by Component(a) Fiscal Year Ended January 2, 2016 Foreign Loss on Currency Qualifying Translation Hedges Adjustments Total Beginning Balance at January 3, 2015 ...Other comprehensive loss before reclassifications...

  • Page 112
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Fiscal Year Ended December 28, 2013 Foreign Loss on Currency Qualifying Translation Hedges Adjustments Total Beginning Balance at December 29, 2012 ...Other ...

  • Page 113
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) For the fiscal year ended January 2, 2016, the reconciliation of the liability balance for these restructuring charges was as follows: Balance as of January 3, ...

  • Page 114
    ... to the Company totaling $647 for the fiscal year ended January 2, 2016, which services included advertising, production and related fees. The Company's accounts payable to parties related to Ms. Winfrey at January 2, 2016 was $574. 22. Quarterly Financial Information (Unaudited) The following is...

  • Page 115
    WEIGHT WATCHERS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) March 29, 2014 For the Fiscal Quarters Ended June 28, September January 3, 2014 27, 2014 2015 Fiscal year ended January 3, 2015 Revenues, net ...Gross profit ......

  • Page 116
    SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN THOUSANDS) Balance at Beginning of Period Additions Charged to Charged Costs and to Other Expenses Accounts Balance at End of Period Deductions(1) FISCAL YEAR ENDED JANUARY 2, 2016 Allowance for doubtful accounts ...Inventory and other...

  • Page 117
    ..., 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...

  • Page 118
    ... 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 8, 2015 (File No. 001-16769), and incorporated herein by reference). Summary of Non-Employee Director Compensation (filed as Exhibit...

  • Page 119
    ...). Statement of Principal Terms and Conditions of Employment, dated June 5, 2013, by and between Weight Watchers (UK) Limited and Jeanine Lemmens (filed as Exhibit 10.35 to the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 2015, as filed on March 4, 2015 (File No. 001...

  • Page 120
    ...). 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). Option Agreement, dated...

  • Page 121
    ... Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WEIGHT WATCHERS INTERNATIONAL, INC. Date: March 2, 2016 By: /S/ JAMES CHAMBERS James Chambers President, Chief Executive Officer and Director (Principal...

  • Page 122
    ... 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. /S/ JAMES CHAMBERS Date: March 2, 2016 By: James Chambers President, Chief Executive Officer and Director (Principal Executive Officer...

  • Page 123
    ...10.34 Permanent employment agreement Between WEIGHT WATCHERS FRANCE whose registered office is located Immeuble « Le Florilège » 4 allée de la Fresnerie 78330 FONTENAY LE FLEURY, represented by Mr. Clive BROTHERS, acting in his capacity as Managing Director, below called "the Company" ON THE ONE...

  • Page 124
    ...January 2004: MANAGING DIRECTOR Her functions will be as follow (see the definition attached). The work will be executed by Mrs. Corinne POLLIER-BOUSQUET under the authority and within instructions given by her supervisor, Mr. Clive BROTHERS, or other person designated by the Company. CLASSIFICATION...

  • Page 125
    ... Company applicable to the employees, Mrs. Corinne POLLIER-BOUSQUET will not be bound by the schedule applicable in the Company. AWARD - BONUS: Mrs. Corinne POLLIER-BOUSQUET will receive a bonus compliant with the rule in place in the Company applying to the Country Managers of Weight Watchers Group...

  • Page 126
    ... That provision will be effective the following month after her arrival and will remain for the length of the agreement. The car can be used for a personal and professional purpose. The Company will cover all expenses related to the car upon receipt. This provision is a benefit in kind regarding tax...

  • Page 127
    ... direct or indirect act of unfair competition during the agreement. PUBLISHING: Mrs. Corinne POLLIER-BOUSQUET commits not to publish any studies based on works done for the Company or its clients. She also commits not to disclose any information, results of the clients, etc without the prior consent...

  • Page 128
    ... from the Company. NON-COMPETE OBLIGATION: For any reason of termination of the agreement, Mrs. Corinne POLLIER-BOUSQUET commits not to work for any competing firm or to have any interest at any manufacturing and trading of products or services that could compete the activities of the Company. 6

  • Page 129
    ... to be paid for each established breach without any prior notice to cease the prohibited activity. The allocation of the fine does not waive the right of the Company to order under financial compulsion the cessation of the competing activity. GOVERNING LAW - JURISDICTION: The agreement is governed...

  • Page 130
    ... of her functions as Managing Director as from this date. For the execution of her new duties, the Employee will report to James Chambers in his capacity as Chief Executive Officer of Weight Watchers International, Inc, or any other person that may be substituted by the Company. 2. DUTIES AND...

  • Page 131
    ... (the "Annual Bonus"). The Annual Bonus may exceed 45%, if the Company decides that it is appropriate to increase the payment. The bonus is awarded at the sole discretion of the Company . The Employee will also be eligible to be included in the Weight Watchers International (WWI) Stock Option Plan.

  • Page 132
    ... for her own account and that of another person including a supplier, customer, university, association, in connection with the products and activities referred to in section (i) above; except in the case of a prior and express agreement from the Company or the Weight Watchers Group, which could not...

  • Page 133
    ... of the monthly compensation stated above. This penalty will be due for each breach, without prior notice to cease the competitive activity. The payment of this penalty shall not deprive the Company from its rights to sue the Employee for damages due to the economic and moral harm linked to the...

  • Page 134
    ... 15, 2015, by and between Weight Watchers International, Inc. ("WWI" and together with WW France, the "Company") and you (the "Continuity Agreement"). As we recently discussed, in connection with your entering into the Continuity Agreement, and notwithstanding any terms and conditions of the...

  • Page 135
    Kind regards, /s/ James Chambers James Chambers Chief Executive Officer AGREED AND ACCEPTED: /s/ Corinne Pollier-Bousquet Corinne Pollier-Bousquet September 15, 2015 Date

  • Page 136
    ..., 2015, and is by and among, on the one hand, Weight Watchers International Inc., a Virginia corporation, having an address at 675 Avenue of the Americas, 6TH Floor, New York, New York 10010 ("WW"); and Oprah Winfrey, an individual having a mailing address at c/o Harpo, Inc. 1041 North Formosa...

  • Page 137
    ... Oprah Marks, and the OW Image, on or in connection with Materials disseminated in and through the Advertising Channels, in each case, on the terms, conditions and limitations set forth herein. "Weight Management Products" means any business, program, products, services or endeavor related to diet...

  • Page 138
    ... of the Weight Watchers Programs, in connection with performing any or all of the services (as set forth herein), and in connection with supporting and promoting WW, in each case, subject to WW's prior review and approval, as set forth herein. 2.1.4. All Permitted Uses in Materials of each...

  • Page 139
    ... December 2015. 2.2.3. At OW's request, the CEO of WW shall be available to make any in-person presentation and "top to bottom" review and presentation of WW's activities and results no less frequently than quarterly in each annual period. 2.2.4. OW shall be a member of the Weight Watchers Programs...

  • Page 140
    ... supportive of WW and the Weight Watchers Programs. Any public statements by OW regarding diet, weight loss or weight management shall be consistent with any of the Weight Watchers Programs. 3. Term. 3.1 3.2 Initial Term. The term of this Agreement shall commence upon the full execution and exchange...

  • Page 141
    ... respect to diet, healthy living, spirituality, faith, recipes, cooking, lifestyle, foods and food products provided however that to the extent weight loss or weight management is relevant to any such activities, OW may freely address issues of weight loss and weight maintenance, so long as OW does...

  • Page 142
    ...any Weight Management Products other than the Weight Watchers Programs. 5. Non-Disparagement; Ownership. 5.1 Non-Disparagement. Each Party acknowledges the value and goodwill associated with the other Party's Marks and agrees that it will use and refer to the other Party's Marks in a manner designed...

  • Page 143
    ... without use of the Oprah Marks or OW Image, may be included in any New Programs. Ownership of Materials. Any trademarks, service marks, trade secrets, trade names, copyrights, design rights, patents or similar proprietary right that may be created in or in connection with any Materials (including...

  • Page 144
    ... Agreement, and (d) OW shall not make any public statement regarding, or endorsement of, WW, the WW Marks or the Weight Watchers Programs in a manner where such statement or endorsement (i) is false or misleading, (ii) fails to properly disclose (as required by law and using substantially the terms...

  • Page 145
    ...the terms herein, (iii) the negligence or willful misconduct of WW or (iv) any use, advertising or promotion of the Weight Watchers Programs. OW shall indemnify, defend and hold harmless WW and its past, current and future parents, subsidiaries, affiliates, officers, directors, principals, employees...

  • Page 146
    ... claims based in contract, statute or tort) arising out of or relating to this Agreement, its interpretation, validity and enforcement shall be governed by, and construed and interpreted in accordance with, the law of the State of New York applicable to contracts made, and to be performed wholly...

  • Page 147
    ...) 407-4000 Attn: Marc Chamlin, Esq. [email protected] If to WW: Weight Watchers International, Inc. 675 Avenue of the Americas, 6TH Floor New York NY 10010 Telephone: (212) 817-4277 Attn: General Counsel E-Mail: [email protected] with a copy to: Katten Muchin Rosenman LLP 575 Madison...

  • Page 148
    ... and actual sales, communications, advertising and promotional strategies and business plans for marketing the Weight Watchers Programs developed by WW or in collaboration with OW in contemplation of and during the continuance of this Agreement shall be considered Confidential Information owned by...

  • Page 149
    ... the subject matter of this Agreement shall be governed and controlled by this Agreement; provided, however, that any right relating to OW's position as a member of the Board of WW shall be governed and controlled by the Other Agreements and nothing in this Agreement shall prevent OW from enforcing...

  • Page 150
    ... for the benefit of others, solicit any key employee of the other to terminate his or her employment or hire any key employee of the other for a period of one (1) year following the termination of said employee's employment. 10.14 Counterparts. This Agreement may be executed in multiple counterparts...

  • Page 151
    IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. WEIGHT WATCHERS INTERNATIONAL INC. By: /s/ James R. Chambers Name: James R. Chambers Title: Chief Executive Officer OPRAH WINFREY By: /s/ Oprah Winfrey Name: Oprah Winfrey 16

  • Page 152
    Exhibit A WW Marks WEIGHT WATCHERS and such other related trademarks and service marks as may be authorized by WW. 17

  • Page 153
    Exhibit B Oprah Marks OPRAH, OPRAH WINFREY and such other related trademarks and service marks as may be authorized by OW. 18

  • Page 154
    ... WeightWatchers.nl B.V., incorporated in Netherlands 58 WW Food Corp., incorporated in New York Weight Watchers Camps, Inc., incorporated in New York Weight Watchers Foundation, Inc., incorporated in New York W.W.I. European Services, Ltd., incorporated in New York W.W. Weight Reduction Services...

  • Page 155
    ...Kingdom Weight Watchers Supply Company Limited, incorporated in United Kingdom Weight Watchers International Holdings Ltd., incorporated in United Kingdom Weight Watchers UK Holdings Ltd., incorporated in United Kingdom Weight Watchers (U.K.) Limited, incorporated in United Kingdom WeightWatchers.co...

  • Page 156
    ...Weight Watchers International, Inc. of our report dated March 2, 2016 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K. /s/PricewaterhouseCoopers LLP New York, New York March 2, 2016

  • Page 157
    ... 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. /S/ JAMES CHAMBERS Date: March 2, 2016 Signature: James Chambers President, Chief Executive Officer...

  • Page 158
    ... 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...

  • Page 159
    ...ACT OF 2002 In connection with the Annual Report on Form 10-K of Weight Watchers International, Inc. (the "Company") for the fiscal year ended January 2, 2016, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, the undersigned officers of the Company, certify...